Brokers - What's the Attraction?

[Elizabeth Richardson]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

Elizabeth Richardson

 

[beliavsky]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

At Fidelity and many other brokerages, one can hold mutual funds,
stocks (including ETFs), bonds, and even options in a single account,
which is convenient. Fidelity, Schwab, and other brokerages allow you
to own funds from many different fund families in a single account,
rather than having a separate account for each fund family. I pay no
extra fees to buy Fidelity funds in my Fidelity brokerage account, and
in many cases there are no fees for transactions in funds from other
families.

I think Scwhab (maybe Fidelity, too) charges mutual funds a fee to
participate in its "Mutual Fund OneSource" program, which may be passed
on to fund investors in the form of higher expense ratio. The
convenience of owning a fund needs to be weighed against its costs.

 

[zxcvbob]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

Elizabeth Richardson

About 1/3 of my Roth IRA is in mutual funds, and the rest in individual
stocks and bonds. By keeping it with a discount broker, everything is
in one account.

When I set up a Roth IRA recently for my teenage daughter, I looked into
investing directly with a mutual fund company, but they all had
maintenance fees and custodial fees, and Scottrade does not have any
fees except for transaction fees and margin interest. So the money can
sit there for years in a small account without losing $10, $20, or even
more every year just for the privilege of having the account open.

Bob

 

[BreadWithSpam]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

Consolidation - all in one place.
Liquidity - easy transfer to/from cash, access through brokerage.
Rebalancing - adjusting allocation amongst several funds
is a lot easier if they're all in one place.
Recordkeeping - one statement.
Tax reporting - one set of tax documents.
Access - not all mutual fund companies even *have* useful
online presences.

Downside: nothing's free. funds in NTF programs do pay
the brokerages for their inclusion. Funds accessible
through brokers which may be no-load if dealing with
the fund company directly may charge transaction fees
with the brokerage (particularly low-cost funds which
refuse to pay brokerages large percentages of their
management fees).

 

[MTW]

Tax reporting - one set of tax documents.

Except that when mutual funds are held within a brokerage
account, you are far more likely to received delayed or
"corrected" 1099s related to the funds. This, in my opinion, is a
major headache.

MTW

 

[zxcvbob]

Downside: nothing's free. funds in NTF programs do pay the
brokerages for their inclusion. Funds accessible through brokers
which may be no-load if dealing with the fund company directly may
charge transaction fees with the brokerage (particularly low-cost
funds which refuse to pay brokerages large percentages of their
management fees).

I chose a no-load fund (TAVFX) where my broker charges a $17 transaction
fee. It means I can't make small additions without the commission being
an exhoribant percentage, but the fund's management fees are a lot lower
without that 12-1b (or whatever it's called) expense back to the broker.
So I'll just make large annual contributions, and if I have a small
amount of money to invest in that account I'll put it in something else.

Bob

 

[Sandra Loosemore]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

I buy funds through the brokerage affiliated with my bank. This way,
I only have one monthly statement to look at and one statement at tax
time, it's easy to transfer money between accounts, and my overall
balance is high enough to qualify for my bank's premium account level
(better rates and fewer fees). Shrug. It's a minor convenience.

-Sandra

 

[Mark Freeland]

In several threads recently, people have said they have
mutual funds in brokerage accounts. Except for 401k
accounts, I deal with the mutual fund company directly.
Why would I want, instead, to deal with a broker?

[...] I pay no
extra fees to buy Fidelity funds in my Fidelity brokerage
account, and in many cases there are no fees for
transactions in funds from other families.

Further, by consolidating assets in a brokerage account, you may receive
reduced rates or other perquisites, based on the total asset size. (The
same may be true of fund families, e.g. Vanguard "Voyager" service at $250K,
but if you split your assets in several places, you are less likely to reach
the requisite asset level in one place.)

In the case of the Fidelity brokerage account, they facilitate specific lot
orders for funds - fund families typically don't handle this online, if at
all (you are stuck with FIFO selection of shares to sell).

I think Scwhab (maybe Fidelity, too) charges mutual
funds a fee to participate in its "Mutual Fund OneSource"

they all do, though some brokers offer some funds without transaction fees
despite the fact that those particular funds are not "paying tribute" to the
brokerage

program which may be passed on to fund investors in the
form of higher expense ratio.

A great example of this is Selected Shares - they offer "S" class shares
with no transaction fees through brokers, and have recently started offering
"D" class shares direct to shareholders with lower expenses.

On the other hand, you may be able to purchase some funds more easily
through a brokerage:

- lower minimums (e.g. Weitz funds have a $25K minimum, but $2500 through
OneSource)
- load-waived (e.g. Victory funds through OneSource)

The convenience of owning a fund needs to be weighed
against its costs.

I agree that this is the bottom line.

 

[Mark Freeland]

Except that when mutual funds are held within a
brokerage account, you are far more likely to received
delayed or "corrected" 1099s related to the funds.
This, in my opinion, is a major headache.

Since this is misc.invest.financial-plan, it is worth pointing out that one
is usually better off owing taxes to the government rather than expecting a
refund (you get the use of the money, rather than lending the government
money interest-free).

If you owe taxes, you also want to put off filing (paying the taxes) as long
as possible. By April, the brokers should have gotten their 1099s right.
Just use the last set - not a major headache.

 

[Elizabeth Richardson]

I buy funds through the brokerage affiliated with my bank. This way,
I only have one monthly statement to look at and one statement at tax
time, it's easy to transfer money between accounts, and my overall
balance is high enough to qualify for my bank's premium account level
(better rates and fewer fees). Shrug. It's a minor convenience.

This is one of the reasons why I question wanting to keep everything with a
broker. I don't understand why you would want a consolidated statement. I
like to keep everything for one fund in one folder. How do you keep the
transactions for Fund X separate from Fund Y? Do you know what you have when
you sell shares of Fund X? Can you easily find your purchase history?

Elizabeth Richardson

 

[Rich Carreiro]

How do you keep the transactions for Fund X separate from Fund Y?

Broker does that for me. At the end of the year I get a statement of
all transactions, broken out per-security (stock, bond, fund, or
option).

Do you know what you have when you sell shares of Fund X?

What do you mean by "what you have"? It's trivial to know how many
shares of each thing I have -- every broker has that.

My broker also has per-security cost-basis tracking. I can view all
my open lots anytime I want on a per-security basis. For funds I have
the option of actual lot or single-category average basis tracking.
For all securities I can place specific ID orders online. Better than
anything I've seen at any fund company. They even (correctly) adjust
basis and holding period for wash sales.

Can you easily find your purchase history?

Yes.

And this is all with a discount broker. No full-service
brokers required.

 

[Mark Freeland]

This is one of the reasons why I question wanting to keep everything
with a broker. I don't understand why you would want a consolidated
statement.

If you want separate statements, you can often set up different
brokerage accounts with the same broker, and keep one fund in each
account. You still get a number of the advantages I and others have
described - liquidity, improved recordkeeping, simplified online access
(a single login/PIN), service commensurate with higher (combined)
balances, access to multiple fund families, etc.

Some brokers will issue a combined account statement for multiple
accounts (as differentiated from multiple positions in a single
account). Each account is tracked separately, but printed on
consecutive pages in the combined statement.

Until recently, I even had a broker mail the statements for one account
to a one address, and a combined statement with several other accounts
to a different address across the country. Not that I suggest you keep
your records *that* separate

 

[Richard Cline]

In article <[email protected]>,

In my case I am required to make an annual withdrawal from my IRA. It
is convenient to have all IRA investments with one brokerage. They
calculate my RMW and inform me of the amount.

If I were invested directly with a dozen different companies or fund
groups it could lead to a lot of opportunity for confusion with myself,
the companies, and the IRS.

Dick

 

[Sandra Loosemore]

This is one of the reasons why I question wanting to keep everything with a
broker. I don't understand why you would want a consolidated statement. I
like to keep everything for one fund in one folder. How do you keep the
transactions for Fund X separate from Fund Y? Do you know what you have when
you sell shares of Fund X? Can you easily find your purchase history?

Whenever I make a fund transaction, my brokerage sends me a piece of
paper in the mail (separate from my monthly statement) with the
details of that specific transaction. If I make multiple sales or
purchases at the same time, I still get a separate piece of paper for
each one. I file those away so that I have records for tracking
capital gains.

-Sandra

 

[HW \Skip\ Weldon]

In several threads recently, people have said they have mutual funds in
brokerage accounts. Except for 401k accounts, I deal with the mutual fund
company directly. Why would I want, instead, to deal with a broker?

The answer varies with different investors. With my personal accounts
I have dealt with one fund family for years and have never seriously
considered branching out. (OK, sometimes another fund's returns are
attractive, but then I've experienced the long-term results of buying
into strong markets so I lie down until the urge passes. <grin>).

With that family I get low costs, all the diversity I need,
consolidated statements, basis tracking for non-retirmeent accounts,
dedicated phone lines for questions and other perks, on-line
management, etc. I'm happy.

But that does *not* mean it is for everyone. For example, an active
manager would probably feel hamstrung by extra charges. And they do
have IRA custodian and low-balance fees, but my sense is that those
charges only apply to modest sized accounts. For those investors a
good brokerage like Scottrade might be ideal.



-HW "Skip" Weldon
Columbia, SC

 

[MTW]

If you owe taxes, you also want to put off filing (paying the
taxes) as long as possible. By April, the brokers should have
gotten their 1099s right. Just use the last set - not a major
headache.

A lot depends on whether the original 1099s have, in fact, been
filed with the IRS before the correction is issued. The IRS
"matching computer" seems to have difficulty in understanding
that "corrected" 1099s REPLACE something that was originally
filed, rather than ADDING TO IT. The result is that you, the
taxpayer, may get the privilege of having to explain the
situation to the IRS. Now THAT is a HEADACHE! <grin>

MTW