Mattress, Bank, or Broker - Broker/Custodial Diversification – Is it necessary?
So, you have made it, or are clearly on your way…. And your liquid investment accounts have grown from merely a place where you add money as you earned it to a real nest egg. So, you start thinking, is my money safe? At Members’ Wealth, we get this exact question or concern from prospective clients and clients on a regular basis. I am sure we are not alone. It is valid. We aim for security and portfolio management efficiency in helping our clients.
While there are several factors to consider, when thinking of the safety of your assets, a great first place to start is literally where is your money held. Mattress, bank, custodian…etc.
Mattress (Keeping Cash at Home)
Pros:
Cons:
Bank[i]
Pros:
Cons:
Financial Custodian (Brokerage Firm; Fidelity, Schwab, etc)
Pros:
Cons:
Choosing between keeping your money in a mattress, in a bank, or with a financial custodian depends on your financial goals, risk tolerance, and need for accessibility.
Ideally, a diversified approach, utilizing banks for short-term needs and emergency funds, and custodians for long-term investments, can provide a balance of security, growth potential, and liquidity (maybe a few bucks under the mattress but don’t get carried away).
The safety, services, and investment opportunities offered by custodians or brokers, and the practicalities of managing your investments are a lot to consider.
What about using two Brokers? As in Schwab and Fidelity?
Here's a breakdown of the pros and cons of placing all your assets with one custodian/broker versus diversifying among multiple brokers:
Placing All Assets with One Custodian/Broker
Pros:
Cons:
Diversifying Among Multiple Brokers/Custodians
Pros:
Cons:
Conclusion
The decision between consolidating your assets with one custodian or diversifying across multiple brokers depends on your individual priorities, including the importance of diversified protection, desire for simplicity in managing investments, and the specific investment opportunities each custodian offers. It's also essential to consider the financial stability of the custodians you're considering, as well as any additional insurance they may offer beyond the standard protections.
Consulting with a financial advisor or Members’ Wealth who understands your personal financial situation and goals can provide tailored advice that considers all these factors. This approach ensures that your decision aligns with your overall investment strategy and risk tolerance.
[i] Blurred Lines. Increasingly over the years, some banks offer brokerage services, and some brokers offer banking services. As such, investors should be careful to note which service they are receiving and thus what protections they are receiving.
[ii] “Excess of SIPC” coverage
In addition to SIPC protection, Fidelity thought National Financial Services LLC (NFS) provides additional “excess of SIPC” coverage to brokerage accounts. The excess of SIPC coverage would be used only when SIPC coverage is exhausted. Like SIPC protection, excess of SIPC protection does not cover investment losses in customer accounts due to market fluctuation. It also does not cover other claims for losses incurred while broker-dealers remain in business. Total aggregate excess of SIPC coverage available through NFS’s excess of SIPC policy is $1 billion. Within NFS’s excess of SIPC coverage, there is no per-customer dollar limit on coverage of securities, but there is a per-customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.
Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.
Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.
To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453.
You can learn more about how we serve our clients by tapping the button below.
Investment advisory services are offered through Members’ Wealth, LLC., a Registered Investment Advisory Firm.
Registration with the SEC does not imply a certain level of skill or training. We are an independent advisory firm helping individuals achieve their financial needs and goals
Members’ Wealth does not provide legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences.
This commentary reflects the personal opinions, viewpoints and analyses of the Members’ Wealth, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Members’ Wealth, LLC or performance returns of any Members’ Wealth, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Members’ Wealth, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results
Copyright © 2023 Members' Wealth LLC