Brokerages

[Caversham]

My current brokerage, Capital One Investing (formerly Sharebuilder), was recently bought out by E*Trade meaning my account will be moving to E*Trade later this year.  I've never used E*Trade and don't have anything against them, but I figured if I'm being forced to change brokerage companies I might as well consider all of my options.

So which brokerage do you use?  What do you like about them?  What do you not like about them? etc

My current requirements are:
1) Free, fractional share DRIP
2) Reasonable fees


I have a Fidelity account that currently only holds some legacy mutual funds (prior to my DGI investing).  I'm hesitant to move money into this account as I would probably be hitting SIPC limits within a ~5 years.

I've looked into Merrill Edge which, if you qualify for the Preferred Rewards program, seems like a great deal.  It provides more free trades than I could ever use; and with a BofA credit card I'd get bonus cash back (1.75% instead of 1%) if I redeemed that cash back into my brokerage account.

I've looked into Interactive Brokers.  They certainly have low fees, but my understanding is they don't have fractional share and free DRIP, which rules them out.

[ChadR]

E*TRADE is who I use and they have free, fractional share DRIP. Cost is $6.95 per trade so the fees aren't too bad. I've never had a problem with them and I have 4 different accounts with them (ROTH, wife's ROTH, Traditional IRA, and brokerage account).

[Kerim]

(02-02-2018, 01:13 PM)Caversham Wrote: I'm hesitant to move money into this account as I would probably be hitting SIPC limits within a ~5 years.

Surely the big firms have figured a way around this? Hard to imagine they'd just sit by and watch every client with more than $500k take the excess elsewhere?

[Caversham]

(02-02-2018, 02:19 PM)Kerim Wrote:

(02-02-2018, 01:13 PM)Caversham Wrote: I'm hesitant to move money into this account as I would probably be hitting SIPC limits within a ~5 years.

Surely the big firms have figured a way around this? Hard to imagine they'd just sit by and watch every client with more than $500k take the excess elsewhere?

I believe most brokerages have extra insurance in addition to SIPC.  

However, my concerns are larger than just SIPC. Primarily,  a single broker means a single point of failure.  What if there is another financial collapse and the company providing that extra insurance goes bankrupt and can't pay?  What if there is an asset run and my single broker freezes all asset withdrawals for a prolonged period of time? etc.

Those concerns might be a little tin-foil hatty, but it makes sense to me to diversify brokerages for the same reason we diversify stock holdings.

[crimsonghost747]

(02-02-2018, 07:00 PM)Caversham Wrote:

(02-02-2018, 02:19 PM)Kerim Wrote:

(02-02-2018, 01:13 PM)Caversham Wrote: I'm hesitant to move money into this account as I would probably be hitting SIPC limits within a ~5 years.

Surely the big firms have figured a way around this? Hard to imagine they'd just sit by and watch every client with more than $500k take the excess elsewhere?

I believe most brokerages have extra insurance in addition to SIPC.  

However, my concerns are larger than just SIPC. Primarily,  a single broker means a single point of failure.  What if there is another financial collapse and the company providing that extra insurance goes bankrupt and can't pay?  What if there is an asset run and my single broker freezes all asset withdrawals for a prolonged period of time? etc.

Those concerns might be a little tin-foil hatty, but it makes sense to me to diversify brokerages for the same reason we diversify stock holdings.

I don't think it's paranoid at all.
There are a million things that could happen.. now I don't think you'll be at a risk of losing your money as long as it's covered by a government that isn't completely broke... (for the US guys.. who knows about yours :p )

But having access to your money is another thing. Cybercrime is getting bigger and bigger, a lot of options there to cause delays. What if the broker does go bankrupt? Yes the government will give you back your money... but when? I don't know if there are any rules but I can bet it's not the day after.

I currently don't have to worry as all my accounts are well below the levels covered by the appropriate government. But if I ever do start to get to those levels, then it's pretty much time to open a secondary account. And even now I have bank accounts in two different banks... again I'm not worrying about losing the money, rather about not having access to it for a number of days.

Next step is to have both a visa and mastercard in my wallet, because it's a pain in the ass when one doesn't work. :p

[ronn38]

I'm in the same boat as you (though I already split between 3 accounts so SIPC isn't an issue). I chose to go with Fidelity, $4.95 trades and they seem to have a good amount of research available on the platform. Though I hadn't considered ML--might look into them!

Ronn

[MarcN]

Warning: long post below.

I have been thinking about that question for a while. Should we keep all of our investments with the same brokerage firm, especially when they get closer to the SIPC limit? Here are some of my observations after reading on the subject:

1) When you buy stocks through a brokerage firm, the stocks are in "street name", meaning it's the name and address of the brokerage firm that appear in the company's books, not yours.

2) What actually happens if your brokerage firm goes bankrupt? Information found on the web is not completely clear on the subject, and it is even contradictory sometimes. My understanding is the following (I may be wrong though): If you can give proof of ownership by providing your transaction records, you should be fine.

3) Most major brokerage firms have SIPC insurance, which is $500,000 for stocks. That SIPC insurance comes into play if you cannot prove ownership of stocks or in case of fraud.

4) It is true that some brokerage firms have additional insurance on top of SIPC. However, that additional insurance represents only a fraction of the customers’ assets. For example, for Fidelity: “Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion”. However, total customers assets for Fidelity is $6.2 TRILLION!

5) It is unlikely that your brokerage firm will go bankrupt. However, the same could have been said for some of the financial companies that went bankrupt in 2009 and for MF Global in 2011.

6) One factor that may help you choose a brokerage firm could be its credit rating (or the rating of its parent company). I have looked at them for you:
Scottrade: Fitch: BBB- Moody:Baa3
Fidelity: Fitch: A+ S&P:A+
Charles Schwab: S&P: A+
TD Ameritrade: Moody: A2 S&P: A
E-Trade (ETFC): S&P: BBB
Merril Edge (Bank of America company): S&P: A-
Ally Invest (Ally Financials): S&P: BB+
Interactive Brokers LLC: S&P: BBB+
TradeStation (Monex Group inc.): Japan Credit Rating Agency, Ltd: BBB
The Vanguard Group: could not find

Based on these credit ratings, one may give preference to Fidelity, TD Ameritrade, Schwab, Interactive Brokers and even Merril Edge (if you can trust Bank of America).

7) One should take these credit ratings with a grain of salt. We can look at MF Global story. It was a derivatives brokers (not a discount brokerage firm). Its credit rating was still investment grade (BBB-) until a few days before it went bankrupt in 2011.

My personal conclusions:
- It is unlikely that the major brokerage firms will go bankrupt any time soon. However, it is not impossible.
- I need to find someone knowledgeable and trustworthy to confirm #2 above. If keeping good records is enough to avoid losing your stocks ownership, then a second brokerage firm should not be necessary.
- I need to keep better personal records of my transactions.
- I am still thinking about using more than one brokerage firm.
- I will consider the firms’ credit ratings as listed above to help me choose.

Additional questions for which I could not find satisfactory answers:
1) Let’s say Fidelity goes bankrupt, and it must rely on SIPC insurance for many of its clients. Would SIPC have enough funds for all of Fidelity’s 26 million customers??
2) Where does SIPC money really come from?

Marc

[DividendGarden]

I use Schwab and love them.

[rayray]

I guess, if one wants to protect their security assets the best to their ability, would to keep all their security shares/records of ownership in a safe deposit box at a bank, if one doesn't feel confident enough with the brokerage they use. I suppose the bank can get robbed or burn down, so, duplicates would be wise if that worried.

I use Fidelity, all cash accounts waiting for security deployment are secured up to 1.9 million dollars (the lawful limit) under SIPC rules. No limit on actual security amounts. For FDIC covered accounts, 245k is placed in bank one, the next amount is kept in bank two, then bank three, bank four etc etc etc up to 1.25 million dollars. However, at one time it said 5 banks, but the last time I looked it said 10 banks so maybe the amount is now 2.5 million? A list of banks Fidelity partnerships with can be found on their website. Between FDIC/SIPC a client is well covered if something really really bad happens. We're talking about millions of dollars of coverage per client. These coverages are paid out assuming your brokerage cease to exists and is no longer in business, if the brokerage is still in business at some capacity, nothing is paid out to the client because it's still in business and you have access to your funds. Assets have to go missing for coverage to kick in.

Personally, I trust Fidelity more-so then myself...If I have that much money....well...then it's Gueten Morgen or Bonjour my Switzerland friends : )

[lucas03]

Anybody heard about firstrade.com? I have just found out about it and looks like they have zero commission, offer DRIP and allow international accounts. I am a bit confused about this statement:

Quote:Do I qualify?

You may sign up for an international account if you are not a U.S. citizen or permanent resident, do not have a Social Security Number or Tax-ID Number, and do not live in an unauthorized country.*

List of Authorized Countries

    China
    Taiwan
    Hong Kong
    Macau
    Japan
    Mexico
    New Zealand
    Singapore
    Korea, Republic of (South)
    Israel

Didn't find a list with unauthorized countries, and only these few are authorized?