Almost every brokerage firm advertises that $ 500,000 in customer accounts, including up to $ 250,000 in cash, are insured by Securities Investor Protection Corp. However, many investors may be surprised at how limited SIPC protection can be when suspected fraud has caused a loss. Are brokerage accounts insured?
By the end of the sixties, share prices were cratering and brokerage was weakening. Americans began to lose confidence in the financial markets and brokerage firms that owned their assets, which is why the Securities Investor Protection Corporation (SIPC) was created to isolate investors from the risk of bankruptcy.
SIPC was designed as a safety net, a form of brokerage account insurance, which protected the client’s assets in the event of a member brokerage failure. Since then, SIPC has helped investors avoid billions of dollars in potential losses. But there were losses – SIPC does not provide an unlimited amount of insurance and not all losses are covered.
SIPC insurance rules
The SIPC scope provides:
- Up to $ 500,000 total protection per client for lost or missing funds and / or securities from client accounts held with the institution.
- Up to USD 250,000 of this amount can be used to protect cash on a customer’s account that has not yet been invested in securities.
- Protection in the event of unauthorized trade or theft from your account.
SIPC insurance does not cover:
- Investment losses or worthless shares or other securities.
- Losses due to account hacking, unless the company was forced to liquidate because of hacking.
- Claims for bad or inappropriate investment advice. Complaints about companies are dealt with by the Financial Industry Regulatory Office (FINRA), the Securities and Exchange Commission (SEC) and the state securities supervisory authorities.
When SIPC protection may not apply
Not all types of securities are eligible for reimbursement by SIPC. Securities for which SIPC will not return include commodities, futures, currencies, fixed and indexed annuity contracts and limited partnerships (LPs) – which are separately covered by insurance carriers. In addition, any securities not registered in the SEC will not be refundable.
Like FDIC, SIPC covers only member companies. This means that you should ensure that your brokerage house is a member company. If you’re a client of a large brokerage house, you’re probably fine, but it’s always worth checking out. If your account is in a smaller company, you should not only make sure that this company is a member, but also find out if another company is handling transactions on behalf of your brokerage house, in which case you must make sure that that other company is also a member of SIPC . Membership in a second company is necessary for your account to be insured.