Who feels it necessary to keep their securities distributed among several brokerages?
 

Recently I picked up a book by Charles Schwab, 'Invested'.

To say it was an eye opener is an understatement. It starts with why and how he got into discount brokerage as one of its pioneers. It then goes on to report the ups, downs and very scary times his company went through. I had no idea!

I know many people, particularly those who trade a lot, use Schwab. Although I have kept a small account at Schwab for years I rarely used it. Then last year and earlier this year I sold a couple commercial real estate properties and deposited the proceeds into Schwab, primarily because I wanted to put it into T-bills. Schwab allows a retail investor to buy and sell them whereas the other two brokerages where I have historically kept most of my securities do not.

Then, surprise, surprise, I started getting phone calls from a Schwab 'Advisor' which I ignored for a time. Eventually I returned a call just to let him know I existed. When he discovered I was not a newbie and had other accounts he urged, just short of insisted, I transfer them to Schwab. I declined and told him I had a pretty good memory and remember Lehman Bros. and others which he seemed to grasp. I thereafter discovered Schwab at that time held some long term treasuries which were destined to go down as interest were rising so I still feel a little skittish about it all.

Anyway after reading this book to sleep at night I feel I need to continue to keep my securities distributed among several wirehouses and wonder if others feel the same.

I’ve been wondering about this, too.
Hope there is some good discussion….

I use Vanguard Investments and Fidelity Investments. Stock, bond, and money market mutual funds. No individual stocks or bonds.

I use Vanguard, too. For both historic and recent reasons I will not use Fidelity. I use Ameriprise too because I have had several entity accounts with them going back to their 1980s days as Olde Discount. They charge a small brokerage fee but I rarely buy or sell.

The book I cited reveals how ridiculously high various fees were charged retail customers before May Day 1975 when discount brokers started to come into the picture.

Looking for good performing funds we use several families

Go with index funds. They are cheap and effective. Vanguard S&P 500 Stock Index fund, Vanguard Short Term Bond Index fund, and Vanguard Total Bond Market fund. I also have some money in the Vanguard High Yield Corporate Bond fund.

Fidelity and Vanguard are our companies as well.

Care to elaborate?

I find Fidelity superior to Vanguard in just about every metric except expense ratios on money market funds (which leads to sightly lower yields).

We have been with Vanguard. Not too long ago. we opened some accounts at Fidelity. I was getting concerned about the SIPC insurance covering our accounts or "separate capacities" at Vanguard. I was also interested in sending international bank transfers, for which Fidelity doesn't charge.

I like Fidelity's platform much more than Vanguard's, but the sweep accounts and money market funds earn more at Vanguard. I also favor a couple of Vanguard's funds.

I don't know if it's still true, but I found that Vanguard will not let you designate beneficiaries for a joint account, while Fidelity allows it.

Same here

Objectively, the probability of Schwab, a large NYSE listed firm, failing to make its investment account holders whole is very remote.

First, in the hierarchy of who suffers losses, stockholders loose first. Investment account holders like you loose only after stockholders.

Second, practically speaking, the U.S. government and Federal Reserve would not let the account holders loose for policy reasons because Schwab’s failure would cause a global financial crisis like we have never seen.

Third, Schwab has about $512 billion in assets as of June 30, 2023 (latest data available) and the market value of its common stock today is about $110 billion. Of the $512 billion in assets, $73 billion is cash and equivalents and $295 billion are in investments. Those investments would need to fall in value by roughly 1/3 (very unlikely) to take out the stockholders first and then get to account holders.

Psychologically, if you feel much better diversifying your assets across multiple financial institutions, then do it. If you can’t sleep at night and excessively worry over having your investments in one place, diversify.

Putting money in diversified investments
 

I have some investments in Schwab but prefer Vanguard as my primary. I follow Dan Weiner as an investment advisor. He is smart, knows alot about Vanguard and doesn't charge much.

Prior to China virus I interviewed Vanguard, Trowe Price, Fidelity and American Century to discuss consolidating my accounts I had with each. Went to the Big V mostly due to their low expenses and plenty of solid funds both Bonds and Stocks. Now holding on for a new US administration and market upturn

I have just been transferred to Schwab from TD Ameritrade as of September 1st. So, no experience with them yet. I will keep roughly 50/50 between them and Fidelity. No institution is big enough not to fail as we have seen in the past.

My view has always been that even though it is good to get advice from others, when it come to your finances, no one is going to track your money as well as you will. The only advice I would give is to sit down and decide what type of return you want from your investments.

I use two brokerage firms. I would never feel comfortable having all funds in just one. Little inconvenient but you never know what could happen with a given firm. Even if it doesn't have financial issues, it could get hacked. Glad you asked this question. Looking forward to the replies.

True, but in theory, if Vanguard or Fidelity were to go bankrupt, the mutual fund shareholders would not lose money. That is because the shareholders are the actual owners of the stocks and bonds that make up the mutual fund. Vanguard and Fidelity are just managing the assets, they don't own them. Note that this is not true for insurance companies that sell annuities.

Why
 

Why? You want more than one adviser, that is if you like them that much, or tools they have. Thinking of getting tipranks - just have Fidelity but use Morningstar & yahoo finance tools more

Thanks Spinner1001 for this explanation of Schwabs situation.
My financial advisor invests my funds through Schwab. I am really happy with him, but have been uncomfortable with some of the things I’ve been reading about Schwab.
They’ve tied up billions in some long term investments that are now suffering.
Your explanation put those $$ in perspective.

I have Schwab accounts, but never actually open one. Decades ago, they bought the deep discounter I was using and recently they bought TD Ameritrade. I'm trying to decide if I want to convert my Fidelity 401K to an IRA for more flexibility. If I do, I may keep that with Fidelity.

It is a good idea to convert the 401K to an IRA. That is the first thing I did when I retired. Lower fees and more control and flexibility.

I have 3 different financial firms. I never talk to Schwab ( not a lot $ never touch it), the other two Wells Fargo and Morgan Stanley do periodically try to get me to consolidate with them. Won’t do, remember Madoff?

There are a few reasons why you should spread your investments across different brokers. Among these are whether the broker handles/specializes in the type of securities you want to invest in, such as municipal tax free bonds or the broker who is handling your account seems to have more knowledge in the areas you invest in. Individual brokers within a firm increase their status by the size of their book - how much money they have under management.

Protection against bankruptcy or money missing from your account is insured by the SIPC - the SEC's equivalent of banking's FDIC.

This thread is confusing and most don’t get it. The OP was talking about Schwab as a brokerage, nothing to do about the thousands of stocks/funds/etf’s you can buy from any brokerage. Some posters believe they have to join vanguard to purchase vanguard funds, or fidelity to buy fidelity funds, which is not true. Most of my holdings are vanguard index funds which I purchased thru Schwab.

When has anybody investigated how their monies/funds are protected if a disaster hit the brokerage? I did years ago, and the way Schwab has developed their way of doing business protects us investors just in case something happens to them. I’d advise people to inquire each of the brokerage houses to see which 1 in their eyes provides the most security for your money/investments.

I have been with many brokerage firms because of 401k’s, ira’s, rollovers for decades and the tools at Schwab are 1 of the best for doing my investing, I don’t use anybody to invest for me, I do everything myself. Years ago, I rolled everything into multiple accounts under Schwab and couldn’t be happier.

I wouldn't worry about keeping your investments distributed among Vanguard, Fidelity and Schwab. You are insured up to $500k (250k cash) per account (IRA, individual, joint) and in virtually all cases if a brokerage firm ceases to operate, customer assets are safe and usually just transferred to another registered brokerage firm.

The fees would not be much lower in my case.

I reason I stay is that I read that a 401K offers more legal protection than an IRA would. I hope someone will correct me if I am wrong on that aspect.

Isn’t insurance per institution not account type?

FDIC: Your Insured Deposits.

I like the Schwab trading platform the best among those I have used. I have been buying T-bills since interest rates have risen and used only Schwab for that. Nonetheless Schwab's book, mentioned in the OP, was an eye opener about the treacherous path the wirehouse has led since its founding. Most recently it was caught holding low interest long term treasuries when the Fed started raising its interest rate.

"Longer-Term Bond Holdings
Schwab has been caught in the crossfire of the current banking crisis because of its large holdings of longer-term bonds. The concern is Schwab might be forced to sell them at a loss to try to cover client withdrawals, a scenario that led to the collapse of Silicon Valley Bank."

From: Charles Schwab Shares Slump.

"Pain can be a powerful teacher. In one poignant section of the book, Schwab tells the story of a perilous client, Teddy Wang, a Hong Kong real estate tycoon, whose overextended accounts nearly sank Schwab’s company during the stock market crash of 1987. At the nadir, Wang owed the firm $126 million, according to Schwab. (The two parties eventually reached a $67 million settlement.) After that trial by fire, Schwab put in place controls that would be invaluable when the dotcom and housing bubbles burst years later. “So much of what the Charles Schwab Corporation has since become I trace to what we learned from that singular event,” Schwab says."

From: Charles Schwab on the Lessons He’s Learned Over a Lifetime of Investing | The WealthAdvisor

Anyone else remember Drexel Burnham Lambert? Drexel Burnham Lambert - Wikipedia

or Salomon Brothers? Salomon Brothers: History of the Investment Bank

and as cited in the OP, Lehman Brothers. The Collapse of Lehman Brothers: A Case Study

I personally got stung by this outfit trading commodity options. Fortunately I made it back trading commodities for a brief period and got out, having learned my lesson. Goldstein, Samuelson, Inc - Wikipedia.

The first three organizations in your post were investment banks. Schwab isn’t.

The fourth organization main business was options trading. Schwab isn’t.

Schwab is regulated, operated, and financed differently from those four so account-holder risks are not comparable. Schwab is a very different kind of company than those four others.

Anyone who wants to learn more about the different kinds of financial services companies and kinds of risk each one has might read the outline at the link below, which is pretty good overall.

Moral of the story: Don’t compare apples and turnips. It’s complicate.

Financial Services Risks

That is comforting, I hope... however from reading about the ups and downs his company has experienced since its beginning as revealed by Charles Schwab himself in his book I prefer to keep my securities spread among several wirehouses (including Schwab). I am sure every brokerage company has a history of ups and downs. After all, black swans and other unexpected events do occur from time to time.

Teddy Wang was trading naked puts at Schwab.

Online Options Trading | Charles Schwab

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I concur completely. Fidelity's systems and flexibility with trading orders make it far superior to Vanguard. Vanguard has a few less expensive and broader index options but FIdelity has been quite competitive in this category. As a plug to Schwab, I have all three and find Schwab and Fidelity basically tied in almost all categories. Do NOT accept Schwab's fee-based Robo-Adviser program. They recently had to pay a fine for providing advice not in the customer's best interest. It's not that complicated to do yourself. For most client needs, set your allocation, then come back annually to see whether it's still in balance. Switch some from stocks to cash or bonds if Stocks become more than 5% more than target allocation. Do the reverse after a major selloff, invest some cash to buy stock. Holding lowest-cost index funds is definitely the best way to go.

Over the years I've had an investment account with Schwab, a separate IRA account with Schwab, and another investment account with TD Ameritrade. Schwab recently bought out TD Ameritrade, so now I have all my eggs in one basket again. Guess I'll start looking for another alternative.

I agree no institution is too big nor too solid to fail. Using more than one well regarded investment institution (but not necessarily many) seems prudent. As does reading the ongoing ratings and reviews for yours and other institutions. Adjust as needed. Even Schaub gets some negative mentions. Long on T bill is one.

Beyond that diversification is about various types of investments not necessarily the differing institutions. That mix is personal and certainly ebbs and flows with the economy. No one (not even WB) is likely to get it right all the time. Good luck and reasonable ROI!

We have been with Schwab for years and really think they are one of the best. We can use online or talk with our personal or any adviser. They have always been very good with their advise depending on our needs. I would recommend them.

If you read the information in your link, you would have found the answer. I took the time to find the appropriate example in your link. Go to example 7; it's almost at the end.

This link will help explain your question and many of the other posts in this thread.

If a Brokerage Firm Closes Its Doors | FINRA.org

I believe the Teddy Wang story with Schwab occurred in 1987 during the big October market crash unless there was another event.

I know that regulators have greatly increased oversight and regulation since the 1987 crash. Larger financial institutions now have risk management departments and risk management is even an established profession which is quite technical.

Regardless, diversify holdings across financial institutions if concerned.