Is It Safe to Invest at Just One Brokerage? https://www.wsj.com/articles/SB10001424127887324747104579025130705189904 Is It Safe to Invest at Just One Brokerage? The answer, most financial advisers say, is yes. But there are no guarantees. By Anna Prior Oct. 6, 2013 4:50 p.m. ET There's a lot to be said for consolidating investment accounts under a single brokerage roof: It allows for easy management and maybe more attention or discounts from the firm. JOURNAL REPORT Insights from The Experts Read more at WSJ.com/WealthReport MORE IN INVESTING IN FUNDS & ETFS Get Your 401(k) Ready for Retirement How to Look Under a Hedge Fund's Hood New IRA Rules for Same-Sex Married Couples Spouses, Have the Money Talk But financial advisers say some people to whom they suggest the move are leery. "Some investors will say they want to spread their money between several brokers, that they don't want to put all of their eggs in one basket," says Frank Boucher, a certified financial planner in Reston, Va. Concerns about sticky-finger brokers or a firm going under are understandable, with memories still fresh of Bernard Madoff's more than $60 billion Ponzi scheme and the collapse of commodities brokerage MF Global Inc. Still, advisers and other financial specialists say there are numerous protections in place for investors. Layers of Protection For starters, mutual funds and exchange-traded funds have some built-in safeguards. They are required to place their assets with third-party custodians for safekeeping, and regulations require the custodians to segregate the funds' assets from other assets held by the custodian. https://si.wsj.net/public/resources/...1001120353.jpg The Securities Investor Protection Corp., headed by Stephen Harbeck, can step in when a brokerage fails. BLOOMBERG NEWS So, while a fund may be in the name of Vanguard Group or T. Rowe Price Group Inc., for instance, the underlying securities are held by a custodian to protect the fund investor. Vanguard uses firms including J.P. Morgan Chase & Co., State Street Corp. and Bank of New York Mellon Corp. Further, "the fund and the fund service company are separate legal entities, and the fund's assets aren't available to the creditors of the service provider," in the event that the provider goes under, says Vanguard principal Barry Mendelson. At the securities-firm level, one fairly common misconception is that the investment firm itself has some claim on the investors' assets, when in fact assets in client accounts strictly belong to the clients and legally must be kept separate from the company's own assets. Another layer of protection is the Securities Investor Protection Corp., a nonprofit, nongovernment corporation funded by member securities firms. SIPC acts as protection for investors if the brokerage firm holding the investors' assets fails and there are cash and securities missing from customer accounts. Generally speaking, stocks, bonds, mutual funds and other registered securities are covered, while unregistered limited partnerships, foreign currency, fixed annuity contracts, and commodity options and futures contracts aren't covered. (SIPC doesn't protect investors from declines in the market value of their securities, even in cases where the decline in price is the result of fraud, notes SIPC President and Chief Executive Officer Stephen Harbeck.) And there is a limit to how much SIPC will cover—the corporation will reimburse investors up to $500,000 per account holder per account type, with coverage of cash limited to $250,000 per account. (Protection is in addition to any prorated share of assets investors may receive from the failed firm, if that share is insufficient to cover the loss.) Many brokerage firms also provide additional protection beyond SIPC's limits through private carriers—typically called "excess SIPC" coverage. Maximum amounts vary by firm. Payment isn't instantaneous. If the debtor firm's records are accurate and another brokerage firm is willing and able to accept an account transfer, a trustee may be able to transfer assets, supplemented with SIPC funds as necessary, in a week to 10 days. If there are complications, the process can take months. Madoff and MF Global Madoff clients with under $875,000 have already been paid in full, says Mr. Harbeck. Those with multimillion-dollar claims have received 43% of their claim back plus the additional $500,000 from SIPC, Mr. Harbeck says, and will share in any additional assets recovered by the trustee and his counsel. Not including the continuing Madoff case, from 1970 through 2012, only 351 people haven't received the full amount of their assets left with a collapsed SIPC-member firm, according to SIPC. That's because the investors' claims in those 351 cases exceeded the SIPC maximums and the amount of available customer property. Still, says Mr. Harbeck: "You can't say there's absolutely no risk. You just can't." MF Global, meanwhile, had both commodities and securities customers. The securities customers were virtually made whole within a few months, said a representative for the court-appointed trustee. The commodities customers trading on U.S. exchanges, however, don't fall under SIPC, but have received 98% of their claims so far. Overcoming Anxiety While there's no way to completely remove institutional risk from the equation, many advisers say that the benefits that come from account consolidation in many cases should outweigh fears of broker malfeasance. Washington Wealth Management Chief Executive Rob Bartenstein, in San Diego, says he doesn't typically recommend that the average investor split assets in order to hedge institutional risk, noting that modern history "demonstrates that the risk of loss is relatively low in these scenarios due to regulatory oversight and intervention, adequate insurance and other backstops." Michele Royalty, 66, of Mammoth Lakes, Calif., a recent retiree from the pharmaceutical industry, says she had some initial apprehensions about consolidating all of her investments. Still, Ms. Royalty—an active do-it-yourself investor—says she decided to move all of her accounts to Fidelity Investments, primarily because the ease of management outweighed her concerns. "My setup is a lot simpler," she says, adding that it will also be much easier for her heirs to manage. Ms. Prior is a staff reporter for The Wall Street Journal in New York. Email her at anna.prior@wsj.com.
No, it depends. If you have a margin account, most often the positions will be held in the name of the broker. In a cash account it is generally held in the name of the account holder.
On the futures side, I recall a few: Refco: Collapsed Oct 2005. Trading accounts acquired by Man Group. MF Global: Collapsed Oct 2011. Jan 2013 judge approved a settlement returning 93% of investments. PFGBest: Collapsed 2012. Dec 2014: 44% returned to clients. Of course there's all sorts of "open position" risk involved during a collapse...
So if you have a margin account, all of the Treasury Bonds/Bills that you've bought are held in the name of the broker?? Surely the portion that you bought with your cash should belong to you? It's like buying a house with a mortgage. The house is still in my name even though I bought it with a 70% or 75% mortgage, the highest ever margin rate on a purchase of an asset if you think about it. The bank might have a lien hold on it but the deed of the house is in my name. The purchase of the Treasury Bonds/Bills should be the same thing, no?
%% Excellant practical article; but the Madoff fraud was in his ''asset management'' Not in brokerage or NasdaQ, which he ran for some time. Risk of majors like SCHW or IBKR, Fidelity, Vanguard seems small. HOOD maybe ok dont keep up with them. BUT even 2 broker seems more like one basket of eggs with a border between them; unless one of them was 100% in money market. Margin position is a whole different level of risk. AMTD founder noted he had to auto sell some margin accounts in a bear market. But some clients got a FDX letter margin call, by the time they gotten FDX letter , market had turned a round + no auto liquidation
Any securities held in street name are moved to another broker. Cash is insured by SIPC . But that only kicks in if there is fraud. even in 2008, nobody lost money other than pure investment losses not worth wasting energy on.