"Clark does think it’s a good idea to park your cash at more than one financial institution."

Customer No Service
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I have become increasingly alarmed at how one very famous brokerage firm, one of Clark’s favorites, has been locking up accounts, closing them, and even closing them and not returning the money to the customers, because they can’t “prove” the money is theirs. I have been lurking on Reddit reading posts, and it’s disturbing. To add insult to injury, the pseudo-bank fintech payment account run by this firm is not under the jurisdiction of the CFPB, it’s covered by FINRA, they are an industry group, they don’t intervene aggressively on behalf of customers, because they know who butters their bread.

I had gone all-in with this firm, trying to sole-source my financial life from them, but just yesterday I had the realization - this isn’t a good idea. I’m moving my payment account over from that one to another brokerage firm whose payment account is an actual bank account, so they are covered by FDIC and the CFPB. I’ll leave my retirement accounts in place, however.

I just have to move slowly… no sudden moves… or else they might lock up my account because they don’t like me trying to rip it away from them. But not too slowly that it looks like “structured payments”. It’s pretty sad when I have to think this way, isn’t it?

What people observe:

They don’t like it when you have a new account and you send money in, then send it out. They probably think it’s money laundering. Fine, but no one knows what “new” is, and what amounts, or frequency, or age of deposit they are concerned about, so everyone is in the dark.

Sometimes they don’t like large checks that get deposited, they will lock the account and ask the customer to get a Medallion Signature Guarantee (MSG) to prove that the issue of the check really issued the check, which as I understand it totally is not the purpose of the MSG, and vendors have refused to go through this exercise. If you sold a car to a car dealer, received a big check, and your check was rejected, do you think the car dealer would be overjoyed at having to prove the funds were not ill-gotten?

They don’t like lots and lots of little Venmo or PayPal transactions. Maybe they think you’re running a business through a personal account, when you’re just paying friends back.

There are other cases where no one has a clue why they locked or closed an account. And they won’t discuss it. It sounds brutal, especially if $1000s, $10,000s, or even $100,000s are involved. Some cases have dragged on for months or years. Can you imagine? That’s life-altering.

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Which firm are you talking about? If you can’t say the name at least give us a hint>

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“It’s not easy being green…”

https://www.reddit.com/r/fidelityinvestments/search/?q=locked&restrict_sr=1

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I looked at the Reddit posts and most of them were addressed by a green-company poster and seemed reasonable.

Many of the posts go back months and years. Given the size of the organization (37 million retail accounts,) it appears that the problem does not occur that often.

I have an appointment with a company rep next quarter, I’ll ask them about it.

In regards to your thread’s title, No… I would never park my assets with a single vendor, my 2,000 hours as a pilot taught me the safety of redundant systems.

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I asked my Green Team CFP advisor about it, of course she denied any knowledge of problems. I wouldn’t have expected her to, to be quite honest.

Yes, these cases are probably quite rare… but I try to learn from cases on the periphery… because you and I might just slip onto the periphery through no fault of our own, and certainly not with intent to defraud or commit crimes. I’ve read a few of those posts and thought, “Yep, I’ve done that… good thing I didn’t get locked”.

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Would you mind giving more explanation about the pseudo bank fintech company you are referring to? Are you implying that the Fidelity cash management account is not FDIC insured?

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Cat’s out of the bag! Well, the FDIC insured cash core position of Fidelity Cash Management IS FDIC insured… and to a very high limit, much more than $250,000 because they spread it around to many banks, which is kind of cool…

But, from a regulatory perspective, the Consumer Financial Protection Bureau (CFPB) cannot help you with Fidelity Cash Management if you have a problem with them.

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This is both interesting and concerning to hear. Would you mind sharing which brokerage firm you are switching to?

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I have accounts at both Fidelity and Schwab, I’m just moving payment functions back to Schwab Bank checking, which is under the jurisdiction of CFPB. I’m not closing any Fidelity accounts, but my Cash Management will have $1 in it.

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Ok thanks for the heads up. Anybody else out there moving their cash management money out of fidelity because of this?

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Here’s another baffling post. This person obviously has some bank security training. Did you ever see the “Soup Nazi” Seinfeld episode?

https://www.reddit.com/r/fidelityinvestments/comments/11u6rxw/some_tips_for_avoiding_the_dreaded_account/

I’m a very cautious person when it comes to safety and security. I truly believe it’s “probably OK” to stay with Fidelity Cash Management, but that little part of me is screaming, and he’s loud.

My average balance in checking is maybe $2500. So I’m giving up 2.5% - 0.5% = 2% or $4.17 per month in interest. But I gain access to CFPB if needed.

It’s a judgement call. The upside is small, the downside is costly to grab the extra Fidelity nterest.

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That little part of you that is screaming is called “risk aversion” and will eventually cost you if you consistently listen to it. The reason that is so is because people in general will pay substantially more money to avoid a risk than they will to experience a gain.

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Ho ho ho, I don’t know about that! I have a seven-figure 60/40-ish portfolio, I’m not being risk averse at age 62.

Let’s invert my question:

Would I pay an extra $4.17 per month in order to have the “additional feature” of meaningful CFPB intervention in case of a poor customer experience? Right now my answer is yes.

If the next President guts CFPB, then the answer changes.

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I suppose im pretty risk averse. I don’t trust the stock market as much as i used to because the entire world seems more unstable right now. And the USA isn’t much better considering our current political environment. Anyway, i have a ridiculous amount in cash right now (I know this is not what is recommended) and find the high amount of FDIC coverage in fidelity CMA appealing. Do you all think fidelity’s treasury money market funds are just as safe or nearly as safe as the CMA? Clark seems to think so.

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IF all 37 million Fidelity retail accounts are subject to the risks you are willing to pay $4.17 a month to avoid, and IF there were 1,000 cases of irreversible loss of funds, you would have a 0.000027% chance of losing your money.

So if you have $500,000 at risk and you are paying $4.17 a month to avoid a loss, based on odds of 1,000 chances in 37 million, AND you had $500,000 at risk, each year you are paying 0.0001% of the invested funds to avoid something that only has a one in 37,000 chances to happen to you.

I suggest to you that you are paying way too much to avoid that risk.

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You might find the comments of Mikael Kitces reassuring. He is an influential CFP who was interviewed by Christine Benz on Morninstar.com.
"Benz: comparing that, say, the federal money market mutual fund, no FDIC protections, relative to the bank FDIC-insured deposit, how should people size up the risks there and approach how to apportion their assets across those two silos?

Kitces: my Treasuries are backed by the full faith and credit of the United States government. Ultimately, if my government is going to default, if that’s the thing we’re worried about, FDIC isn’t going to have a lot to say as well at that point. … Ultimately, these are all things that are backed by the faith and credit of the government. You either believe the government is going to make good on its debts and not default or not"

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Yes thanks p1g1. I do find that reassuring. I realize treasury mmas are considered investments and not cash savings but i pretty much think of them as the cash savings (safe) portion of my portfolio because they are easy to move out of. I suppose as long as rates are so much better in these treasury MMAs ill keep more money in them but id like the option of using my CMA to move money around and want to feel comfortable with using it. Is anyone else concerned about the lack of CFPB protection of fidelity’s CMA that was brought up earlier in this post?

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If I find myself in need of $4.17 a month, I’ll set up a Go Fund Me site.

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So there are number of funds that people confuse that are not the same…

  1. Funds containing pure US Treasury bills, bonds, and notes. ETFs like SGOV, BIL. There must be mutual funds, but I don’t know the symbols.

  2. Funds containing US Treasury bills, bonds, and notes, Treasury repurchase agreement (repo), and US Government Agency securities. Any Fund that says “Government”, or “Government Obligations”.

Repo are short-term loans where Treasuries are put up as collateral. Agencies are debt issued by a corporation but the US Government insures it. Examples:

Federal National Mortgage Association, or Fannie Mae (FNMA)
Federal Home Loan Mortgage Corporation, or Freddie Mac (FHLMC)
Federal Home Loan Bank (FHLB)
Federal Farm Credit Bank (FFCB)
Tennessee Valley Authority (TVA)

The market considers 1. to be top tier, same risk as an FDIC insured bank deposit. 2. slightly more risk because I believe Treasury holders would be paid off first before Agency bond holders, and defaults on repo loans would probably descend pretty quickly into banks suing other banks, so your money would get delayed.

You have to know what’s in the fund you buy. You have to read that boring Prospectus.

I have a lot of SGOV and I also buy actual US Treasury Bills. I don’t have much in the way of FDIC bank deposits, and my decision to use Schwab Bank and not Fidelity Cash Management will only change my posture by a very small amount.

Anyway, my beef with Fidelity Cash Management has not anything to do with the safety of the holdings, but with potential customer no-service.

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Ok thanks for clarifying that you aren’t concerned about safety when it comes to CMA. Im new to using mmfs and have some in spaxx (which probably falls in your slightly less safe category as its mainly repos and treasury bills) and some in fdlxx (which is almost entirely Treasury bills) so seems quite safe. A combination between theses 2 mmfs and the CMA seems good to me for liquid assets. One can apparently make either spaxx or fdlxx a core position and avoid CMA altogether but i haven’t tried this yet.