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no sipc insurance on mutual funds
Old 03-30-2008, 03:56 AM   #1
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no sipc insurance on mutual funds

interesting tid bit i just learned. only brokerage accounts are usually covered under sipc insurance , because most of the time things are held in street name ,which is the brokerages not yours . mutual funds run by the firm have no such coverage. if you have a fidelity brokerage account your stocks and cash are covered. the fidelity funds are not

funds on the other hand are generally set up as individual corporations so they are isolatated from say fidelity going bankrupt. they are priced daily and watched by independent auditors (for what thats worth).

but if someone cooks the books and steals millions from a fund then what?
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Old 03-30-2008, 04:29 AM   #2
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You would probably be screwed.

I asked a similar question a few months ago about diversifying across MF companies. The response was that each VG fund is a separate entity.

I think the chances of that occurring is small... but even with the checks and balances, someone could probably do it.

I worry a bit more about someone taking a big risk... the cooking of the books might be to try to cover it up until they could fix it.

It is a bit of a concern. If you look at the last few debacles in the financial markets, it is about some group of people skirting the edges of ethical behavior. IT probably starts small, then they get caught up in it and it gets big.

There is nothing to say it could not happen at a MF company. It is a concern because you never can tell what crack (in the system) some enterprising opportunist might try to exploit.

Some mutual funds are run by teams with any substantial decision being approved by the team (instead of an individual). However, the hole sometimes is that one individual may have the actual ability to do something without approval (no one checks or signs off). This is where internal (and external) auditors and compliance departments are should ensure the system works... but those measure fail sometimes.

Right now our assets are split up across companies because of a collection of 401ks and IRAs and after tax accounts.

If we ever roll-over the money, I will likely split it up amongst 2 large Low cost MF firms. I prefer low cost index funds so VG and Fidelity are two obvious choices.
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Old 03-30-2008, 04:35 AM   #3
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with my company now shifting our 401k to fidelity i have 99% of everything i own in fidelity.

between the fact that i use a fidelity independent newsletter as my guide for over 20 years and that my index portfolio is etf's i ended up migrating to them just shy of 100%.

of course they are privately owned and have deep pockets so i think its pretty remote that an event would happen and they wouldnt make good on it ala the money markets breaking a buck as an example
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Old 03-30-2008, 05:59 AM   #4
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Not that I'm worried about Fido or VG, but is this another plus for ETFs?
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Old 03-30-2008, 06:00 AM   #5
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i would think it is.
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Old 03-30-2008, 06:09 AM   #6
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Quote:
Originally Posted by megacorp-firee View Post
Not that I'm worried about Fido or VG, but is this another plus for ETFs?
Do you think the SIPC will pay up for the drop in Bear Stearns drop in stock price? I doubt it. Did they pay up for World Com or Enron?

The ETF is a security managed by the MF company. Investors bid up or down the price based on expectations and the underlying value of the security. If the underlying investment goes south... I doubt SIPC will pay up. No different if a company's stock goes south.

I think the SIPC only covers the brokerage firm if they fail and investors that hold securities did not get their securities back... they do not insure the underlying security or value of it.
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Old 03-30-2008, 06:36 AM   #7
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Quote:
Originally Posted by chinaco View Post
Do you think the SIPC will pay up for the drop in Bear Stearns drop in stock price? I doubt it. Did they pay up for World Com or Enron?

The ETF is a security managed by the MF company. Investors bid up or down the price based on expectations and the underlying value of the security. If the underlying investment goes south... I doubt SIPC will pay up. No different if a company's stock goes south.

I think the SIPC only covers the brokerage firm if they fail and investors that hold securities did not get their securities back... they do not insure the underlying security or value of it.
Never thought that there was insurance on stupid poor investments that go south on you. Yes I understand what SIPC is. I believe that ETFs being like shares of stock are covered by SIPC. Now I know that MFs are not.
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Old 03-30-2008, 06:43 AM   #8
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Originally Posted by megacorp-firee View Post
Never thought that there was insurance on stupid poor investments that go south on you. Yes I understand what SIPC is. I believe that ETFs being like shares of stock are covered by SIPC. Now I know that MFs are not.
Perhaps I am misunderstanding something.

Read this and tell me what you think.

Securities Investor Protection Corporation
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Old 03-30-2008, 07:34 AM   #9
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value of securities isnt covered only fraud and bankruptsy of the brokerage
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Old 03-30-2008, 07:48 AM   #10
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Quote:
Originally Posted by chinaco View Post
Perhaps I am misunderstanding something.

Read this and tell me what you think.

Securities Investor Protection Corporation
No, I fully understand what SIPC is, but I was responding to your question.
Quote:
Do you think the SIPC will pay up for the drop in Bear Stearns drop in stock price? I doubt it. Did they pay up for World Com or Enron?
... and since SIPC covers stocks missing or pilfered from accounts, then ETFs (traded and treated as stocks) are covered too. MF do not seem to have that feature, as pointed out in this thread. hence my observation:
Quote:
Not that I'm worried about Fido or VG, but is this another plus for ETFs?
that's all.
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Old 03-30-2008, 07:51 AM   #11
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As someone said.... it is the bad investments and going outside what they say they are doing is the biggest problem... not someone stealing a few million here or there...

I left FIDO many years ago when they let their fund managers do 'as they wished'.... lost a bundle when some were speculating in the Mexican Peso... IIRC their asset allocation fund was very heavy into this and lost a bunch...

Since then, they decided to police their managers better... but once burned is enough for me...
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Old 03-30-2008, 10:19 AM   #12
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Originally Posted by megacorp-firee View Post
No, I fully understand what SIPC is, but I was responding to your question.

... and since SIPC covers stocks missing or pilfered from accounts, then ETFs (traded and treated as stocks) are covered too. MF do not seem to have that feature, as pointed out in this thread. hence my observation:

that's all.
I must have misinterpreted what you meant by your comment: "Plus for ETFs".

I thought the OP was talking about a certain risk related to the investment organization that creates and manages the security.
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