FDIC – NCUA -- SIPC – US Treasury – Who’s Got Your Back? Part 2

Last time I discussed the FDIC & NCUA. These are the agencies that you will have to deal with in order to get your money from a failed bank or credit union. If you have a broker, you broker is probably covered by the Securities Investor Protection Corporation, aka SIPC.  If they aren’t, you may want to look for another broker.

Here is a portion of the SIPC’s mission statement, “When a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers' cash, stock and other securities, and other customer property”.  The SIPC covers cash and securities, like stocks and bonds. But, there are many investments that are not covered. Among investments not covered are commodity futures contracts (unless defined as customer property under the Securities Investor Protection Act) and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

The SIPC is not like the FDIC or NCUA; it does not guarantee that it will recover all of your lost assets. If a firm fails, and sufficient funds are not available in the firm's customer accounts to satisfy claims within these limits, the reserve funds of SIPC are used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $250,000 for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account. Additionally, losses due to investment fraud are not covered by the SIPC.

The SIPC recommends that you keep all transaction records and at least your monthly brokerage statement in case there are discrepancies between your books and the broker’s books. More information is available at the SIPC website.

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