How are Brokerage and Investment Accounts Protected? - NYT

[fred495]

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

[richardsok]

Thanks, fred.

Something to consider; never crossed my mind before. I always knew about the $250k FDIC bank deposit protection, of course, but always understood my brokerage monies were behind a firewall. I'm already somewhat diversified with accounts at TDAmer, Schwab and Merrill. Still -- I have to talk to my broker about this. There's no promise that a panic won't ensue if even one large brokerage goes toes up.

I never fully forgot 2008 and my feelings at the time when a new "unthinkable" was erupting every day.

[Broozer]

I have my entire retirement portfolio at Schwab, and have been there since 1997. I've been aware of the $500k limit but haven't thought about it in recent years. Back in the day, the actual securities were always held by a third party, and were priced at the market of course. Are they still held by a third party?

Is the problem with Schwab just its stock price, or will their cash or MM holdings be a problem? What other kind of problems could arise? Even if Schwab went belly-up, all the stocks and bonds would not be affected . . . right? (I hope ) Aside from not being available for some undetermined amount of time.

[bd1]

Yes, Schwab makes clear that stocks and bonds would not be affected by Schwab,s insolvency.  There are regular audits to insure that customer assets are held separately from Schwab assets.  In addition to SIPC, Schwab maintains $800 Million in additional insurance through Lloyds and other London insurers.  Cash coverage is limited to $1.25 M per customer and total coverage per customer is $150 M.  Schwab holds 7 Trillion in customer accounts so 800 M is not enough to insure every account

[bobfl]

Mar 16, 2023 3:23:05 GMT bd1 said:

Yes, Schwab makes clear that stocks and bonds would not be affected by Schwab's insolvency.  There are regular audits to insure that customer assets are held separately from Schwab assets.  In addition to SIPC, Schwab maintains $800 Million in additional insurance through Lloyds and other London insurers.  Cash coverage is limited to $1.25 M per customer and total coverage per customer is $150 M.  Schwab holds 7 Trillion in customer accounts so 800 M is not enough to insure every account

It would seem to be the cash you are holding at the Schwab BANK that would be affected. But the govt would step in.

The insurance with Lloyds, etc. would cover hacks, etc. That's what I was told years ago.

[bobfl]

Mar 14, 2023 17:47:11 GMT fred495 said:

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

No.

[steadyeddy]

No. If fhit hits the san, there are more important things to worry about... than money.

[Broozer]

Mar 16, 2023 1:31:57 GMT Broozer said:

I have my entire retirement portfolio at Schwab, and have been there since 1997. I've been aware of the $500k limit but haven't thought about it in recent years. Back in the day, the actual securities were always held by a third party, and were priced at the market of course. Are they still held by a third party?

Is the problem with Schwab just its stock price, or will their cash or MM holdings be a problem? What other kind of problems could arise? Even if Schwab went belly-up, all the stocks and bonds would not be affected . . . right? (I hope ) Aside from not being available for some undetermined amount of time.

Well good, the securities are all held by a third party, as I'd heard years ago. I got this from Schwab today: LINK

The important part:

The first thing to remember is your securities – like stocks, bonds, mutual funds, exchange traded funds, money market funds, etc., etc. – held at Schwab are yours. The SEC's Customer Protection Rule safeguards customer assets at brokerage firms by preventing firms from using customer assets to finance their own proprietary businesses.

At Schwab, clients' fully paid securities are segregated from other firm assets and held at third party depository institutions and custodians such as the Depository Trust Company and Bank of New York. There are reporting and auditing requirements in place by government regulators to help ensure all broker-dealers comply with this rule. In the very unlikely event that Schwab should become insolvent, these segregated securities are not available to general creditors and are protected against creditors' claims.

[Broozer]

Mar 21, 2023 0:13:53 GMT steadyeddy said:

No. If fhit hits the san, there are more important things to worry about... than money.

I doubt it will all hit the fan at the same time, like from how we are today to killing zoo animals tomorrow for food. Might need some money meantime.