I have one fund in a few families and so am thinking of consolidating in part to make it easier if somethig appens to me Most but not all are no transaction fee if I want to sell at some point. I also have some stocks acquired as resultof spinnoffs etc that are in different trust companies that hold that sort of stuff.
I think the consolidation obviously has some benefits but are interested in the cons as well as other pros.
Comments
Brokerages may impose their own min on funds (e.g. Fidelity imposes a $2500 min on funds in taxable accounts even if the fund itself has a $1000 min). Conversely, brokerages often let you into institutional funds at lower minimums, especially within IRA accounts.
Some fund families will waive brokerage commissions on house ETFs (e.g. Vanguard doesn't charge for Vanguard ETF purchases through Vanguard Brokerage, Schwab doesn't charge for Schwab ETF purchases). On the other hand, brokerages may waive commissions on outside-sponsored ETFs (e.g. Fidelity waives brokerage charges on some iShares).
Some fund families offer perks that you won't get through Fidelity or Schwab, e.g. TRP offers free premium M* accounts if you keep $100K at TRP; Vanguard offers a free financial plan if you keep over $500K in Vanguard funds directly with them.
Typically if you want to transfer an account out of a mutual fund family, the transfer is free. Brokerages typically charge $50-$100 for this service. (It's call an ACAT transfer.)
Brokerages are always tinkering with their NTF list, so funds that you purchased NTF may go off that list at a later time (so you'd need to pay to sell or even transfer out).
Brokerages are not good at providing foreign tax credit info on funds. (You may need to know the amount of foreign income your shares generated - sometimes you still need to go to the fund family to get this info, but if you invest directly with the fund that info may be on your account statement.)
Some fund families let you into closed funds if you own a sibling fund. I suspect that it would be harder to do this through a brokerage, though I haven't pressed the issue yet. (And it would certainly require human intervention which would likely incur a transaction fee, even for a fund that was NTF when purchased online.)
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All that said, if you've got a bunch of different NTF funds that you don't trade frequently, consolidating them at a brokerage makes things much easier to deal with. And the brokerages (especially Schwab) make it possible to get into some institutional (cheaper) or load funds at a lower min and without a load.
On the other hand, there was almost no delay in transferring "in" orphan accounts from other fund families.
One other aspect of Schwab is that because they have a separate but affiliated banking division you can also open a checking account there, and thus easily transfer cash between your brokerage account and checking account (or vice-versa), making it easily accessible either by writing a check on the account or by using the included ATM card. The banking fee schedule is very decent- almost all services at no charge, including ATM transactions, checks, etc.
With respect to Kaspa's input, I agree with a longer term view on holding funds (I can't imagine buying a fund and dumping it within 90 days), and it's my understanding that there are no fees associated with purchases of any Schwab ETF funds. Schwab also has and extensive list of NTF/No Load funds from many different fund families.
I spoke with Fidelity recently, and they claim that their Cash Management (bank) account is a full-fledged brokerage account where you can do trading. (And actually, their footnotes say that the core account is swept to bank accounts, not that the core account is a bank account. So I wonder how it differs from IRA accounts where you can also tell Fidelity to sweep the core account to bank accounts.) Don't know how this compares with the Schwab bank account, though I'm guessing that the Schwab bank account is a true bank account, separate from a brokerage account.
Yes, you're right- there is a separate "cash account" within the brokerage account. Transfers between that "cash account" and the bank "checking account" must be done manually, by the account holder. Incidentally, the checking account is FDIC, but the "cash account" is not.
On the banking side they offer a full service range, such as savings accounts, loan origination, CD's, etc.
http://www.schwab.com/public/schwab/banking_lending/checking_account
I keep minimal 'cash' in my brokerage account, mainly from non-reinvested dividends. Whenever I buy a fund/ETF, I transfer the corresponding amount from the high yield checking to brokerage with a couple of clicks.
Both Schwab and Fidelity (have a 401k roll-over IRA) have excellent customer service
They also do not have as good bank facility (e.g., bill pay, ATM, check-writing, etc.), if it is important to you.
As far as quarantining deposited money, they just hold for the mandatory 3 business days and then it's available in your account.
of $49.95 as shown below from their website. That compares to $17 at Scottrade and if I recall correctly when I was at Fidelity it was $75. Then at Fidelity if you exceed a certain amount of short term trades they begin charging you an additional $75 on your purchases.
>>>>Schwab’s short-term redemption fee of $49.95 will be charged on redemption of funds purchased through Schwab’s Mutual Fund OneSource service (and certain other funds with no transaction fees) and held for 90 days or less. Schwab reserves the right to exempt certain funds from this fee, including Schwab Funds®, which may charge a separate redemption fee, and funds that accommodate short-term trading. For trade orders placed through a broker, a $25 service charge applies. Funds are also subject to management fees and expenses.<<<<
- Sometimes the funds are first closed at brokerages. For example, I remember Wasatch and Oakmark funds were first closed at brokerages while they were still open for investment at the respective fund companies.
- The foreign tax credit calculations (when box 6 on W2 has a non-zero value) for the foreign funds held at brokerages are real pain as the brokerages do not send all the required information. This forces the investors to call the fund companies or go to the fund company web sites - I do this every year for almost every foreign fund held at every brokerage.
- Sometimes fund companies adjust or recharacterize the year-end distributions after 1st of Jan. before Apr. 15th. When this happens, two problems occur - 1. The brokerage might send you the corrected forms after Apr. 15th (yes!) forcing you to re-file the adjusted tax return if you have already filed it. and/or 2. The way Schwab reports such fund distributions reinvestment transactions is very complex. When I called Schwab, two of their representatives could not explain what was going on. You can spend a lot of time figuring out how to report these distributions on the tax return - even if you are using Turbo Tax or some other tax software.
- If a fund is still open for direct purchase, you can sometimes purchase the fund directly and transfer it immediately to your brokerage. (I've also seen at least one fund close it at brokerages and also say that if you open an account directly with them, you cannot transfer it out for six months.)
- Some fund companies (I think Vanguard is one of them) do an excellent job of providing personalized (dollar amount) foreign tax figures on the 1099s they send if you invest directly. But if you need to get the rates to calculate your personal numbers, they make it difficult (though not impossible). I've had to go to the "advisor" portion of a website to find the rates.
- What I've found particularly irksome is seeing a broker put the corrected tax form online April 15th, but not mail it out until later. And not get any electronic notification from the broker that there was an update available (even though they'll notify me of prospectuses, reports, etc. electronically).
One learns to live with all of these, but the foreign tax issue has got me reconsidering the way I hold foreign funds in taxable accounts. Especially since they're the main cause of my corrected 1099s.