How do brokerage checks work? If an individual writes a check on their brokerage account, is the money taken from the “cash” part of the brokerage account? If there was not enough money in the “cash” part of the brokerage account, I would assume stock would be sold to cover the check. How does this work at the large brokerage firms? Who processes the checks, the financial advisor, or another part of the brokerage firm? I have never used brokerage checks, but I am curious as to how they are different from regular checking accounts. Thanks for any information!
For various reasons I have three brokerage accounts (Vanguard, Fidelity, Scottrade); with Fidelity and Scottrade I traditionally could write a check that drew from the brokerage account’s “core” account. This is basically where cash sits if say, a dividend is issued (and you don’t have automatic reinvestment), or where cash sits that you’ve put into the brokerage account but haven’t invested in any sort of market security. I don’t believe either would sell securities to honor a check, although both (and I would assume all brokers) will definitely sell securities automatically in the case of a margin call after a certain grace period.
Scottrade has done away with check writing on my brokerage account, and actually automatically (or at least I don’t remember agreeing) opened a checking account for me with “Scottrade Bank.” I like Scottrade’s low fees, user interface, and their free research but I disliked withdrawals from Scottrade. With Fidelity basically you had as many withdrawal options as you could imagine (including a simple ACH to an outside bank), with Scottrade you either had to call them and request a check, pay a $50 wire transfer fee to do a wire transfer, or you could get check writing on your brokerage account to make withdrawals on checks you write yourself. It seems like with Scottrade bank, it’s now pretty integrated with your brokerage account so you can just instantly transfer funds from the brokerage account to your banking account and then do a debit card withdrawal or whatever (or pay for things directly with the Scottrade bank account.0
Fidelity seems to also have a banking product as well, but they still periodically send me boxes of checks that draw on my brokerage account (I never really use them), so they still offer direct checkwriting.