Investors are consolidating their financial accounts into a single institution more and more these days, as the line between banks and brokerages continues to disappear — or at least be blurred.
Traditional mega-banks such as Bank of America and Wells Fargo now offer investors quality brokerage arms, while traditional brokers such as TD Ameritrade, E*Trade and Interactive Brokers provide customers a range of banking services in an attempt to help you turn your account there into a “do-it-all” account.
Yet as institutions offer more features and services, they don’t all offer the same level of service or product. One broker may offer a low trading commission but average customer service, while another offers a great trading platform but no discounts for buying and selling exchange-traded funds (ETFs) and mutual funds.
If you want to get a better overall product and don’t want to leave money on the table, then it may make sense for you to have multiple brokerage accounts. You’ll be in a position to get the best of several brokers and can decide which broker makes sense for any given action you want to take.
Here are three reasons why having multiple brokerage accounts can really pay off.
1. Stock and ETF trading commissions
Brokers compete on cost — a lot. When one broker drops its headline commission rate, it’s not unusual for rivals to follow suit in the days after the change.
It’s not just stock commissions, either. Brokers have driven down trading costs on many ETFs, with many offering hundreds of commission-free ETFs. Meanwhile, leaders in the fund sector, such as Vanguard, are making their funds even cheaper to own. For example, in 2018 Vanguard lowered the minimum to invest in its cheapest tier of funds.
And on top of all of that, many brokers offer thousands of mutual funds with no transaction fee.
That rivalry is a boon for customers, of course. But are you taking advantage of it, or have you continued to stick with one only one investment account?
Interactive Brokers has been a long-time leader in low costs, offering trades for as low as a $1. But you need to read the fine print: that $1 is a minimum, and the broker charges a half-penny per share (unless you’re enrolled in a different pricing structure). Once you’re trading more than 200 shares at a time, the price rises. When you surpass 1,000 shares at a time, then you’re paying at least the $4.95 commission offered by rivals Charles Schwab and Fidelity, for example.
If you’re looking for rock-bottom trading costs, it doesn’t get any better than free. That’s where upstart Robinhood comes in, allowing you to buy stocks and ETFs gratis. Some providers offer free trades if you have enough assets with them: Merrill Edge has a program where you can receive free trades starting with just $20,000 in assets held there or with parent Bank of America.
But these low-cost brokers don’t offer everything you’ll value, and so while it’s useful to have an account there, you’ll also benefit from having an account at another brokerage or two, as well.
2. Better research and education
Quite a few brokers compete on providing great research and education for their customers. The best brokers offer detailed fundamental research on a huge number of stocks.
Some brokers such as Merrill Lynch offer their own in-house research reports, which go into great detail on a stock, offering earnings projections and more. Others, including Charles Schwab and Fidelity, offer a variety of reports from high-quality third-party providers. These brokers also provide market commentary, so you get a sense of how the market’s acting.
Both Schwab and Fidelity also offer excellent customer service and are the overall winners in Bankrate’s 2019 review of best brokers.
These two are both also well-known for the educational components on their online offerings. They provide a variety of articles and modules to teach you how to invest and help understand the variety of tools they offer – such as stock and fund screeners.
Another standout for education is Merrill Edge. The broker provides articles and videos that explain topics such as retirement, college planning, personal finance and investing.
3. Lower margin costs
Another feature that more advanced investors might appreciate is lower margin costs.
To recap, margin is a loan that you can take against the equity in your brokerage account. Effectively, the broker allows you to overdraw your account and then charges you interest on the overdraft. The interest expense is simply rolled into your overdraft balance. Then whenever you add cash to your account or sell a stock, the margin balance declines.
There’s really a standout player in the industry here, whereas many brokers charge much more. Interactive Brokers has long been recognized as the leader in providing low margin rates, and it offers variable margin rates that depend on the federal funds rate. Its highest margin rate is about 1.5 percent above the benchmark rate from the Federal Reserve.
As the Fed raises or lowers interest rates, Interactive Brokers margin costs will track them. And if you borrow more from the broker, the rate declines.
While margin loans are generally for more advanced investors, margin can help juice your investment returns, especially if used prudently and in moderation. Plus, margin loans can be used for an easily accessible emergency loan, if you need quick access to cash.
While brokers offer many similar services, there are standouts in each category and certain ways that each broker adds a little something extra. By having multiple brokerage accounts, you can take advantage of the strengths of each broker, mixing and matching the qualities that you find valuable. And that should save you money and offer a better overall product and experience.