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Should you use multiple brokers?

Baptiste Wicht | Updated: |

(Disclosure: Some of the links below may be affiliate links)

Until now, I have only used a single broker and I thought it was not necessary to have multiple brokers. But is that really the case? Recent events have made rethink my views.

In this article, I review what can go wrong with a broker and whether having multiple brokers can help. And at the end of the article, I present our new strategy regarding multiple brokers.

What can go wrong with a broker?

To understand why we may need multiple brokers, we should look at things that can go wrong with a broker.

A broker can go bankrupt

The main issue that can happen is that a broker can go bankrupt. We have seen this recently with the bankruptcy of Flowbank. In this case, 22’000 people lost access to their shares for multiple months. This is the even that triggered this article and my change of strategy.

If a broker bankrupts, we are generally protected in multiple ways. Our cash is usually insured in most countries. For instance, in Switzerland, we get protection for up to 100’000 CHF with Swiss brokers. But in most cases, what matters in case of bankruptcy is access to the securities. And these are protected by segregation rather than insurance. So, the shares are held in the name of the investor and not in the name of the broker. This segregation should ensure that we get back our shares in case of bankruptcy.

However, this still means that we can go multiple months without access to our share. This can be a major issue if we need the shares to live. And it also means we have no place to invest during the proceedings, if we are still in the accumulation phase.

The best way to reduce the likelihood of this issue is to make sure to use a broker with an excellent financial reputation. But we cannot fully eliminate this issue.

A broker can get hacked

Another issue is that a broker can get hacked. The result of a hack can vary greatly. In most cases, you can expect at least a a short downtime. If this downtime is short, the consequences are likely little. But depending on the scope of the hack, the downtime may be longer, and you may not be able to access your account for a while.

And in the worst case, hackers could entirely break a broker and this could lead to your securities being stolen. This is an unlikely case, but it is still something to be aware of. There is not much we can do about it, but in this case, we can expect it would take a while to recover the money (if even possible).

While we are talking about hacks, it is worth noting that people are more likely to get hacked than companies. Therefore, you should take your online security really seriously. The biggest issue with online security is the person behind the account.

Avoiding this issue is very difficult, because any company is susceptible to hackers. And we do not know exactly how they are protected internally. When researching a broker, you should look for previous leaks and hacks and avoid brokers that are already weak in that area.

A broker can defraud you

The worst possible case that can happen is if a broker is scamming you. Broker fraud is not that common, but it exists. I am saying this is the worst case because it is the one where it will take the longest to recover your money and it may also mean that you may not recover everything.

If there are any red flags when researching a broker, you should avoid it. And using a well reputable broker, with a long experience, is generally the best way to avoid a fraud broker.

Why a second broker?

Using a second broker will ensure that when something bad happens to the first one, we still have access to a portion of our portfolio. Some issues listed before can be partially avoided by doing good research when selecting a broker, but they cannot be fully eliminated.

Therefore, a second broker provides availability when the first broker is not available for a reason or another.

Of course, you may not need this availability. But if you need your portfolio to live or if you have a substantial portfolio, this availability may be critical for you.

There are other reasons you would want a second broker, but I believe they are less important. Some people want to have different portfolios in different brokers. For instance, you could have an active broker and a passive broker. Another example is needing some advanced features that your main broker does not allow, like derivatives.

Disadvantages of a using multiple brokers

Of course, having multiple brokers also has some disadvantages.

If you have two brokers, you need to learn two platforms. If you find two simple brokers, that is fine. But some brokers are more complicated than others, so you may need to learn how to use the new one.

And after having learned two platforms, you must use two platforms. You will have to do some operations on each platform. So, it may take more time each month to invest.

And you have to be sure that both accounts are secure. Most people already have trouble securing one account. Using the same password for two different accounts is one of the worst things you can do for your online security. And since we are talking about money, you want to be even more careful with the security of these accounts.

Another significant disadvantage is that having multiple brokers is likely less fee-efficient. If you are already using the cheapest account for your needs, you will likely need to settle for the second best for your secondary broker. And sometimes, there is a maximum on custody fees. So, having two brokers may mean paying twice the maximum.

Another disadvantage is that you cannot have an overview of your portfolio in a single place. You will have multiple parts of your portfolio. And you will ideally need a global dashboard somewhere that lets you track your net worth properly.

Finally, having multiple brokers may complicate your taxes. You will have multiple statements and more positions and operations to declare. If you are a passive investor with simple portfolios, the difference will not be huge, but if you are more active, this may make a significant difference.

So, overall, the disadvantage of having multiple brokers is added complexity on multiple fronts.

How to implement multiple brokers?

If you decide to use multiple brokers, how should you go about it? There are three main strategies to implement multiple brokers in a portfolio.

The first strategy is to duplicate your entire portfolio at each of the broker. For instance, if your portfolio is 20% CHSPI and 80% VT, you would buy both VT and CHSPI at both of your brokers and invest according to your target allocation. In this case, you can still decide how much money you put in each broker. You may decide to overweight one broker or to have more or less the same amount of money in each broker.

The second strategy is to have each broker have a part of your portfolio. For instance, in the example mentioned before, you could have CHSPI with one broker and VT with another broker. Depending on your portfolio, this may be a good idea. But it will likely mean that one broker is highly overweight compared to the other broker.

I think both strategies make sense. It will mostly boil down to how much margin of safety you want with your second broker. If you want a little margin of safety, having only a small part of your portfolio with your secondary broker makes sense.

The third strategy is a bit different. In this case, you put a limit to how much you want in a single broker. For instance, you may say you do not want more than 500K CHF in one broker. When you reach that limit, you open a second broker, and you do not touch the first broker anymore. And when you reach the limit on the second broker, you will need a third broker and so on.

I prefer the first two strategies over the third one. The main issue I see with the third strategy is that it is difficult to set the threshold at which to diversify brokers. Furthermore, it means you have no diversification until you reach the threshold.

Our new strategy

Since the bankruptcy of FlowBank, I have been considering having a secondary broker. People got back their shares, but it look longer than expected, even for a small broker. So, if something were to happen to Interactive Brokers, I would not have access to my shares for a while. So, while Interactive Brokers is in excellent financial shape, I want to add another layer of safety to my plan.

I have decided to use Saxo as my secondary broker. As a result, I have created an account with Saxo. I have decided that I will hold my Swiss ETF (CHSPI) shares at Saxo bank. This means I will keep 15% of my portfolio with Saxo. It provides enough of extra security for me. I only want to have something available in case I lose access to my US ETFs at IB. And this also a great way to keep the fees to a minimum because IB is significantly cheaper for USD trades and conversions but Saxo can be cheaper than IB for CHF trades.

Of course, this means that I still have to maintain two accounts, but I think this is a small price to pay since I intend to use these portfolios once retired.

Moreover, we will also invest our spare cash from the company into a broker. For that, I have decided to go with Swissquote to spread the risk. If you ever wonder how difficult it is to create a Swissquote account for a company, it is a gigantic mess. I had to fill more than 10 pages of different forms and do multiple back and forth with the broker. It took 3 months to complete the account opening.

With our new strategy, we now have three different brokers, two for our main portfolios and one for the LLC. This strategy complicates our investing, of course, but I believe it is worth it.

Conclusion

Not everybody requires multiple brokers. However, people relying on their portfolios to live may want to protect themselves by using more than one broker.

Of course, using multiple brokers has disadvantages and may complicate your investing. So, you will have to weight the pros and cons to take an educated decision for your situation.

That article is not to imply that I do not trust Interactive Brokers anymore. On the contrary, IB will remain my main broker and I intend to keep 85% of my portfolio there. 15% will be in Saxo as a buffer against some things making it more difficult to withdraw money from my IB portfolio.

And if you wonder why I did not use IB for my corporate broker account, I was thinking it would be simpler to open a Swiss account (I was wrong, opening a Swissquote business account was horrible). If the company does well, we may consider splitting again between IB and Swissquote for the company.

If you would like to know more about the brokers we are using, you can read our reviews:

  1. My review of Interactive Brokers
  2. My review of Saxo
  3. My review of Swissquote

What about you? What do you think about this strategy? Do you use multiple brokers?

Recommended reading

Photo of Baptiste Wicht
Baptiste Wicht started The Poor Swiss in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. Since 2019, he has been saving more than 50% of his income every year. He made it a goal to reach Financial Independence and help Swiss people with their finances.
Discover Swiss Financial Secrets That Maximize Your Money!

Learn easy ways to optimize your finances and save thousands in Switzerland with our exclusive e-book. Learn about the most cost-effective financial services tailored for savvy residents and expats!

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15 thoughts on “Should you use multiple brokers?”

  1. Thank you for this article. Like you, I recently started having mixed feelings about using only one broker. I opened a Saxo account and triggered a first transfer from IBKR to Saxo. It seems to be anything but smooth! Did you have a better experience with your own transfer? How long did it take from the initial request to the stock arriving in your account? Did you have to do the job on both ends, the sending end and the receiving end? Thank you in advance for this additional insight :-)

    1. Hi RF

      I did not transfer any shares from IB to Saxo. I start my portfolio from scratch on Saxo.
      In general a share transfer takes about 2 weeks and you generally need to tell both ends indeed.

  2. Thanks for the great article, as always!
    I think there might be a small spelling mistake in your article. You said “Using the same account for two different accounts is one of the worst things you can do for your online security.” Did you mean “using the same password”?

  3. Hi Baptiste,
    Thanks for the informative post.
    In the disadvantages of having a second broker you didn’t mention the return on investment would be lower over time, if you split your portfolio over 2 brokers for example. This is a reason I would consider not opening a second broker. If my assumption is correct?

    Thanks
    C

    1. Hi Conor

      Can you expand? The returns should be exactly the same if you use the same portfolio. What will differ are the fees which may be more expensive at the secondary broker.

  4. Hi Baptiste,

    Thanks for the article. Was on my mind for some time too. What were the key considerations for choosing Saxo over let’s say Degiro for the secondary account?

    Thanks
    T

    1. Hi T,

      For me, I wanted a Swiss broker as my secondary broker. I felt that adding a secondary foreign broker did not help much. I wanted to make sure the second broker was very available.

  5. Hello Babtiste,

    Thank you for sharing your perspective and outlining the risks with brokers.

    Since recently I do have 2 Brokers too. I used to have DEGIRO, but upon your reco for IB and also the VT ETFs with related tax benefits I opened a IB account with VT ETF in which I now invest most of my saved income. I kept my world ETF on DEGIRO but stopped further investing into it. DEGIRO I simply continue to use for ‚feeding’ my non US ETFs.

    My gut feeling told me that it might be a good thing to have more than one Broker. Thank you for your perspectivey Indeed I came across another reason why it is better to have several brokers. In fact my world ETF on DEGIRO chose to fuse with an other ETF and move to a new domicile. Since then it was no longer possible for Swiss residents to purchase this ETF (only to sell). So I really glad was glad that I had started with the VT.

    1. Hi Barbara,

      Thanks for sharing your experience.
      I agree with your gut feeling :)

      It’s also a fair point that it may be worth having different ETFs sometimes, although it complicates things. But diversity is important, indeed. It has a cost that we must balance.

  6. Hi Baptiste,

    Thank you for the great post.
    Would you think Neon Invest is a good alternative?
    I am using IBK for US ETFs, but have Neon as my bank account and have there Swiss ETFs.
    I believe you also have Neon, why not have there ETFs?
    Do you think it’s best to separate the current account from the investment account? I have both Swiss ETFs and current account in Neon.

    Thanks!
    Best,
    Ana

    1. Hi Ana

      Neon Invest is great if you do not want to use US ETFs. So, yes, it could be a nice alternative for Swiss ETFs.
      For buying regularly, Neon will likely be cheaper, but it will likely be more expensive when selling because large operations are expensive compared to Saxo.
      But I agree that it’s a good alternative. In our case, I wanted to keep the option to get US ETFs.

  7. Hi, interesting.
    I use multiple brokers, principally formerly to increase the investment horizon. But given IB’s vast ‘universe’ this seems inefficient now (though still some rare stocks cannot be bought with them), when active investing anyway probably is not such a smart approach.
    “faites simple !” seems prudent in investing.

    (Swissquotes recently added to the max quarterly fees a special surplus % fee for accounts > 1 mio CHF, should this lucky situation arise. see fine print under ‘pricing’.)

    1. Hi Frank

      I agree that simplicity is very important. But sometimes it’s also not enough for everybody.
      And yes, the extra fee for large accounts can make Swissquote inefficient in the long-term. But I don’t intend to reach that level with the SQ account at all.

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