Multiple Brokerages: Opportunities & Costs

The stocks, bonds, ETFs, or mutual funds we use to invest are held inside investment accounts like a TFSA, RRSP, or non-registered account. In turn, those accounts are held at an investment firm or brokerage. The brokerage acts as custodian for those accounts. A common question is whether to use one or multiple investment brokerages. Particularly, once your portfolio gets larger.

Diversification by holding multiple stocks and bonds (or a fund that does it for you) mitigates risk. It is a good thing. Does that concept extrapolate to investment firms? In the preceding post, I described how CIPF coverage works. With that coverage, I don’t worry about using multiple brokerages to diversify against the risk of brokerage bankruptcy. However, there are other pros and cons of using more than one investment firm to hold your accounts that I’ll explore today.

Advisor Support & DIY Investing

Different brokerages may provide different levels of advisor support for their clients. A full-service firm is turn-key. You give them your money and they manage it. That should be coupled with all of the planning advice and support that you need as part of the package. However, you pay for that service via a combination of a %AUM fee plus the embedded fees in the funds they use. The combined costs are usually around 1.5-2.5%/yr, but may drop to under 1%/yr with a multi-million dollar portfolio.

At the other end of the spectrum, a discount brokerage (like Qtrade, Questrade, Interactive Brokers, etc) essentially only costs you the fees embedded in the funds you use. It is vastly less expensive but does not come with an advisor. However, you could hire a fee-only or advice-only advisor to fill that role, as needed. When your portfolio is over ~$100K, this is the most cost-effective way to get external financial advice. However, you must still do the basic investing tasks yourself. I show how to do that step-by-step (with screenshots) in my Interactive DIY Investing Guide.

The biggest potential opportunity using multiple brokerages is to have some of your investments with a full-service firm and some that you DIY invest. Getting the benefit of some financial advice while also saving fees on the self-managed portion of your portfolio. You may even consider shifting the proportion over time as your available time, comfort, and circumstances change.

---

Choosing An Advisory Firm

If using an advisor, use one that provides value for the cost of advice. An advisor managing some of your funds could help you with your risk tolerance assessment. Their coaching could help to get and stay invested more aggressively. These aspects are where advisors usually provide the greatest financial value. They must do that anyway when you invest with them – whether all of your investments are with them or not. They must also consider all of your financial assets to properly assess your risk capacity, and plan appropriately. A top-notch advisor will also work with you and your accountant on tax planning and other aspects of a comprehensive financial plan. Those are increasingly valuable at higher levels of income and wealth. It is a red flag if they do not do these things.

Advice, coaching, and handling tasks for you are where the value lies. However, you must also be aware of the costs of the investment products that they use bundled with that. Avoid those using high-fee actively managed funds. While they may have great narratives or even good recent performance, long-term data & the market environment suggest they will underperform over time. Be especially wary if expensive products, like permanent life insurance or private equity, are pushed as the core investment strategy.

---

Mixing Advice & DIY Investing

Another aspect to consider when choosing a full-service advisory firm is that they are also open to you DIY investing some of your money. Naturally, they are not going to advise you on how to do that. Moreover, they may even discourage you from doing it by saying it is too complicated etc. It does make their job a bit more complicated to ask about your other investments. Plus, they get paid a bit less. Regardless of the business incentives, that is good advice if you are planning to trade or stock-pick. A well-informed objective advisor will acknowledge that you could use a simple low-cost index ETF investment strategy.

On the other side of the table, you have to be honest with yourself about how well you will implement your strategy. While you could save on the overall cost if you also DIY invest some of your assets separately, you must have a simple and effective plan for the funds you are managing. My guide has the educational material and tools to do that. I also help with questions and moral support for those using my affiliate link. However, it still requires you to pull some levers and establish good habits. If you are also using an advisor, their assessment and general coaching can be valuable as another layer.

If you want to manage your own investments and pay for your financial advice separately, a fee-only or advice-only advisor is a great way to do that. DIY investing and learning by reading books and blogs like this one or The Money Scope Podcast is the cheapest route, but the help of an advisor improves your real-world outcome if you need extra external support to consistently execute your plan.

---

Changing the Proportion of DIY vs Advisor

The benefit of advisor support changes over time. When starting out, your financial choices may be rather simple. Pay down debt, establish some emergency buffer, and buy the right insurance. Then, choose the right account type to focus on and start investing. Because it is simple, you may be able to do that on your own. Again, I have made lots of DIY investing resources to help.

Saving on the costs of managing your portfolio can give you a larger pot to draw from later. You also don’t need to know everything at once. Your knowledge and experience will grow as your portfolio grows. After the initial learning curve, there is a long period when consistently adding to your investments while minimizing your costs is key. Avoiding the financial media, water-cooler hot tips, and the temptation to fiddle also helps. Live your life instead. Ultimately, that should give you a larger pot to draw from. Both in terms of financial and holistic wealth.

Planning retirement drawdown is complicated and hiring a fee-only planner can be extremely useful at that stage. Prior to developing cognitive impairment, developing a relationship with a trusted financial advisor can help when your faculties do fade. A neutral third party can also help navigate the minefield of transitioning wealth to the next generation.

Accessing Different Perks

Different brokerages often give clients access to tools, research, and educational material. If two different brokerages offered two meaningfully different packages of perks, then it may be worth using both. I am personally skeptical of the value of that.

One reason is that there is a lot of overlap. In terms of educational material, there is also great stuff out there for free and independent of specific platforms. My blog roll offers a glimpse.

Another reason is that markets are efficient enough that anything you’ll find in research and ratings is already priced in. It is publicly known information no matter how good the narrator is. Even “exclusive” analysis is based on information the large players have already acted on. It is all priced in. Using shiny tools and research may make you feel like you are being diligent and clever, but it is often expensive self-talk.

Some people will open accounts at multiple brokerages to get multiple offer incentives. Like some cash-back or free trades. This doesn’t really motivate me. I know the value of my time. A few hundred bucks here or there is not worth the hassle of opening and managing duplicate accounts at different brokerages. Especially when you consider the extra longer-term costs and risks of messing up. Spending less time, less frustration, and fewer mess-ups were the strongest incentives for me in selecting my brokerage.

Pitfalls of Using Multiple Brokerages

Using multiple brokerages means more to track and balance. That also means more work and risk of error. However, there are ways to minimize or mitigate that.

---

Asset Allocation

Asset allocation is the mix of different investments you hold. At a high level, it is the mix of stocks:bonds. That ratio contributes to the balance of risk and expected return for your portfolio. Within those classes, you can have allocations to different geographic regions, industries, etc. The potential to slice and dice is endless.

It is the asset allocation across all of your accounts that makes your portfolio cohesive. So, if you hold different allocations at different brokerages, pooling that information is an extra layer of work. A simple way around that is to hold the same asset allocation at each brokerage. For example, if my goal allocation was 80:20 stocks:bonds, I could just hold VGRO, XGRO, or ZGRO in all my accounts. That may not be possible with a full-service brokerage, but they can often use something similar.

---

Tracking Registered Account Restrictions

The contribution limits for registered accounts (RRSP, TFSA, RESP, FHSA) are on a per-person basis. So, if you have multiple accounts, you must keep track to avoid accidental overcontribution.

If you do want to use multiple brokerages, this problem can be easily avoided. One solution is to have your RRSP at one brokerage and TFSA at another, but not duplicate accounts at different brokerages. What if you already have an account at one brokerage, don’t want to close it, but also want to use the same account type at another brokerage? Then, take note of your contribution room and only make new contributions in a given year to one or the other.

---

Tracking Costs Basis & Capital Gains/Losses

Similarly, if I have two non-registered (taxable) accounts at different brokerages, the holdings are treated together for capital gains taxes. For example, if I buy 10 shares of XEQT for $500 at Brokerage A ($50/share) & years later I buy 10 shares of XEQT for $1000 ($100/share) at Brokerage B. Then, my “cost basis” for XEQT is $75/share at both brokerages. If I sell 10 shares of XEQT at Brokerage B for $100/share, there is a $25/share capital gain and tax due on that. Even though the account statement from Brokerage B would show no capital gains (bought and sold there for $100). It is easy to see how this could be messy. Throw in superficial losses and yikes!

These issues can be easily sidestepped if you are using ETFs. You could simply use a similar, but not identical, ETF at each brokerage. For example, I could use XGRO at one and ZGRO at the other. They would each have their own cost basis and embedded capital gain or loss. If you are using a complex mix of stocks or funds, portfolio software, like Sharesight, could be helpful for tracking. It has a free version and a premium version. I use Sharesight to keep track of my asset allocation, benchmarking, and tax liabilities. My Sharesight affiliate link gives access to discounts (and I get a small fee at no cost to you).

---

Forgetting Where Money Is

You may think that no one would forget where their money is. However, I have seen it happen personally with RRSPs, taxable accounts, and TFSAs.

One common factor that I’ve noticed is opening accounts at a bank branch. They see you have money in your bank account and say “Hey, why not put it in our high-interest TFSA or our advisor can put it into mutual funds for you”. Many people don’t really understand the account options, let alone realize any of the above issues.

I have also seen it happen with older people who largely live off of their pensions and don’t touch their investments. It is great that they don’t touch their investments in that it makes for less trading and better performance. However, it can also make for less optimal decision-making. You cannot decide how to optimally draw down and spend your money if you do not know all of your options. This is one of the reasons why consolidating account management becomes increasingly important as you age.

Summary

Using one brokerage account is the simplest solution. If you are comfortable with DIY investing, then it is also the most cost-effective one. As long as you can push the buttons to invest regularly. And also not push them due to panic or performance chasing. My DIY investor hub was built with the education and support to help.

With larger accounts, DIY investing coupled to support from a fee-only or advice-only advisor is an excellent option. You could even hire a fee-only advisor for specific milestones – like retirement drawdown planning or intermittent second opinions.

If that is not you, then using a brokerage coupled with advice may be a good place to start. When you have more time, interest, and experience – adding a second brokerage for DIY investing can make sense. It can help you access the benefits of the advisor with the assets they manage and a lower the overall cost by managing some yourself. You can gain experience investing on a smaller scale at first. Over time, you can proportionally shift more to your DIY management if that suits you.

You may also consider moving some or all of it in the other direction to a full-service firm later in life. Having benefited from lower costs of DIY investing before then, but far enough in advance to have a trusted third party to help if you develop cognitive impairment. Or as a neutral party to facilitate wealth transfer. It can be tough for family members to do this on their own.

Using multiple brokerages to chase different tools, reports, or promotional incentives is generally not worth the effort. If using a CIPF member brokerage, it is also not likely worth it to reduce risk either. With a reputable CIRO-regulated firm, the risk of broker bankruptcy (rare) plus funds held in trust going missing (bizarre) plus that missing amount exceeding CIPF coverage is unlikely. In contrast, extra time spent to manage accounts across different platforms is a certainty. It may also cost money for accounting fees. There could be errors in registered account contribution limits or tracking capital gains in non-registered accounts. Not duplicating different account types or specific ETFs is an easy way around that. However, using one brokerage is even easier.