What brokerages are you using and why?

[clacy]

I would love to hear a discussion of pros and cons related to which brokerages the posters on this site are comfortable holding their assets in and why.  I'm definitely a novice when it comes to various protections and risks associated with the major brokerages. 

For instance, is Scottrade safe and why?

Is Vanguard the safest and why?

Is there a difference between Vanguard's brokerage and their funds in regards to safety?

Could an MF Global situation happen at brokerages like TDameritrade, Schwab, Fidelity, Scottrade, etc?

[AdamA]

I would love to hear a discussion of pros and cons related to which brokerages the posters on this site are comfortable holding their assets in and why.  I'm definitely a novice when it comes to various protections and risks associated with the major brokerages.  

I have thought a lot about this, and I think the answer is that there is really no way to know for sure how safe any brokerage is, and I don't think there is really a scientific way to prove that one firm is safer than another.

I think that firms like Vanguard and Fidelity are probably safer than others for a few reasons.

1.  They're big.
2.  They're old.
3.  They, especially Vanguard, have reputations for safety that will probably make them a lot more money
in the long run than any short term shenanigans they may engage in to earn a quick buck.  In other words, they stand to lose a lot more than they would gain from doing anything shady.  

Could an MF Global situation happen at brokerages like TDameritrade, Schwab, Fidelity, Scottrade, etc?

Yes!  It could happen to any bank or brokerage.  There's simply no way to know.  There could also be natural disasters, computer failures, or any number of other random catastrophes that could interfere with record of your investments.  So...DON'T USE JUST ONE!!!

[craigr]

Vanguard is interesting because the funds are not owned by the management company. The funds are owned by the shareholders and the shareholders pay the managers. This is very unique in the industry and makes it harder for funny business to go on. They also are based in Valley Forge, PA which is a good distance from the financial hub NYC. I kind of like the fact that they aren't in a big financial hub geographically.

Other firms all have plusses and minuses. The larger firms are all probably about the same. Fraud can happen anywhere, just make sure they have SIPC coverage and you are under the limits.

But yes it's a good idea to use more than one firm just in case something very bad were to happen at one of them. You don't want to be in a situation where you are locked out of all of your money while things are straightened out.

[foglifter]

I use Fidelity for about 70% of our retirement and taxable money, the rest is in my 401(k) which has been moved by my employer from Fidelity to Insperity to MassMutual over the last 4 years.

What I love about Fidelity:
- decent selection of low-cost index funds (can't beat Vanguard, but still good enough)
- thousands of NTF funds from other companies with the minimum holding period 60 days (including PRPFX)
-superb website
- private company: I just like that they don't need to please Wall Street
- outstanding US-based customer support (which I very rarely need to contact). CSRs are pretty knowledgeable and capable to act upon my requests. Big difference from all those huge firms that outsource customer support overseas.
- great cash management features: great cash account with a debit card that doesn't incur foreign transaction fee and very advanced billpay feature, online check deposits, account aggregator (Yodlee-based), free Treasury bonds purchases, generous rewards credit card

I do plan to diversify in the future by adding Vanguard or TDAmeritrade into the list. Haven't decided yet which one I'll choose. I heard that Vanguard's brokerage services are not that good compared to Fido, it looks like there is a common perception that Fidelity is better for taxable accounts and Vanguard is better for IRAs. As to TDA - I like their selection of zero-transaction-fee ETFs.

[travelingheelfan]

TD Ameritrade due to the commission free ETF's.

[clacy]

Let me say that I have my money spread between multiple accounts at Scottrade, TDameritrade and one small account directly at a mutual fund company.

Scottrade is private, which could be a positive I would think.  I like that they have a large list of NTF mutual funds and fairly low equity commissions.

TDameritrade I love their free ETF trades and their platform seems very intuitive to me.

I will likely open an account at Vanguard as well.  They are next on my list and appear to be the safest overall.

[l82start]

i am using only vanguard right now, due to the small size of the portfolio, the difficulty of meeting minimums and added tracking complexity, it is not worth the trouble to try splitting across multiple brokers ... i will add a fidelity or some other second account as soon as it seems more feasible to do so...  some times doing the best you can with what you have is good enough...

i am also a fan of the low fees and share holder ownership at vanguard, it definitely influenced why i chose them for my first brokerage,

[SteveGo]

Use these now:

Schwab for cash part of taxable PP, plus spouse IRA.
I have my checking account at Schwab, and it is handy to have the cash in a linked account. Money transfers are instantaneous between the linked accounts. In the spouse IRA, I use the Schwab ETFs for short term treasuries, and equity.

Fidelity for equity, gold ETFs and LTTs. No commisions on the LTTs, plus you can get 2% cash rebate credit card.

Vanguard for my IRA. Been a long time client.

Have used in the past:

Interactive Brokers. The best broker IMO if you trade a lot. Very low commissions, access to just about any market on earth. Lowest margin interest rates, if you want to blow your VP up with leverage. I don't trade these days, so I closed the account. If you don't generate at least $20/month in commissions, they charge you that anyway as a minimum fee.

Thinkorswim (now part of TD). Never really traded with them. I just got an account and funded it minimally to get access to their option analysis platform with real time quotes.

[BearBones]

Vanguard is interesting because the funds are not owned by the management company...

Other firms all have plusses and minuses. The larger firms are all probably about the same. Fraud can happen anywhere, just make sure they have SIPC coverage and you are under the limits.

But yes it's a good idea to use more than one firm just in case something very bad were to happen at one of them. You don't want to be in a situation where you are locked out of all of your money while things are straightened out.

Restarting this conversation... I just called Vanguard and they told me that SIPC only covers brokerage accounts. If true, this would be one advantage to holding a Vanguard ETF rather than its identical mutual fund. It would also favor such things as SHY/SHV over the (now closed) Vanguard Treasury Money Market Fund. Vanguard has insurance on the remaining. Who knows? The insurance through Lloyd's of London, etc, might be superior to SIPC in a SHTF scenario.

Anyone else have a different understanding?

[murphy_p_t]

my *feeling* is that Vanguard mutual funds (like total stock market) and their treasury-only MMF are stronger that the *perceived* protection offered by SIPC. My recollection is that SIPC  (& FDIC) have poor levels of funding.

I was asking some questions of Vanguard & rec'd this reply:


Vanguard is not a public company, but more information is below that you
may find helpful.

As a practical matter, a mutual fund cannot go bankrupt or "broke" unless
the value of all of the underlying securities it holds goes almost to zero,
leaving the fund with insufficient assets to meet its operating expenses.
Remember, the value of a fund's assets is based on the market value of the
underlying securities owned by the fund, less operating expenses. While the
value of a fund's assets will rise and fall over time, this fluctuation
results from changing market conditions affecting the value of the
securities that the fund owns, not from a weakening of the fund itself.

It is also extremely unlikely that Vanguard (the management company) would
ever fail. Here are a few things to consider:

*Vanguard does not engage in the investment banking or underwriting
businesses that have been in the news lately for suffering financial
losses.

*Vanguard is a distinct and separate legal entity from the funds it offers;
Vanguard is the service company that provides administrative services
(statements, client service, fund accounting, etc.).

*Because the funds and Vanguard are separate legal entities, if Vanguard
were to enter bankruptcy, Vanguard's creditors could not claim the funds'
assets to pay Vanguard's obligations. The funds' assets would remain
available to meet share redemptions and regular operating expenses, which
could change depending on the services to be provided to the funds during
that time.

*In the unlikely event Vanguard were to go out of business, the board of
each fund would be responsible for hiring another company to provide the
services previously provided by Vanguard.

[murphy_p_t]

here's an additional reply I rec'd from Vanguard:

I will reply to both of your questions about SIPC Insurance and Direct
Registration of Vanguard Total Stock ETF (VTI).

LLoyd's of London coverage is available to all of our clients and it
provides coverages in excess of the SIPC limits. The $250 million in excess
SIPC coverage is for all of Vanguard Brokerage's clients combined, not on
an individual basis. No individual client would be paid more than $49.5
million for securities and $1.9 million for cash.

We believe you should feel secure investing with Vanguard for several
reasons:

* Our unique ownership structure (we are owned by our clients, not by a
third party intent on maximizing its own profits).

* Our client-focused management policies and practices, which center on
ensuring the growth and well-being of our shareholders' assets.

* Our reputation for integrity, honesty, and fair dealing in everything we
do.

Most investment companies are either publicly traded or privately owned.
Vanguard is different: We are client-owned. Helping our investors achieve
their goals is literally our sole reason for existence. With no other
parties to answer to and therefore no conflicting loyalties, we make every
decision with only our clients' needs in mind.

Vanguard's broad array of mutual funds is designed to support long-term
investing. So are the funds' policies, with strict rules to help protect
investors from the costs of short-term trading. What's more, our Portfolio
Review Group closely monitors each fund's management to ensure compliance
with the stated investment objective and philosophy of the fund.

When you assess Vanguard's organizational structure and management
policies, along with our long track record of honesty, integrity, and
ethical behavior, we hope you will feel secure investing with us. We
believe there is no better place for you to invest.

Vanguard Exchange Traded Funds (ETFs) and other securities in your
brokerage account are held in custody by Vanguard Brokerage Services, a
division of Vanguard Marketing Corporation. Securities and other property
that are held for your account can only be held in "street name" or are
being held by a securities depository are commingled with the same
securities being held for other clients of financial organizations and for
Vanguard Brokerage Services' own clients

[steve]

I use Vanguard. I like the client owner structure. Low at cost investing fees, and no commission on Vanguard ETFs. I feel safe with Vanguard including their Treasury Money Market fund.
I have enough emergency cash and core Gold outside to cover if something were to go wrong. I would just wait patiently untill it was sorted out. I would feel like I am taking on more risk and more complications by having more then one brokerage account. I closed other brokerage accounts to make my life simple a long time ago  about the same time I adapted the Fail Safe Investing tactics for my portfolio.

[Indices]

I have a feeling that, push come to shove, the government would fully fund SIPC in the event of a massive market crash, as it would the FDIC. Not a 100 percent guarantee, but I think likely.

[BearBones]

All very helpful. This is such an amazing forum!
I like your idea of consolidation and simplicity, Steve.
Murphy, I appreciate your posts from Vanguard.

What is your interpretation of the last paragraph?

Vanguard Exchange Traded Funds (ETFs) and other securities in your
brokerage account are held in custody by Vanguard Brokerage Services, a
division of Vanguard Marketing Corporation. Securities and other property
that are held for your account can only be held in "street name" or are
being held by a securities depository are commingled with the same
securities being held for other clients of financial organizations and for
Vanguard Brokerage Services' own clients

[murphy_p_t]

it means that you cannot hold stocks in your own name, "direct registration"...rather, they are held in "street name"...essentially meaning that the broker is between you and your stocks/ETFs. (greater counter-party risk)

this article gets into the issue. (keep in mind he's trying to sell his report)
http://bullmarketthinking.com/how-to-pr ... -bankrupt/

one thing you can do to minimize the chances of an MF Global-type crime is to make sure your accounts do not allow margin.

because Vanguard is owned by shareholders of its mutual funds, I *think* the risk is quite low at Vanguard.

[murphy_p_t]

I have a feeling that, push come to shove, the government would fully fund SIPC in the event of a massive market crash, as it would the FDIC. Not a 100 percent guarantee, but I think likely.

you are likely correct...however, if you don't need to rely on the insurance in the first place, you won't become illiquid waiting for gov't action to bail you out.

for those interested, a related discussion can be found @ http://gyroscopicinvesting.com/forum/ht ... ic.php?t=4

[shoestring]

My 401(k) I can't do much about, but I have my other holdings at Vanguard.  Whenever I manage to come into a little more money than I had planned to spend I put it in my Roth IRA there, so it's not like it's a vast fortune.

The other reasons (unique ownership structure, etc.) have already been discussed, but I went there because before I was a Vanguard customer I was an admirer of Jack Bogle, who championed the interests of the consumers of his products.  I reason unless I buy everything with a direct investment plan, I have to trust someone and it might as well be The Vanguard Group.

[cabronjames]

in the US, is there any other "client-owned" custodians besides Vanguard, that we Vanguarders could use to add a 2nd custodian for custodian diversification?

iirc TIAA-CREF is "client-owned" like Vanguard, but their fund choices, expense ratios, & commissioned all sucked relative to Vanguard, & perhaps even to privately owned custodians like Fidelity.

[beafet]

My ROTH is with Sharebuilder, because the price is low, I can set up automatic investments, and I get occasional free coupon codes. I don't think I have paid a commission fee yet.

[fnord123]

TD Ameritrade due to the commission free ETF's.

I've been wondering about this. TDAmeritrade does offer "commission free" ETFs, but the same ETFs show a lower expense ratio at Vanguard.  So is TDAmeritrade hiding an expense in the ETF somehow?

For instance, here's the TDAmeritrade list of commission free international ETFs - notice VEA has an expense ratio of 0.15%, and VEU has an expense ratio of 0.25%: https://www.tdameritrade.com/trade/etflist.html

Now look at the very same ETFs on Vanguard's website - VEA has an expense ration of 0.12%, while VEU has an expense ratio of 0.22%: https://personal.vanguard.com/us/funds/ ... B%3AgenTBI

Why the difference? Aren't they the same ETF?

P.S. I've emailed TDAmeritrade asking about this, will post whatever response I get.

[smurff]

I recently signed up for a Fidelity IRA account to accompany my TD Ameritrade IRA account, based on recommendations here.  Low fees, ease of use, free investment in certain etfs, low fund expenses, etc. 

I haven't funded it yet as the paperwork is in process, but in the post-MF-Global America, I thought I'd reduce some of the risk inherent in keeping assets with brokerage firms and IRA administrators by not relying on one such firm for all of my stock and bond assets.  Even if they are covered by SIPC.

It seems that some assets held in SIPC-covered firms are not covered by SIPC for the kinds of losses they would otherwise cover.  It's hard for an individual investor to know what all of those are.

[murphy_p_t]

fnord...one thing is to confirm that the fund actually holds all the stocks in the index...not just a synthetic amalgam, complete w/ derivatives or something...btw...that's one reason to look at using a mutual fund, rather than an etf

[fnord123]

Here's what TDAmeritrade had to say about the expense ratio for some ETFs showing as higher than the same ETFs on Vanguard's website:

Thank you for contacting TD Ameritrade Mutual Funds.  Morningstar provides all the information on the website and that information is updated on a periodic basis.  Theretofore, it may not be as current as the information provided in the prospectus.   You should always reference the prospectus before making a final decision on placing an order.

Oddly enough, the Morningstar website shows VEU as having a 0.22% ER - same as with Vanguard.  But TDAmeritrade still shows it as having a 0.25% ER.