# Is it poor risk management practice to use only one broker?



## helpme (30 December 2017)

I am a happy customer of Interactive Brokers. IBKR is my only broker because I cannot find a better alternative for investing in international stocks. 

Do members here think it is a bad risk management practice to use only one broker? How do you mitigate this single-point-of-failure risk?


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## tech/a (30 December 2017)

Depends on your capital at risk
If it’s 70% of net capital available for investment or more 
I personally wouldnt feel that safe.

If there is a repeat of 2009 where is truely safe?


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## skyQuake (30 December 2017)

IKBR is listed in the US. If it starts looking shaky then get your money out asap.
For buy and hold, you can use commsec. The fees aint pretty but if commsec/cba goes down even with the govt guarantee then there's probably other things to worry about.
You can always keep some l/t holdings with commsec and trade s/t through IB.


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## Smurf1976 (30 December 2017)

To clarify, the concern here relates only to cash held in the brokerage account?

Or you’re saying that if the broker goes bust then there’s some risk to my actual share holdings?

I’d have thought that ASX procedures and various regulations would have any risk covered so far as the shares are concerned and it’s only the cash we need to worry about?


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## helpme (30 December 2017)

Even if share holdings can be recovered, there will be a delay. Furthermore, if there is a need to sell because fundamentals have deteriorated or some support line was violated, one cannot sell. It is not just the loss of cash. 



Smurf1976 said:


> To clarify, the concern here relates only to cash held in the brokerage account?
> 
> Or you’re saying that if the broker goes bust then there’s some risk to my actual share holdings?
> 
> I’d have thought that ASX procedures and various regulations would have any risk covered so far as the shares are concerned and it’s only the cash we need to worry about?


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## Smurf1976 (30 December 2017)

helpme said:


> Even if share holdings can be recovered, there will be a delay. Furthermore, if there is a need to sell because fundamentals have deteriorated or some support line was violated, one cannot sell. It is not just the loss of cash.



An interesting point.

There I was thinking I was borderline crazy for having my cash and holdings spread across two brokers but it seems there’s some benefits after all.

Original motivation was to have a credible “I’ll take my business elsewhere straight away” position which brought them into line when some problems occurred. Plus spreading the cash just in case.


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## Signwave (31 December 2017)

helpme said:


> I am a happy customer of Interactive Brokers. IBKR is my only broker because I cannot find a better alternative for investing in international stocks.
> 
> Do members here think it is a bad risk management practice to use only one broker? How do you mitigate this single-point-of-failure risk?





helpme said:


> I am a happy customer of Interactive Brokers. IBKR is my only broker because I cannot find a better alternative for investing in international stocks.
> 
> Do members here think it is a bad risk management practice to use only one broker? How do you mitigate this single-point-of-failure risk?




My resolution topic  for this year is "Risk Management" in all aspects.
Regards two brokers, re information. I have had very good info by talking to other brokers within the same firm about the same topic. Usually,  when my regular is away. This is good practise to encourage as it levels out natural bias.
Regards financial, risk a friend of mine lost their stake when the broker went bust whilst they were discussing a possible portfolio. The future stake was being held by the broker.
What I do is have two accounts in the brokers trading bank. One of these they can access, the other not. If we do a trade,  I  transfer by e-mail from one account to the other which happens that day. In this way the broker can see you have sufficient funds but cannot touch them. If I sell ,I transfer back into the safe account. There maybe slicker ways these days but you get the idea


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## Sharkman (31 December 2017)

helpme said:


> I am a happy customer of Interactive Brokers. IBKR is my only broker because I cannot find a better alternative for investing in international stocks.
> 
> Do members here think it is a bad risk management practice to use only one broker? How do you mitigate this single-point-of-failure risk?




my understanding is that if the broker uses the stock certificate model (which CHESS sponsorship would fall under) your holdings are safe even in the event of broker failure as you remain the legal owner of the stock.

if the broker uses the nominee account model (which IB does), you are only the beneficial owner of the stock. the broker remains the legal owner. so if the broker goes down, you can potentially lose some or all of your holdings, unless there is some insurance coverage.

this is why i'm a bit nervous about the conversion of IB LLC accounts to IB Australia accounts. IB LLC has SIPC coverage which insures each client's first $500K USD in the event of broker failure. i don't know what insurance we would have if IB Australia goes down. possibly only the federal government guarantee which i think is $250K AUD on your cash holdings only - not stock.

as such, if your only broker is a nominee account broker, my opinion would be that unless those holdings are fully or at least mostly covered by some sort of insurance (eg. SIPC), it is bad risk management to put everything in there. if your only broker is CHESS sponsored i believe that should be ok as you retain legal ownership of the stock no matter what and you can't lose it even if the broker has to be wound up.

i mitigate it by pretty much doing what skyQuake suggested. i deliberately keep my IB holdings at or slightly below $500K USD and keep the rest in a local broker that uses CHESS sponsorship. the IB account is used for options trading and the CHESS sponsored broker for buy & hold.


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## brisman (1 January 2018)

Good points on risk management.  Also if you have multiple brokers you may be able to use free market data from other brokers to avoid IB market data fees.  You can also learn from the different new features that come out from each broker in competition with each other.


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