Brokers - What's the Attraction?

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

Reply to
Elizabeth Richardson
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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.

Reply to
beliavsky

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

Reply to
zxcvbob

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).

Reply to
BreadWithSpam

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

Reply to
MTW

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

Reply to
zxcvbob

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

Reply to
Sandra Loosemore

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).

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

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)

I agree that this is the bottom line.

Reply to
Mark Freeland

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.

Reply to
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. 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

Reply to
Elizabeth Richardson

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).

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.

Yes.

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

Reply to
Rich Carreiro

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 :-)

Reply to
Mark Freeland

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

Reply to
Richard Cline

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

Reply to
Sandra Loosemore

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. ).

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

Reply to
HW "Skip" Weldon

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!

MTW

Reply to
MTW

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