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Brokerage Accounts Safe?
Old 03-17-2008, 06:37 PM   #1
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Brokerage Accounts Safe?

Interesting questions raised by Greenberg's blog. I guess I'll have to call Schwab and Vanguard to find out who really owns my account me or them. Anybody know the answers?

Herb Greenberg » Blog Archive » How to Keep your Investments Safe
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Old 03-17-2008, 07:13 PM   #2
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I pay the extra to have certificates delivered to me and keep them in a safe deposit box. Just my personal quirk. Bought my first stock in '74 and it is still there.
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Old 03-17-2008, 09:08 PM   #3
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And I remember once coming home to find stock certificates worth $300k sitting on my doorstep in a fedex envelope getting soaked in a rainstorm because the fedex guy neglected the "require signature" box.

I'll let my brokerage hold them going forward thanks very much.
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Old 03-17-2008, 09:19 PM   #4
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Originally Posted by Bikerdude View Post
Interesting questions raised by Greenberg's blog. I guess I'll have to call Schwab and Vanguard to find out who really owns my account me or them. Anybody know the answers?

Herb Greenberg » Blog Archive » How to Keep your Investments Safe
I love it. "I don't want to add to the panic, but I'm going to add to the panic."
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Old 03-17-2008, 10:00 PM   #5
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The article doesn't bother me too much. If my brokerage fails I'll just move my shares from the margin account to the cash account.

And the brokerage cannot legally liquidate my stock certificates for their own benefit or the benefit of creditors. They can only legally swap them for defined purposes specified in the margin agreement.

In short the only way this could become an issue is if someone at the brokerage does something illegal, and there's plenty of other ways the brokerages could damage me by doing illegal things.
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Old 03-18-2008, 02:08 PM   #6
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I read long ago that brokerages can still lend out stock, even if it's not a margin account.
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Old 03-18-2008, 02:25 PM   #7
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I love it. "I don't want to add to the panic, but I'm going to add to the panic."
Brought to you by Herb Greenberg, one of the most morality-free sihtbags in the dubious world of "financial journalism."

Next up: Kiyosaki on "why you are all useless tools and can never be as rich and cool as I am."
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Old 03-18-2008, 02:28 PM   #8
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Brought to you by Herb Greenberg, one of the most morality-free sihtbags in the dubious world of "financial journalism."

Next up: Kiyosaki on "why you are all useless tools and can never be as rich and cool as I am."

I thought I was the only one who didn't care for Herb go figure
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Old 03-18-2008, 02:33 PM   #9
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Now, now, being fair, Kiyosaki says, "you are all useless tools and can never be as rich and cool as I am....unless you spend $20k on my seminars!"
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Old 03-18-2008, 02:49 PM   #10
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Brought to you by Herb Greenberg, one of the most morality-free sihtbags in the dubious world of "financial journalism."
I thought this was a little over the top in terms of scaring people. I don't know that anyone has hinted at problems at Vanguard, Schwab, Fidelity or any other discount broker or fund family.

I have to wonder how many panicked calls these CSRs took this morning asking if they were protected in case someone like Vanguard goes Bear Stearns on us.
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Old 03-18-2008, 03:22 PM   #11
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Per the SAI for a number of Vanguard's funds:

Quote:
Service Providers
Custodian. JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, serves as the Funds’ custodian. The custodian is responsible for maintaining the Funds’ assets, keeping all necessary accounts and records of Fund assets, and appointing any foreign sub-custodians or foreign securities depositories.
I read this to say that if you buy Vanguard's MF directly from Vanguard, the assets are held by a custodian bank for you. Also, Vanguard is just the administrator of the mutual funds, so if Vanguard "goes under" the mutual funds just have to find a new administrator.
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Old 03-18-2008, 03:52 PM   #12
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I read long ago that brokerages can still lend out stock, even if it's not a margin account.
I don't think this is correct. After the 2003 tax cuts on dividends, I moved all my dividend paying stocks from my margin account to my cash account, to be sure I would get the 15% rate. It is my understanding that if the stock is "on loan" when it goes ex-dividend, it may not qualify for the favorable rate, since the short seller, and not the corporation, would be paying me the dividend. For this reason (among others), I would think brokers wouldn't be lending stocks held in cash accounts.
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Old 03-18-2008, 04:01 PM   #13
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I don't think this is correct. After the 2003 tax cuts on dividends, I moved all my dividend paying stocks from my margin account to my cash account, to be sure I would get the 15% rate. It is my understanding that if the stock is "on loan" when it goes ex-dividend, it may not qualify for the favorable rate, since the short seller, and not the corporation, would be paying me the dividend. For this reason (among others), I would think brokers wouldn't be lending stocks held in cash accounts.
AFAIK, this is mostly true. Stocks in cash accounts can still be loaned out with your express permission. Apparently some people who own heavily shorted stocks have been approached by their brokers with offers of cash compensation in return for permisiion to loan the securities out to eager short sellers willing to pay the freight.
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Old 03-18-2008, 04:33 PM   #14
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Here's an article with some answers to counter Herb.

Will Safety Nets Protect Retail Brokerage Assets? (Bear Stearns, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Goldman Sachs) at SmartMoney.com
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Old 03-18-2008, 05:44 PM   #15
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AFAIK, this is mostly true. Stocks in cash accounts can still be loaned out with your express permission. Apparently some people who own heavily shorted stocks have been approached by their brokers with offers of cash compensation in return for permisiion to loan the securities out to eager short sellers willing to pay the freight.
Yep. Many pension funds (especially those who index) lend stocks for a fee to enhance returns. Since they are not taxable, they don't care whether the dividend is qualified.
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Old 03-18-2008, 06:01 PM   #16
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Funny. I just tried to log into my Vanguard account after reading this post and this is what I got...
Attached Images
File Type: jpg vanguard.JPG (27.4 KB, 42 views)
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Old 03-18-2008, 09:58 PM   #17
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Funny. I just tried to log into my Vanguard account after reading this post and this is what I got...
Wow, that never happens with MY client's accounts.........
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