Should We Diversify Brokerages?
Posted on March 26, 2007 by Him and tagged investments, retirement, roth ira
Our retirement holdings will soon be with three different brokerage companies. Her's 401(k) is stuck with who manages it for her company, but the Roth IRAs can all be moved from one brokerage to another. The question is, why would we want to?
I bring up this question because I'm in the process of moving my SIMPLE IRA (here's why I'm doing this) to Vanguard. Her's Roth IRA is at Vanguard, mine is at Fidelity. I originally wanted to move my SIMPLE IRA to Fidelity to have all of my accounts in once place, but they don't allow "orphan" (just me, not my whole company) SIMPLE IRA accounts. After a little research, I found out that Vanguard, T. Rowe Price, and Schwab all allow orphaned accounts. Since Her's Roth IRA is already with Vanguard, I decided to keep everything streamlined and go with them. I never even considered other places to move my SIMPLE IRA such as a discount broker.
The main reasons I decided to move money over to Vanguard is that I wanted to take advantage of their low-cost index funds and simplify our financial lives. I can't help but wonder, is the grass greener on the other side? Am I missing out on anything by keeping our retirement funds in only a few places? What reasons would I want to have multiple brokerages?
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Are you asking if it makes sense to diversify brokerages just for the sake of diversifying? No, it doesn't. If you are asking if different brokerages have advantages/disadvantages that you may want to take advantage of/avoid in certain accounts, then the answer is yes.
Myself, I am perfectly happy with Fidelity, and I would have all my accounts there if I was allowed to. Unfortunately, I'm not, so I am stuck using multiple brokerages.
For active traders it makes sense because if one broker's system goes down you can use another. You can effectively close a long position for example by shorting it in a different account.... I've never actually done this in practice though it's nice for me to have a live data feed from somewhere.... I also like the different tools my two US brokers (Ameritrade and Interactive Brokers) give me. But all this is irrelevant to the long term investor. Ameritrade though charges $50 to invest in most mutual funds. Investing directly cuts that fee. So I also have an account with a firm called TFS Capital. One last reason might be fraud though hopefully you can get your money back if someone breaks into your account.... My Roth IRA is with Ameritrade. I don't want multiple Roth IRAs and they give me more options than going with a single mutual fund company. Then I have Australian accounts....
John | Mar 28, 2007
We address our retirement accounts in aggregate and use the strengths of each broker.
Long term stuff: My work 401K is all stock and goes in biweekly for dollar cost averaging (I believe I can rollover 50% to a traditional IRA every year.) We have a new manager this year and the fees are now published--they are so-so to terrible! I want to use the account for regular contributions but take out as much as possible.
My wife's Roth IRA: She's very risk averse so I directed her to Vanguard's excellent money market funds. It's the conservative portion of our portfolio.
My Roth IRA: Scottrade for low costs, local offices, and a decent enough selection of mutual funds. I buy bond-oriented mutual funds and Vanguard ETFs. ETFs can be purchased anywhere so they should be purchased through the cheapest broker. Scottrade sucks for money market rates though.
There is NO REASON to invest core retirement funds outside of Vanguard (or their ETFs). Read up on the long term impact of high management fees...then you'll switch to mostly Vanguard. Scottrade is a lot more flexible for buying non-Vanguard stuff, so the combo works great.
Be aware that many dirt cheap online brokers exist, like First Trade, Zecco, MB Trading, etc. I wouldn't pick them for a primary account, however. (Something about long term stability...)
Miserly Bastard | Mar 26, 2007
The only reason I can think of to diversify is so that you can do free exchanges into/out of certain families like Fidelity, T Rowe Price, Vanguard, etc.
That said, we have chosen to not diversify and to keep all our assets at a single brokerage firm, because it makes it easier to see all of our money at once, and also b/c of the amount of assets we have, we qualify for free trading.
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