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Your Broker Wants To Be Your Bank

August 22nd, 2012 Leave a comment Go to comments

There is a push by investment brokers to become your full service bank. Brokers want
to become your bank for the same reason banks do: to get a lock on your direct deposit
income and investment money. In this article I will talk about banking, plus a few brokers
that are going to great lengths to become your bank.

When I first started to utilize direct deposit at a credit union, it was natural to use that
account for investments such as CDs or money market accounts. Once you are a member
of your bank or credit union, it takes very little effort to open other accounts.

At the credit union that I am a member of, they offer a special money market account for large
deposits that has a higher than average interest rate. It took minutes to sign up for it and
then I was able to immediately deposit money into it using their website.

Banks know this: once you automatically send them money it is relatively easy to
convince you to buy into their other products.

The Real Coup D’Etat

The battle for bank money starts not only with direct deposit with one other key service: bill payment. Bill payment is a relatively new service in the banking world. Banks want that business so badly that they are willing to provide unlimited checks and cover all of your postage costs for any payments that require a physical check. Today, there isn’t any reason to pay with physical checks anymore because your bank will pay the postage for you if required!

About twenty years ago, the first bill payment services started appearing. They were
inferior because they applied only to those institutions that could handle electronic
payments. Once the payment services were expanded to cover everyone else using
physical checks, they have become invaluable financial tools.

Whatever institution that you use for these two services (direct deposit and bill payment)
essentially has won the battle for your dollars. These services are very sticky with
consumers because it is time consuming to change them once they are setup – particularly
bill payment which would require effort to confirm that all your payments still go

Brokers Have A Disadvantage

There are good reasons why brokers have not traditionally been used as banks. First,
banking is local and in the past transactions occurred by physically entering the building
– unlike brokers which have few if any physical locations. Also, banks, particularly small
and regional banks offer loans in the communities that they understand. So, by being a
member of the bank you can help to build that relationship ahead of time.

Today, it’s easier than ever to bank without actually stepping into any building. But,
customers still need facilities at the very least to access ATMs. If it wasn’t for the

availability of ATMs everywhere, banks might lose a lot of business from those
customers who do all their banking electronically.

I count myself as one of those people who primarily interact with banks electronically.

There are a few other practical and cautionary reasons to keep your broker and bank
separate: the money flow for investments is different than it is for savings/checking
accounts. Imagine if you get a margin call on your investment account, then your
mortgage payment bounces? OK, that’s an extreme example, but it would require extra
time to manage your cash flow considering that you would be paying your bills out of the
same money where you are potentially placing stock orders.

We normally think of banks as being safer and for good reason, the deposits are insured
by the FDIC. However, brokerage cash is typically not insured. This is one feature that
you should be sure to get from your broker when you use them as a bank.

The way to handle this is to put a wall between the money flows by setting up accounts
for each purpose. Not all of the brokers with bank features offer this capability.

Here is some information on brokers who also want to be your bank.

Bank of America/Merrill Lynch

BOA got cred in the investment world by buying Merrill Lynch during the financial
crisis. Of course, they are already a full service bank to start. BOA offers an extensive
package of great services if you go with the Platinum services (generally available
with $50K in bank deposits). They offer a lot of cross benefits when you combine your
investment accounts with your bank account.

• Largest network of ATMs, plus 1000’s of branches.
• Free monthly investment trades when you go to Platinum service level.
• Separate linked accounts for banking/investment.
• All typical bank services of course, including overdraft protection.

• If you chose lower bank service level, the fee structure is a mine field to navigate.
• Bank ATM cards not cross honored to other banks (fees apply).


Open BOA Account



TDA is very capable as a broker; it’s one that I use right now. The downside to using
them as a bank is lack of bank account separation as well as a confusing setup to get
FDIC insurance for your banking funds. Consider TDA if you want to use some bank
services, e.g., to have secondary access to an ATM.

• Over 100 physical branch locations.
• Use any ATM from any bank at no cost.
• Bill Pay/Debit Card/Check Writing included at no cost.

• Banking/investment funds are in the same account.
• Standard $10 trades no matter the service level or asset level.
• FDIC insurance available with sweep account. It’s not automatic though, you
need to set it up by selecting the correct sweep.
• No overdraft protection.


Open Ameritrade Account



Fidelity makes is easier to be your bank by offering an account application process that
opens both a brokerage and cash account at once. The separation insures that your trades
don’t affect your bank cash, as well as providing FDIC insurance for your bank cash.

• Use any ATM from any bank at no cost.
• Bill Pay/Debit Card/Check Writing included at no cost.
• FDIC insurance in the cash account.
• Separate linked accounts for banking/investment.
• Overdraft protection, just like banks.

• No physical locations.
• Standard $8 trades no matter the service level or asset level.


Open Fidelity Account



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