Protecting your Equity Assets

Risk Assessment
July 16, 2023

The "Better Than Free Lunch" of diversifying the location of your assets. The "Better" part is explained at the end of the article.

1 - Use multiple brokers - There are many possible, although unlikely, scenarios that can affect your brokerage account from fraud to a security breach to a system crash. I don't see a compelling reason to keep all your assets at one broker. There are a number of major online brokers and it's fairly easy to spread your assets among them. Many provide free investment advice. It's usually beneficial to get a variety of opinions.

2 - If you're not buying on margin, set your account up as a cash account. That way the broker can't loan your stocks to other brokers or their clients. Your stocks are segregated from the firms.

3 - If you're holding stocks for the long term, it might be a good idea to have them held at the company's transfer agent. There's no cost for this and the shares will be listed in your name in the company's records. This adds an additional layer of security. Note: It can be inconvenient as you might have to transfer the securities back to a broker if you have specific selling strategies. The transfer agents I've dealt with only offer sales at the close.

4 - If you buy treasuries through your broker, consider setting up an account with Treasury Direct and buying your treasuries through them. They don't charge for purchases and have an auto rollover feature that makes reinvestment convenient.

Best of all, many of the online brokers will pay you to move money to their platforms. However, they don't all offer the option year round. The standard bonus for transferring $1M in cash or securities is $2,500. Last I checked, was offering $4,000 for $1M and $10,000 for $5M.

The risk of a major brokerage firm having an issue that causes you to either lose your securities or lose access to your securities for a period of time is very low. Low does not equal non-existent. If you have a $20M portfolio, what’s the cost or downside of keeping $5M with transfer agents and the remaining $15M spread among 4 or 5 of the major brokers. In our opinion, there’s no downside. In fact, we think it is one of the few no cost insurance options.