While some investors appreciate the simplicity of keeping all their investment funds under one account, there are many reasons to branch out to different brokerages.
Some investors have several brokerage accounts to keep their retirement funds and active trading accounts separate, while others prefer to keep their niche accounts with companies that specialize in certain industries or sectors.
[Sign up for stock news with our Invested newsletter.]
Whether or not to have multiple brokerage accounts can be largely based on your financial goals. “If the goal is to grow, accumulate and achieve the highest rate of return possible, then it may make sense to have multiple brokerage accounts,” says Billy Voyles, president of Fundamental Wealth Designs in North Oaks, Minnesota.
Taking a more straightforward approach may be better for those who have less to invest or who want to avoid the complexity that comes with managing multiple accounts.
If you’re considering whether it’s worthwhile to open a second, third or 10th brokerage account, here are some points to keep in mind:
— Multiple brokerages help diversify and manage risk.
— Work toward financial goals with a holistic approach.
— Disadvantages of having multiple accounts.
Multiple Brokerages Help Diversify and Manage Risk
A benefit of owning multiple brokerage accounts is they can help diversify your holdings
.
“By having multiple accounts, you can invest in a variety of assets, such as stocks, bonds, mutual funds and exchange-traded funds, with different brokers,” says Doug Roller, owner and investment advisor representative of Crossroads Financial Group in Fort Wayne, Indiana. “Access to different investment options is useful because different brokerage firms may offer access to unique investment opportunities, such as initial public offerings, private placements or alternative investments.”
Some investors choose to work with multiple brokerages to mitigate risk and protect their assets. Spreading your assets across different brokerage accounts can help protect you against potential fraud or unauthorized access, Roller says. If one broker has a breach, then you can still trade with another investment firm.
The safety of your funds is also a concern. The Securities Investor Protection Corporation’s account insurance protects up to $500,000 per brokerage account, which is important because “if a brokerage firm or custodian fails, these funds are restored in the account, regardless of if the brokerage company or custodian is defunct,” says Steven Conners, founder and president of Conners Wealth Management in Scottsdale, Arizona.
Brokerage and custodial failures are rare, but essential to consider, he says.
[READ: 5 Best Free Stock Analysis and Research Tools Online]
Work Toward Financial Goals with a Holistic Approach
In addition to specializing in certain investment products, brokerages can specialize in different aspects of wealth management. Choosing to work with multiple firms can provide exposure to a variety of benefits and services that may not be available at a sole institution.
“What sets firms apart from each other can be attributed to several factors, including trading platforms and tools, commission and fees, investment options, reputation and regulations,” Roller says. Sometimes financial goals can be complex, and that might require partnering with multiple professionals who specialize in different areas of the financial industry.
“The biggest benefit to having multiple accounts is your ability to absorb and partner with multiple professionals, all seeking to achieve the same goal,” Voyles says.
It’s common for financial goals to fluctuate throughout your lifetime. A recent university graduate won’t have the same goals as a newlywed with a baby on the way. The same goes for those nearing retirement.
As such, “it depends on the stage of life the client is at whether or not they should have multiple accounts,” Voyles says.
That said, if you’re transitioning into retirement, when you’ll be living off your investments and savings and need detailed cash flow management, you may be better off partnering with a single dedicated firm to avoid unnecessary complications, he says.
The financial professionals you choose to work with are among the most important choices you can make in your life. No matter where you are in your financial journey, it’s crucial to partner with experienced experts you can trust.
“It’s the financial professional that can make or break the reason for having an account at one or more brokerage firms,” Conners says.
Disadvantages of Having Multiple Accounts
Working with more than one firm can have its advantages, but like most things in life, it can also come with drawbacks if not executed correctly.
Communication is the key to successfully working with several brokerages. Complexity and confusion can occur if the partnership lacks effective communication, Voyles says.
“It’s more important than ever for there to be open and free-flowing communication with clients who are with multiple brokers,” he says. If you decide to go this route, it’s essential to make sure all parties are aware of what’s going on in each account so adjustments can be made, if necessary.
“If you can introduce separate brokers so that everyone knows their role, we believe it could be an even more beneficial partnership,” Voyles adds. On the other hand, if communication falls by the wayside, it could end up costing you time, resources and a sense of continuity.
Partnering with multiple brokerages can have more tangible costs, too. “Higher fees and expenses can cause some confusion with tax reporting,” Roller says. Investors should carefully consider advisory fees, expense ratios, minimum account balance requirements, inactivity penalties and other associated fees.
“It could also cause dilution of investment focus, meaning instead of focusing on a well-thought-out investment plan within a single account, individuals may spread their investments across multiple accounts — potentially leading to lack of cohesive investment planning and diversification,” he adds.
There may even be times when partnering with multiple brokerages is unnecessary. For example, if you’re just starting to invest, you may not need to consider more than one brokerage for several years.
Whether you have one brokerage account or a dozen, the most important element is that you have a well-diversified portfolio that’s tailored to your goals, timeframe and risk tolerance.
[See: The Best Brokers for Beginners in 2024]
More from U.S. News
How to Become a Millionaire by Investing
Should Investors Have Multiple Brokerage Accounts? originally appeared on usnews.com
Update 02/28/24: This story was published at an earlier date and has been updated with new information.
