You learn so many things if you pay close attention. On my recent brokerage account switch from Wells Fargo to TD Ameritrade, I noticed this in my transaction history:
Transfer of security from First Clearing
Who’s First Clearing? I thought I was transferring from Wells Fargo Advisors.
It turns out that my account had been with First Clearing all along. First Clearing is a Wells Fargo subsidiary. Wells Fargo Advisors sets the prices and provides customer service; First Clearing actually does all the real work in buying and selling investments for the brokerage account.
It was disclosed in the account agreement I agreed to when I opened the account. I just didn’t pay as much attention at that time.
"[Wells Fargo Advisors, LLC] will act as your introducing broker and First Clearing, LLC (“FCC”) will act as the broker that will carry the Account and extend credit on any margin purchases."
In addition to doing the actual work for Wells Fargo Advisors, First Clearing also does the work for other brokers. This is similar to how Amazon sells its warehouse picking packing and shipping service to other retailers. Amazon developed expertise in running a warehouse efficiently in serving its own customers. Now it also sells that service to others.
Fidelity also has a similar arrangement. Fidelity’s clearing subsidiary is called National Financial Services. National Financial does the work for Fidelity. It also does it for others. When these clearing firms work for others, they use a generically sounding name such as First Clearing or National Financial so as not to compete with their clients’ brand.
From this article on the web, I see large discount brokers such as Charles Schwab, TD Ameritrade, and E*Trade all have their own clearing operations, but they use their own name, which means they are probably not serving other brokers. Smaller brokers such as Scottrade, TradeKing, Zecco, and OptionsHouse use a small third-party clearing firm called Penson Financial Services. Penson is publicly traded on the NASDAQ with ticker PNSN. At $0.55 per share, Penson has a market capitalization of just $15 million. That doesn’t give a whole lot of confidence.
Should you care who’s doing the work behind the scenes? I think so. You want a company that knows what they are doing and makes sufficient investment in technology and personnel.
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