Steve Sprovach and Amy Wagner Published 9:50 p.m. ET June 9, 2021
Question: Tonya in Colerain Township: My sister has struggled financially for a long time but is starting to turn a corner. She says she doesn’t have a credit score (is this even possible?) so she can’t get a credit card. Can you provide her any advice?
A: Believe it or not, according to Fair Isaac Corporation (creators of the much-used FICO credit score), 53 million American adults do not have traditional credit scores. So, yes, it is quite possible your sister falls into this camp, particularly if she exclusively relies on a debit card, cash, and/or payday loans.
To establish a credit history, she has a few options: She could ‘piggyback’ off of your credit history by becoming an ‘authorized user.’ But this, of course, assumes you have a solid history yourself and are comfortable taking the risk. She could also try using a ‘secured’ credit card which is backed by an up-front cash deposit. Additionally, CNBC reports that, as soon as this fall, some of the nation’s biggest banks plan to launch a pilot program to help folks without credit scores get a credit card.
Here’s The Allworth Advice: Once your sister finally gets her own credit card, we implore her to use it responsibly by making payments in full and on-time. Otherwise, her financial situation could backslide, ruining all the progress she’s made.
Lorraine from Greater Cincinnati: My investments are diversified. Should I invest with multiple financial institutions (a bank, different custodians) for added diversification?
A: Perhaps, if you want to implement different approaches to investing. But if safety is more of your concern – which is the context in which we typically get asked this question – there’s really no need to adapt this strategy.
Here’s why. If one of your multiple advisors would happen to go out of business – and the advisor used a third-party custodian, like Fidelity or TDAmeritrade – your money is still held at the custodian. No harm, no foul. Next worst-case scenario is if the custodian goes out of business. In this case, your money is still protected thanks to the Securities Investor Protection Corporation (SIPC). This non-profit protects investments (up to a certain amount) held at brokerage firms in the event the firm files for bankruptcy. Additionally, brokerage firms generally have large amounts of private insurance for additional protection.
Now, what if the advisor, custodian, and the insurance company go belly up? Your money is still invested in the mutual fund or ETF (Exchange-Traded Fund) it was invested in. If these funds go out of business, you still own the underlying stocks and/or bonds.
And for the ultimate worst-case scenario that the largest U.S. companies in which you happen to own stocks or bonds all shutter their doors? Then there’s likely a bigger economic problem we’re all facing – and there’s nothing you could do today that will protect you past that point.
So, we’ll ask another question to answer your question: Taking all this into account, does investing with a second (or third) advisor or financial institution really provide any additional protection for your investments? Not likely.
The Allworth Advice is that there’s no need to split your money up between advisors or financial institutions to ‘protect’ your money. But this does highlight one of the biggest reasons why you want to make sure any advisor you work with uses a third-party custodian. Because if you’re instead writing a personal check to “Advisor Joe Smith,” you’ll have none of these protections.
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to email@example.com.
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com.
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