While some investors appreciate the simplicity of keeping all of their investment funds under one account, there are plenty of reasons to look to different brokerage firms.
Some investors have multiple brokerage accounts to separate their retirement funds and active trading accounts, while others prefer to keep their niche accounts with specialist firms.
Still others see benefits in estate planning or simply want to take advantage of several enrollment benefits.
For many investors, it is more “convenient to separately track their tax-sheltered and tax-sheltered portfolios such as a 401 (k) plan or an IRA,” says Stuart Michelson, professor of finance at the University. Stetson from DeLand, Fla. “An investor can open an account with an investment company for taxable investments and another for tax-sheltered investments.”
If you are wondering whether it pays to open a second, third, or 10th brokerage account, here are a few things to keep in mind:
- Multiple brokerage firms help diversify and manage risk.
- Take advantage of promotions from different brokerage firms.
- Disadvantages of having multiple accounts.
Several brokerage firms help diversify and manage risk
One of the main advantages of having multiple brokerage accounts is that it can help diversify your holdings.
“With more than one brokerage account, an investor has a lot more diversified investment opportunities, using both mutual funds and exchange-traded funds,” Michelson said.
Brokerage houses also specialize in different assets and products such as futures, options or commodities.
“For example, an investor may want to diversify internationally and find that another company has a wider range of offerings in foreign markets,” he says. “Or she may want to start using the margin and find out that another broker is offering lower rates.”
Many investors view having multiple accounts as a risk management tool, says Steve Sosnick, chief strategist at Interactive Brokers, a brokerage firm based in Greenwich, Connecticut. If a broker has an outage, the client can always negotiate with another broker.
Sophisticated investors often trade on margin, and “it may be in their best interest to work with a broker that offers the most attractive margin rates,” says Evan Kulak, co-founder of Polaris Portfolios, a financial planning firm based in Chicago. “If you are trading on margin, it makes sense to seek out the broker who offers the best execution and loan rates. Sophisticated investors can have their marginless accounts with one brokerage and their margin accounts at another brokerage firm.
The safety of your funds is also a concern. Securities Investor Protection Corporation account insurance protects up to $ 500,000 per brokerage account, so allocating assets among different investment firms “will help more effectively protect a higher level of assets from the brokerage. overall portfolio, ”Michelson said.
Several accounts can also be useful for estate planning. Investment accounts allow an investor to name a co-owner or payout beneficiary on death.
“By having multiple accounts, each naming a different person as a co-owner, an investor can manage their brokerage assets completely independent of a will or other estate planning,” Michelson said. “For example, an investor can name their sister as co-owner on one account and their child as co-owner on another account, thus simplifying the distribution of assets upon death.”
Take advantage of promotions from different brokerage firms
Investors may be attracted to the benefits offered by investment firms for opening new accounts, such as cash bonuses, commission-free transactions, and other perks. Check the details and see if there are any requirements, such as a minimum balance.
“Make sure you’ll be able to keep enough funds in the account for the time required to grab the account opening bonus,” says Greg McBride, chief financial analyst for Bankrate, a financial data company based in New York. “While trading can be commission-free, not all robo advisor or financial advisor offers are the same, so be sure to compare the terms closely to find the best solution at the right cost.”
Investors who also have an allowance for alternative assets may need to open another account, as not all brokerage firms offer cryptocurrency trading or can only offer trading of certain cryptocurrencies, he said.
Another reason some investors choose to have a second brokerage account is if they are active traders. Some brokerage houses offer the option of trading stocks and bonds, but also offer a checking account so that you can avoid delays in transferring money between a traditional checking account and your brokerage account. The delay will reduce the length of time that the money can be used to invest in individual stocks or ETFs.
Some investors will have a separate account as one of them is managed by a financial advisor and another is for discretionary trading.
“A lot of people like to invest, so they want to take control of a smaller portfolio,” says Thomas Kopelman, financial advisor at Indianapolis-based RLS Wealth.
Disadvantages of having multiple accounts
Maintaining more than one account means investors could pay additional fees, which easily add up. Shop around and compare expense ratios, especially if you frequently buy or sell funds or ETFs.
“An investment firm may have a lower expense ratio than another firm for a mutual fund or similar ETF,” Michelson said.
Another problem with having more than one account: If you have brokerage accounts at different companies, “you might not have the full overview of your asset mix or net worth.” in one place, ”says McBride. “Be very diligent in which account you deposit or withdraw funds into if you have a taxable account and an IRA at the same company. You don’t want to inadvertently place a transaction in your taxable account that needed to be done in your IRA.”
When an investor has multiple brokerage accounts, tracking investment performance, fees, and taxes can become more complicated, Michelson explains.
“For some investors, consolidating all of their holdings into one account makes it easier for the investor to track and analyze their performance, risk level and returns,” he said.
Some brokerage firms offer benefits and incentives to investors who meet minimum thresholds in terms of account value, such as lower commissions, additional research resources, and financial planning advice, Michelson explains.
“A single account makes it easier for an investor to meet these account minimums or thresholds,” he says.