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How are Brokerage and Investment Accounts Protected? - NYT

fred495
edited March 2023 in Other Investing
FYI per The NYT:

"If a brokerage firm is in financial trouble, an entity called the Securities Investor Protection Corporation, known as SIPC, serves as a backstop. It’s a nonprofit corporation that was created under the Securities Investor Protection Act of 1970.

SIPC generally covers up to $500,000 of securities and cash (including a $250,000 limit for the cash component) for each customer, though that can be higher for people with multiple accounts — depending on the account types and whether they’re individual accounts or jointly held.

A traditional individual retirement account, a Roth I.R.A. and an individual brokerage account, for example, would each qualify for a $500,000 limit at the same firm. The same goes for a separate joint account or a trust account.

But if you had two individual brokerage accounts at the same firm, for instance, you would receive only up to $500,000 in protection for both. A married couple with a joint brokerage account — as well as two individual brokerage accounts at the same firm — would receive an additional $500,000 in coverage for the joint account."


Question: In light of the recent bank failures in California, is or has anybody been breaking up their accounts at different brokerages to meet the SIPC's $500,000 coverage limit? Is anybody concerned in view of Schwab's recent market performance?

Just curious, since I never considered the possibility of a major national brokerage firm going bankrupt.

Fred

Comments

  • msf
    edited March 2023
    When a bank goes bankrupt, depositors are at risk because they are general creditors of the bank. FDIC insurance guarantees that $250K/account type/owner will be covered even if the bank has no assets to pay with.

    Brokerages are different. The securities in your brokerage account, whether MMF shares or T-bills or corporate bonds, or mutual funds or stocks, are still in your account (and untouchable by creditors) if the brokerage goes bust. SIPC insurance protects against someone at the brokerage stealing those securities.
    The securities in your Schwab account—including fully paid securities for stocks and bonds and excess margin securities—are segregated in compliance with the U.S. Securities and Exchange Commission's Customer Protection Rule. This is the legal requirement for all U.S. broker-dealers. Your segregated assets are not available to general creditors and are protected against creditors' claims in the unlikely event that a broker-dealer becomes insolvent
    https://international.schwab.com/account-protection

    Admittedly there are secondary concerns. If the brokerage does flop, it may not be able to give you access to your securities (or cash) efficiently. That's an operational problem, not one of lost assets. Right now, I might be questioning Fidelity, because it uses UMB bank for processing checks and ACH/EFT transfers, and Moody's has placed UMB Financial under review, along with First Republic, Zions Bankcorp., etc.

    https://www.reuters.com/business/finance/moodys-downgrades-signature-bank-junk-places-six-us-banks-under-review-2023-03-14/
  • davidrmorandavidrmoran
    or consider this:

    https://www.vox.com/policy/23636583/silicon-valley-bank-collapse-fdic-deposit-massachusetts
  • Baseball_Fan
    Real talk.

    So much concern about collapse of the whole she-bang...no? Just goes to show how much this is all based on confidence and trust...like anything else in life I guess.

    All of a sudden those Gold Bugs don't look so loony anymore...was just joshing about this with a co-worker the other day...

    "When the student is ready to learn, the teacher will appear"

    What % do the folks on the board hold in Gold, like real gold, the real McCoy, the kind you can hold in your hands, not "paper gold"?

    At what level would you feel is apropos in today's investing scheissdreck?

    Asking for a friend.

  • sma3
    @Baseball_Fan

    Do you mean bars and coins in a safe deposit box or a tin can under the third rock from the left in the backyard?

    Or ETFs with physical Gold?

    We have about 3% of portfolio in Mutual funds gold miners and 0.5% in Sprout Physical Gold ETF
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