I once discussed that my Scottrade account was growing to the point to where it made sense to diversify brokerage accounts.
That was June 2013.
Better late than never, right?
So here we are now almost two years later and I finally opened a second brokerage account. Truth be told, I should have done this a while ago.
Why Have More Than One Brokerage Account?
Perhaps the better question is why not?
The Securities Investor Protection Corporation (SIPC), a non-profit organization, covers individual clients for up to $500,000 in securities and cash ($250,000 for cash only) in case a brokerage were to fail or assets are missing.
Now, $500,000 is a lot of money. And it takes years and years for many of us to get to that kind of asset base. I’m certainly not even close.
However, what happens if a brokerage does fail? How long would it take to regain access to your money?
Imagine you’re living off of your dividend income and your brokerage goes bankrupt. If your assets are all in one place and that dividend income is covering a substantial portion of your expenses, that could become problematic pretty quickly. Of course, it’s a good idea to keep some cash around for emergencies – such a scenario would definitely qualify as an emergency. But if it’s a major brokerage, it could take weeks before you’d see things return to normal again. Not to mention it’d be a huge headache.
But the bigger problem is the risk of permanent loss of wealth if you cross over $500,000. The SIPC only covers you up to that level, so if there’s fraudulent activity of some type and some of your assets are missing, there’s a chance that you could actually lose money. Now, most brokerages have insurance above and beyond the SIPC coverage, but major brokerages out there have hundreds of billions of assets in clients’ accounts, and I’ve never seen insurance that covers a significant portion of that.
The odds of a major brokerage going bankrupt are low. The odds of fraudulent activity occurring and some of your assets going missing are even lower, I’m sure. But if one can mitigate these risks by spreading their wealth around, why not?
Meanwhile, there is essentially nothing keeping one from opening multiple brokerage accounts. Paperwork is almost all digital these days, which means forms can be imported come tax time. There’s basically no learning curve once you’ve already used one – they generally all operate similarly. Moreover, there’s no significant benefit to maintaining all of your assets with one discount brokerage. It’s not like they give you a check or throw you a party once you cross over six figures.
I talk about diversifying income sources all the time, so it simply makes sense to diversify brokerage accounts as well. This is especially true once you have significant assets built up with one firm.
I’m nearing the $200,000 mark with my Freedom Fund. That $200,000 will eventually grow beyond the $500,000 that the SIPC covers even if I stop contributing any more fresh capital, so the time is right.
I opened an account with TradeKing at the beginning of April. So I’ve had about three weeks to test the platform, take a look around, and use their services so as to give an honest review, from both the perspective of a customer and someone sharing this information with you readers.
TradeKing was founded in 2005, so they’ve been around for a while. That’s one of the key things I look for in a brokerage. There are plenty of new guys around, but I guess you have to ask yourself if you feel comfortable with potentially thousands or hundreds of thousands of your own hard-earned money with a company that’s only been around for a few months or a year.
They’ve won rave reviews from many publications like Barron’s over the years for their customer service, usability, pricing, and innovation.
I find the platform easy to use. I also happen to like the look of it – they make use of a lot of white and grey.
As I mentioned above, most of the discount brokerages out there tend to work the same as far as their online platforms go. You have your typical main tabs up at the top. In TradeKing’s case, they’re: My Accounts, Trading, Quotes & Research, Tools, Education, Trader Network, and Client Service.
Most of this is self-explanatory. And I find myself using the first three tabs almost exclusively.
TradeKing Dividend Payment
My Accounts will show you your TradeKing divident payment, balances, positions, realized and unrealized gains/losses, account history, watch list, and any account settings.
Trading gets you to the order screen, to buy and/or sell what you need to.
Quotes & Research allows you to pull up detailed quotes on pretty much anything you’re looking for. Pulling up a quote for The Coca-Cola Co. (KO), for instance, looks like this:
From the quote area, you can then look at pertinent financial information like the price, valuation, yield, ex-dividend date, and market cap.
You can also pull up financial statements, detailed fundamental information, and analyst ratings/consensus.
You’ll also notice an S&P Capital IQ report for any stocks that S&P Capital IQ tracks. However, I have noticed that the platform is more geared toward traders. Whereas Scottrade makes it quite easy to find fundamental analysis, TradeKing seems to highlight technical charts and trading tools a lot more often, while leaving the S&P Capital IQ analysis, for instance, a very tiny blip on the screen at the top right.
But the platform is very easy to use. It’s fairly simple to bounce around wherever you need to be. And most everything you’ll need to know and look at is right on the home screen. There you’ll find your balance, open positions, order status, account information, and an area to quickly transfer money. It takes mere seconds to move around, find information, and buy stocks.
TradeKing is one of the cheapest players around in terms of commission fees to buy/sell stocks, especially as it pertains to those companies that offer a full, robust platform with instantaneous trades. At just $4.95 for most stock and ETF trades, they’re about as cheap as it gets.
You’ll find cheaper options out there like Loyal3 and Robinhood, but the former limits your options as far as what stocks they have available and also relies on batch orders, while the latter is brand new and doesn’t even offer a desktop platform yet (or even phone support). Price is what you pay, but value is what you receive in return. That truism isn’t limited to just stocks.
I actually used TradeKing for my most recent stock purchase of 25 shares of Microsoft Corporation (MSFT). The transaction was instantaneous and at the price I expected. The stock then immediately showed up across the account, while the cash used to fund the purchase was then deducted from the cash available to trade. All in all, everything went as expected.
Notably, the lower commission cost was one of the big reasons why that last purchase was smaller than usual. I tend to limit my commission costs to 0.5% during the accumulation phase, which I find reasonable. Scottrade charges $7 per transaction, which is why most of my stock purchases have historically averaged around $1,400 per transaction. However, with the lower fee of $4.95 at TradeKing, one could purchase $1,000 worth of stock at a time and still pay that 0.5%. So this gives one additional flexibility, especially if coming up with $1,400 or more at a time is burdensome.
I will note, however, that the $4.95 you pay comes with some drawbacks.
First off, I’ve always been one to prefer brokerages that have physical locations. I’ve only stopped in at my local Scottrade branch a few times over the course of the last five years I’ve been using them, but there’s something reassuring about knowing that there’s an office just up the road and you can talk to someone in person if you need to.
Meanwhile, TradeKing has no such physical branches. Whether that’s worth saving a few bucks compared to what some of the bigger guys charge is really up to you.
In addition, TradeKing charges fees in other places you wouldn’t expect. For instance, checking isn’t free – their Base Gold Product comes attached with a $50.00 annual fee. And a check withdrawal of your funds is $5.00. So the service is cheaper for the purposes of buying/selling stocks a couple times per month, but the other fees could very well add up depending on how you plan on using your account. I find these other fees slightly annoying.
In my experience, TradeKing’s customer service is more than acceptable, though I would prefer longer hours. They’re open 8 a.m. to 6 p.m. Monday through Friday via phone and chat. So no weekend hours or extended hours, and obviously nothing available in person. This is in comparison to the 6-1 M-F and 9-1 Saturday and Sunday that Scottrade is open, as well as the local branches and their respective hours. Perhaps not a big deal for some, but that is a potential drawback, especially if you notice an issue with your account and are looking for a resolution fairly immediately.
I can tell you that I discovered an issue shortly upon opening my account, which I didn’t find until just after TradeKing had closed for the night. What happened is that the funds that I transferred to my bank account immediately showed up as “Max Funds Available to Trade” on my home screen, even though I was specifically advised that there was a three-day hold on the funds. Meanwhile, that same “Max Funds Available to Trade” showed up as $0 on the Balances tab. So that inconsistency was strange to me, but I couldn’t call anyone until the following day. Even when I did finally reach someone, they had no answer as to why that was occurring and apparently no fix for it, either.
So the customer service was very friendly, but I think the hours could be better. And it seems like the technical glitch is a problem that they’re unable to solve, even though it’s really harmless.
I will note here that I was advised by customer service that the three-day hold on funds only applies to the first transfer, and any subsequent transfers that are larger. So if you transfer, say, $1,500 right after opening your account, every subsequent transfer of $1,500 or less will be available for immediate use. Transfers of more than $1,500 would then have to go through the three-day holding period once more.
If I were to rate TradeKing on a scale of 10, I’d give them an 8. I find the low fees wonderful, but I also think the drawbacks that come with those fees are somewhat priced in. And I find this true across the brokerage space. You often get what you pay for. I happen to think Scottrade is the best bang-for-your-buck brokerage, which is why I’ve been using them for five years. But the time has come for me to diversify outside that account. It’s a great first world problem to have.
I chose TradeKing because I wanted to see what some of the hoopla was all about regarding some of the cheaper brokerages. And I certainly appreciate spending about $4 less per month (assuming two stock transactions per month). Every dollar I’m not spending in commission fees is another dollar I can invest. And TradeKing seems to be a great compromise between cheap and quality, being the cheapest option I could find while still offering the overall quality and experience I was looking for. But I still think, however, that I’d prefer to spend just a couple bucks more for a better overall service. Others may find that $4.95 price point absolutely perfect, especially considering the quality of the platform.
My plan moving forward is to diversify brokerages much faster – perhaps opening my next account as early as hitting the $50k mark with TradeKing. I see no reason not to. Mitigating risks and potential headaches is just easy peace of mind, in my view. And most brokerages cost nothing to open an account, while funding is generally minimal (TradeKing currently requires $0 to open an account).
So I still strongly recommend Scottrade to everyone out there. However, TradeKing is a worthy option as well, as long as you’re okay with the drawbacks that come with the lower fees.
Update 7/23/15: Decided to close my TradeKing account. The customer service became increasingly poor for me. I also found the delay for fund transfers (could take hours) as problematic. The company, from what I was told on the phone, also offers no guarantees that my money will be safe in the event of electronic hacking. Will be discussing my new account shortly.
Full Disclosure: Long KO and MSFT.
Do you use TradeKing? Why or why not? What’s your favorite brokerage?
Thanks for reading.
Photo Credit: TradeKing
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