I am looking for opinions on the danger of keeping all your retirement money in one investment bank (e.g. Fidelity) versus spreading it in multiple ones (e.g. Schwab, Vanguard).
Obviously there are insurance implications if the accounts’ amounts gets above the insurance limit but also I wonder about the danger of getting hacked. It seems that having it in different places lowers the risk of losing it all.
Does anyone know how often it happens that someones money get stolen and do investment banks have any guarantees? It seems to me that the security protocols such as social security number, date of birth etc. are really bogus because that is so easy to get if a hacker wants to. For years that information was freely given and shared with everyone and then internet came about and now its “secret” but for those of us old enough, hundreds of people already have that information.
“SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.”
Also some firms carry additional insurance raising your coverage as well as supporting verbal passwords for calls and one-time security tokens for login.
Financial institutions are very careful about security, nothing is 100% safe. Also, steps are taken to limit losses should a breach occur.
Awhile back, I enabled two-factor authentication on all my financial accounts. That way, getting access takes more than just cracking my password or finding the info already cracked on the dark web.
It can be a pain in the neck sometimes, but it does make it a bit more complicated for someone to empty out our finances. In a world where the “softest targets” tend to get hit first, I’m hoping it’s worth something…
Ursula
I have wondered about that myself over the years.
I think the greatest fear a retiree may have is checking their accounts on line at XYZ brokerage and seeing a big $0 on account balance and then on checking, see a full balance EFT executed several days prior to some off-shore account. I doubt this happens other than rarely, because if it did, the media would be all over it due to the overwhelming attention such a case would get. But having said that…
There are a couple of ways I can think of, other than splitting your accounts up amongst several brokerages/IRA custodians, to protect the contents of your accounts…
One is to use a feature provided by brokerages like Fidelity that locks down your account(s) from any money withdrawals, with the exception of things like bill-pay and established regular payouts. We have enabled this feature on our accounts at Fido, although not sure if others offer this. Its a little bit of a pain when we wish to do a money withdrawal or transfer, but its worth it to us.
Another way is to put an auto notify on your account if there is any account activity, sending a message to your phone. I don’t like giving out our cell phone numbers, but we make an exception for this.
It is also advisable to change your password every 6 months or so.
And, of course, just checking in with your account every day or two can provide some peace of mind.
FDIC and SIPC are there to protect account balances, up to some $$ maximum, against default by the financial institution, not from account theft.
Regardless of what you decide, don’t ASSUME your brokers are doing their job correctly.
One time, I was making a sizable deposit (around $75k) at Fidelity. Using a cashier’s check. In person. At one of their branches. My motivation for the personal touch is that I wanted to invest that money PRONTO/ASAP and didn’t want to wait for the mail to deliver the check.
It turns out they deposited the money… in someone else’s account.
How did this get fixed and what went wrong… besides the initial error?
I. I. I found the error. They didn’t. Strike two.
They apologized, when confronted with the evidence. (Note: Document deposits!). And they switched the money into my account. Relatively painless.
STRIKE THREE!!! I was unhappy with this part… they told me I had to wait for the money to clear from the other guy’s account till it was in my account. THAT is unreasonable and unacceptable. They already had time for the check to clear and there was no reason to wait for the internal clearance… other than their own internal “rules”. As you can tell, describing this gets me irritated.
Perhaps sadly, I still have two small accounts with them. Although I should probably know better.
So, keep your eye on your accounts. There is no limit to stupidity even within these “safe” accounts.
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.” Charlie Munger
My broker offers the option of my cash being spread out into multiple FDIC-insured accounts at a variety of banks, each kept below the FDIC limit. No extra charge, though the interest rates are quite low. The only down side is that when I look at my accounts at the broker each of those takes up its own line.
There is really no downside to having accounts at different brokers. Heck, a married couple is already going to have several accounts—2 IRAs, 2 Roths, 1 taxable joint, 2 taxable individual.
Many brokers periodically run bonus deals where they’ll give you money to open an account and fund it. Last year Fidelity gave $100 if you opened an account for $1500.
People who were around in the 2001 tech bust remember how it was difficult to access accounts. Web pages would not open, brokers would not answer the phone, etc. You never can tell when a broker might have a technical problem and you can’t log in. If you have accounts at multiple brokers, probably not all of them would have trouble at the same time.
Hi Rob.
I have experienced this myself and hence my paranoia. One day I found 4K missing from my account and I was told it was transferred to another brokerage account at a different institution.
I told the rep I did not authorize this transfer and they told me I had to call that other institution MYSELF. When I called the person said that the 4k was deposit on some new account that was opened. The people who deposited it, gave my account number as their own. No one on either side checked who actually owned the account where the money was coming from.
The rep where the money went to, told me the name of the clients and asked if I knew them. I never heard of them. I told her to contact my institution who could verify that the account belonged to me and not them.
They finally returned my money in about a week. BUT what if I needed that money or wrote checks against that sum that meanwhile disappeared. It is absolutely crazy that two financial institutions do these digital transfers without any checking and then expect the client to figure it out and fix the problem they caused.
If one has a brain it is difficult not to be distrustful and paranoid.
Do you mind sharing what brokerage you use now, assuming you are relatively happy with them?
Like I mentioned, I still have two small accounts at Fidelity.
But most of our money is with Schwab and MerrillEdge.
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.” Charlie Munger
I’ve always been a big believer of not putting everything in one basket whether it is bank accounts, credit cards or investments. I once had my bank account briefly (by morning it was fixed) drained to zero before of a bill payment process by a bank going awry. I had a relative caught up in the S&L problems decades ago and while he got all of his money back it took over a year.
Right now I have too many accounts which I expect to consolidate soon but the additional hassle of having a few accounts isn’t much compared to the benefit. It always seems like whenever you truly need a credit card, withdraw money, etc. that is when something happens and it is nice to be able to simply shift to another option while things get resolved with your current account. Now that everything is online and you get more and more hacking, I think it pays to diversify.
In some cases I wish I could consolidate but due to the differing types of accounts, I can’t. I think I have 8 accounts just at Fidelity due to 401K, Roth, taxable and various inherited accounts that were transferred to Fidelity. Eventually my TD Ameritrade account will get combined with my Schwab account whenever they finally complete that acquisition.
I do admit just having one of each is nice in terms of simplicity but it comes with risks. A bartender was just telling me how upset he was that his credit card account was compromised since everything was on it. I asked if he had another cc but he didn’t. So he had to plead with the cc company to overnight a new card to him.
“I do admit just having one of each is nice in terms of simplicity but it comes with risks. A bartender was just telling me how upset he was that his credit card account was compromised since everything was on it. I asked if he had another cc but he didn’t. So he had to plead with the cc company to overnight a new card to him.”
You probably should have a couple CC…just use the alternates once every six months to keep them alive.
If you go to Costco, they only take VISA right now. 10 years ago it was only AMEX.
If you have Discover, most places take it - but some don’t - want a MasterCard or Visa.
Most cards now have chips in them to avoid fraud of those getting your card number and trying to use it somewhere…if you always use the chip function, the card company will quickly flag suspicious charges and notify you. or shut it down.
