Q: A recent Money issue recommends consolidating accounts at a single brokerage. I’d like to do that, but we worry about having all of our eggs in one basket. What if the company’s systems are hacked, my password gets compromised, or the company gets managed like Enron or the big banks in 2008? – Shirley in North Carolina
A: These are valid concerns, no doubt, but you are still better off consolidating your accounts to the extent you can, says Michael Garry, a certified financial planner and chief compliance officer at Yardley Wealth Management in Newtown, Penn.
For starters, most brokerage firms offer protection should someone gain unauthorized access to your account. (If you share your password with your unscrupulous cousin or are otherwise negligent, it’s a different story.)
Check your firm’s brokerage account agreement to understand exactly who’s liable when and for what.
To make sure you’re covered in the event that your firm goes belly up, see if accounts are protected by the Securities Investor Protection Corporation (SIPC). This insurance, which is not unlike Federal Deposit Insurance Corporation protection offered at banks, covers up to $500,000 per account type at each firm. “Most big firms also have insurance on top of that,” notes Garry.
Those safeguards are important, but here’s the thing: The best way to protect your nest egg is to regularly check your account for suspicious activity and routinely change your passwords. “It’s a lot harder to be vigilant if you have six or seven different accounts,” says Garry.
More importantly, having too many accounts poses an even bigger risk than a security breach or bankruptcy – mismanaging your savings. “Remember that your asset allocation can account for 90% of your performance,” Garry adds. When your accounts are spread out, he says, it’s much harder to gauge how you’re invested, measure your performance and make necessary changes to your allocation.
Of course, if you are going to put most of your eggs in one basket, make sure it’s the right basket.
In addition to the right insurance and security measures, look for a firm that offers the right mix of investment products, tools and research. Fees should be a big part of your equation. Just keep in mind that the costs associated with long-term investing may be very different than those of, say, trading stock.
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It may very well be that no single firm offers exactly everything you need. In that case, it may make sense to do business with more than one firm.
You may, for example, keep most of your assets with the brokerage that offers the best retirement-planning tools and broadest selection of no-transaction-fee mutual funds, but then designate a discount broker for buying and selling individual stocks. Under that scenario, a little distance doesn’t hurt.