One or more Investment Firms?

[ready53]

I am 66 years old and recently retired. My wife is 65 years old and retired many years ago. We recently consolidated all of our financial assets into our Fidelity Investments account (a wide variety of mutual funds, stocks, money markets, etc.). We have about $4.5M in financial assets (about 75% in IRAs / Roth IRAs). Part of our motivation to consolidate is to make it easier to manage RMDs that will commence in a few years. I was at a luncheon recently where a discussion about retirement investments surfaced. One of the participants had the opinion that it was dangerous to have all of your assets in one firm. I always thought that Fidelity Investments was a pretty secure place to house one’s investments.
Is it OK to keep all investments in one firm (i.e. Fidelity Investments), or should we split investments between Fidelity and another firm (i.e. Vanguard)? I would really appreciate hearing different views on this.

 

[REWahoo]

In the universe of things to worry about, having all my assets at Fidelity would rank way down on the list.

 

[gwraigty]

There's nothing wrong with keeping your assets at one firm, though I prefer to have assets at more than one firm right now. In case of an outage or some sort of temporary difficulty at one firm, I'd have access to funds at another firm until the issue gets sorted out. Honestly though, that's not the sort of thing I used to think about years ago. It may not really be much of a valid concern. Most firms have a policy available on their websites addressing such things.

Right now we have accounts at more firms than I'd like, but that's because of DH's employer's choices. Vanguard, TD Ameritrade, PayFlex. Our personal accounts are with Charles Schwab and Fidelity.

I wouldn't be concerned about the security of Fidelity as a firm, even though they have yet to match the new zero commission structure of Schwab, TD Ameritrade, and E-Trade. They'll probably do it soon, or something else equally amazing. Hopefully.

As far as RMD's, I believe that many firms now offer automatic RMD's, but you have to sign up for it.

 

[Dtail]

We have all our TIRA at Fidelity, but do have my 401k at Massmutual due to the consistent good yield. Otherwise would have converted it to a TIRA at Fidelity.

 

[pb4uski]

In the universe of things to worry about, having all my assets at Fidelity would rank way down on the list.

+1 but I do seem to recall one poster that had accounts with Vanguard and when one of their Vanguard accounts was frozen by the state it resulted in them not having access to any of their Vanguard accounts... something like that anyway.

Most of our investments are at Vanguard, but we also have some at Fidelity and three different credit union CDs that were to take advantage of really good special rates.

 

[MRG]

What are you protecting against? Hacked accounts? Legal issues? Physical destruction of critical resources?

Theoretically you could have your assets spread across 150+ mutual fund companies and they could all use the same software, hardware and data center..

 

[ready53]

What are you protecting against? Hacked accounts? Legal issues? Physical destruction of critical resources?

Probably all of these. Does one significantly reduce these risks by investing through multiple firms or are to risks so small that it doesn't really matter? I'm a little surprised that this isn't a concern/question for more people.



Thanks to everyone for your responses.

 

[OldShooter]

In formal risk management one talks about an event's impact, probability, and cost to mitigate.

I would rank the impact of a brokerage house having financial problems as moderate at worst. Loss of access to funds for a period of time probably measured in days. (When the FIDIC shuts down a bank, a flying team goes in on Friday afternoon, works all weekend, and the depositors' money is available on Monday via another bank. Brokerage would probably not be this fast, though.)

I would rank probability of the event to be very low.

I would rate cost to mitigate as fairly low, too. Simply the hassle of keeping track of funds at more than one house.

So you can do your own calculation. For us, the hassle to mitigate is not worth it against a moderate impact, very low probability, event.

 

[scrabbler1]

While I have most of my investments at one company, I have about 4% of the total non-retirement portion at another company. I find this comforting in case something were to happen and I lost access to my main company for even a short while. Furthermore, the small mutual fund account at the other company has checkwriting privileges, something I no longer have with any of the funds at my main company. This gives me some added access to that money.

 

[jazz4cash]

In the case of Fidelity, Vanguard and similar firms I would not worry and it’s definitely not “dangerous”. The risk is more on the chance of the firm being hacked or your account being hacked. For that reason I would have a substantial emergency fund at another institution. In the case of RMDs for IRAs, it is not much of an advantage since you can take RMD from any IRA as long as you take the right amount.

 

[MRG]

What are you protecting against? Hacked accounts? Legal issues? Physical destruction of critical resources?

Probably all of these. Does one significantly reduce these risks by investing through multiple firms or are to risks so small that it doesn't really matter? I'm a little surprised that this isn't a concern/question for more people.



Thanks to everyone for your responses.

Three firms, Vanguard, Schwab, Fidelity offer nohack guarantees. Legal issues could be with your accounts or the providers legal issues. I've seen providers shut down and their assets moved in a realistic time frame. I had an account locked by a state because they were owed $1000, it took them 6 months to figure it out.

The real issue would be, IMHO, a destruction of physical resources. I know everyone has redundancy plans. Much of my career, or it seems like it, was when someone's redundancy plan had a bug. " Who would have thought the backups weren't any good; now what do we do?". It's for that one reason I keep the bulk of my assets with two separate providers who share nothing.

 

[ready53]

I do have a checking account with Bank of America and always have several months of living expenses in the account. I also have check writing ability with my Fidelity account, so I should have access to money even if one of the entities goes off line for some period of time. I guess my concern about loosing a substantial amount of our assets if something bad happens to Fidelity should not be an issue since as one of the posters pointed out, I am not invested in Fidelity, but am investing in many areas through Fidelity. If Fidelity went under (low probability event at this time I believe) I may take a small hit, but would not be even close to being wiped out.

 

[swakyaby]

Many years ago, I had a financial institution lock me out of my small IRA for reasons that were not disclosed to me. It took me nearly 9 months for me to notice that I had not received any quarterly statements for a long time. When I called to ask about the missing statements, the representative asked me to send a copy of my driver’s license and other proof of my identity. Despite following all instructions and many follow up phone calls, my requests for access to my IRA was ignored. After 6 more months of fruitless communications, I contacted another financial institution, T.Rowe Price, to request their assistance in transferring my small IRA to them. It took 3 demand letters from T.Rowe Price to get the uncooperative financial institution to directly transfer the IRA, but they dragged it out for 89 days.

That was a long time ago, but it left an impression. Now that I’m retired and living entirely off my investment portfolio, I have the majority of my assets split between Fidelity and Vanguard. That way, if something happens where I get locked out of my accounts at one institution (for 9 months!), I at least have a 2nd account to draw funds from.

 

[ready53]

Thanks for the response swakyaby. You don't need to give the name, but was the firm that locked you out for so long a reputable firm like Fidelity or Vanguard? I can't imagine something so extreme happening at one of the reputable firms. When I have had issues in the past they seem to focus on resolution very quickly.

 

[mrfeh]

Is it OK to keep all investments in one firm (i.e. Fidelity Investments),

Yes.

 

[Jerry1]

I'm a little surprised that this isn't a concern/question for more people.

I brought this up awhile ago and as you see, the consensus is that it’s not a big deal. Couple things to think about. Understand and use every security feature the company offers. I really feel a lot better with 2 factor authentication. I also like the voice authentication when they talk to me on the phone.

Note, I also confirmed that brokerage houses hold your assets in a certain fashion (I forget the name), so that if they did go bankrupt, you’d still be able to get your assets. In this regard, I always print out a year end statement.

All the comfort in the world still doesn’t satisfy my concern so I do keep a small amount else where. Between my credit union and my secondary brokerage I have about 2 years of living expenses in very liquid form (savings account and short term CD’s).

 

[misshathaway]

Why couldn't any of the big brokerages fail? Weren't people thinking this about the banks in 2009? We don't know how they are managed internally. We don't know what threats there are to them externally.

Events over the past 10 years have persuaded me that anything is possible. Makes things slightly harder to manage but I'm diversified over institutions. Besides, it gives you more nerdy things to do with spreadsheets.

 

[Jerry1]

Why couldn't any of the big brokerages fail? Weren't people thinking this about the banks in 2009? We don't know how they are managed internally. We don't know what threats there are to them externally.

Events over the past 10 years have persuaded me that anything is possible. Makes things slightly harder to manage but I'm diversified over institutions. Besides, it gives you more nerdy things to do with spreadsheets.

They could fail, but my understanding is that their failure would not impact our holdings. I’m not sure of the term, but it’s something like being held in trust. Of course fraudulent things happen, but I think the biggest risk of them going bankrupt is the inconvenience of probably having no access to your account for a long period of time.

 

[FANOFJESUS]

All at fidelity is fine but an emergency fund at a local credit union is wise.

 

[PatrickA5]

Vast majority of our assets are at Fidelity. DW has an outside 401K that will be transferred to FIDO when she quits.

However, we do maintain a small free checking account with $10K at a local bank for various reasons. As much as I like to simplify our assets, I don't see closing this account.

 

[NW-Bound]

I spread out money across a few brokerages in order to see their service level. And being lazy, I tend to let my money stay there, unless some big changes force me to transfer.

I have never had Fidelity, but have been with Schwab for more than 20 years, back from the time when a trade cost $29.95. Boy, that was expensive, but still considered a huge discount from "full-service" brokerages like Merrill Lynch or Smith Barney, etc...

Schwab has the best service level among the brokerages that I use. They are very efficient and fast in responding to my requests. Things that took a couple of weeks at another brokerage were taken care of in a matter of a couple of days with no fuss.

 

[GrayHare]

Thanks for the response swakyaby. You don't need to give the name, but was the firm that locked you out for so long a reputable firm like Fidelity or Vanguard? I can't imagine something so extreme happening at one of the reputable firms. When I have had issues in the past they seem to focus on resolution very quickly.

Similar issue here, account has been locked up for several years. If "advertises on TV" qualifies as reputable, then yes, it's a reputable firm, though I would call them something different.

 

[swakyaby]

Thanks for the response swakyaby. You don't need to give the name, but was the firm that locked you out for so long a reputable firm like Fidelity or Vanguard? I can't imagine something so extreme happening at one of the reputable firms. When I have had issues in the past they seem to focus on resolution very quickly.

The firm that gave me so much trouble was one that I thought was reputable in that they were often advertised on national TV in the 1980’s, Dreyfus funds, with a lion as a logo. They are still in business, headquartered in New York. I couldn’t fathom why they were suddenly treating me so badly, ignoring my written communications and requesting more and more documentation when I called (photo of driver’s license, social security card, 2nd photo ID, 2 utility bills, etc) all of which I mailed to them to the address requested. No response. In my 4th and final phone call, I asked why I was no longer receiving any quarterly statements. Silence. I asked if my account was frozen, if I was locked out of my account. He said yes. I asked why. Silence. I asked if there was a question of fraud. He said yes.

I hung up and considered my options. A lawsuit would cost me too much time and money. I decided to try getting another financial firm to directly transfer the IRA over to them. It worked, but it took 89 days and several threatening demand letters from T.Rowe Price (including a threat to report the firm to the SEC for violation of . . . if they did not comply immediately with the transfer).

I never forgot how helpless I felt when an investment firm locked me out of my retirement account, and wouldn’t explain why. I wouldn’t fault you for trying to simplify your finances by consolidating all your assets at one financial institution. But like others have mentioned, I would keep some liquid assets (a year’s worth) in a separate financial institution in case “something” goes awry.

 

[NW-Bound]

Very interesting.

What right does a brokerage exercise in freezing an individual account at their discretion?

Don't they need authorization from a law enforcing agency to do so?

 

[ncbill]

The firm that gave me so much trouble was one that I thought was reputable in that they were often advertised on national TV in the 1980’s, Dreyfus funds, with a lion as a logo. They are still in business, headquartered in New York. I couldn’t fathom why they were suddenly treating me so badly, ignoring my written communications and requesting more and more documentation when I called (photo of driver’s license, social security card, 2nd photo ID, 2 utility bills, etc) all of which I mailed to them to the address requested. No response. In my 4th and final phone call, I asked why I was no longer receiving any quarterly statements. Silence. I asked if my account was frozen, if I was locked out of my account. He said yes. I asked why. Silence. I asked if there was a question of fraud. He said yes.

I hung up and considered my options. A lawsuit would cost me too much time and money. I decided to try getting another financial firm to directly transfer the IRA over to them. It worked, but it took 89 days and several threatening demand letters from T.Rowe Price (including a threat to report the firm to the SEC for violation of . . . if they did not comply immediately with the transfer).

I never forgot how helpless I felt when an investment firm locked me out of my retirement account, and wouldn’t explain why. I wouldn’t fault you for trying to simplify your finances by consolidating all your assets at one financial institution. But like others have mentioned, I would keep some liquid assets (a year’s worth) in a separate financial institution in case “something” goes awry.

Sounds similar to a case over on bogelheads forums.

Someone's dad had an IRA account (bank, IIRC) drained by a 3rd party.

Once reported, all the bank would tell them was that it had been turned over to their fraud department...essentially no updates while fraud handled it...until the funds were restored months later.

I keep more than a year's worth of spending at a local institution.

But I won't be splitting funds between brokerages, and am currently consolidating everything to one of the big 3.