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SIPC Insurance
Old 06-25-2019, 01:37 PM   #1
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SIPC Insurance

I'm sure many here have investment accounts in excess of 500K. Any concerns regarding safety of your assets? What about your cash and FDIC?

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Old 06-25-2019, 01:49 PM   #2
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All FDIC cash is peanut buttered across multiple institutions to stay within FDIC limits.
Brokerage account is in treasuries or brokered CDs at various FDIC insured banks.
401K is only admin'd by the brokerage, for what thats worth.
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Old 06-25-2019, 02:08 PM   #3
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Many brokerages carry additional insurance to cover accounts above SIPC limits.
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Old 06-25-2019, 02:11 PM   #4
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So no worries with Fido! Was just reading about their limits.
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Old 06-25-2019, 02:23 PM   #5
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I had this same concern a while back..as I came to understand it, if your brokerage (apparently Fido in this case) were to go belly up, the most likely outcome is that the customer assets would be bought up by another large brokerage - say, VG, UBS, etc. And, you have to weigh the likelihood of Fido, VG or other similarly large brokerage going kaput and there being no-one left standing to buy up the assets. That'd be a black swan event previously unheard of, and probably take a 1929-like crash to cause..

SIPC was as I understand it designed not so much to prevent loss in a Fido, VG, etc bankruptcy, but to cover assets that "went missing". Apparently, this did happen back in the day stock certificates were physical pieces of paper, and there were some mob-related shennanigans that went on where assets did, in some cases, "go missing".

IMHO, if you're with Fido or VG there really should not be anything to worry about. First, they're highly unlikely to go away. (Even less in VG's case where the shareholders of VG mutual funds actually own VG the company, which as we know is unique in the fund industry). And in the extremely unlikely event that something DID happen, the assets would almost certainly be bought up by another large competitor and all would be fine.

Plus, as others have mentioned - Fido, VG and others do carry additional insurance. But it's so minimal compared to the assets under management as to be all but worthless (as in, pennies on the dollar) in the highly unlikely event that they fail and no-one is left standing to pickup the customer accounts and assets..

Hope that helps!
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Old 06-25-2019, 02:26 PM   #6
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Originally Posted by 24601NoMore View Post
I had this same concern a while back..as I came to understand it, if your brokerage (apparently Fido in this case) were to go belly up, the most likely outcome is that the customer assets would be bought up by another large brokerage - say, VG, UBS, etc. And, you have to weigh the likelihood of Fido, VG or other similarly large brokerage going kaput and there being no-one left standing to buy up the assets. That'd be a black swan event previously unheard of, and probably take a 1929-like crash to cause..

SIPC was as I understand it designed not so much to prevent loss in a Fido, VG, etc bankruptcy, but to cover assets that "went missing". Apparently, this did happen back in the day stock certificates were physical pieces of paper, and there were some mob-related shennanigans that went on where assets did, in some cases, "go missing".

IMHO, if you're with Fido or VG there really should not be anything to worry about. First, they're highly unlikely to go away. (Even less in VG's case where the shareholders of VG mutual funds actually own VG the company, which as we know is unique in the fund industry). And in the extremely unlikely event that something DID happen, the assets would almost certainly be bought up by another large competitor and all would be fine.

Plus, as others have mentioned - Fido, VG and others do carry additional insurance. But it's so minimal compared to the assets under management as to be all but worthless (as in, pennies on the dollar) in the highly unlikely event that they fail and no-one is left standing to pickup the customer accounts and assets..

Hope that helps!
Very helpful. Thanks for taking the time to reply.

Coz
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Old 06-25-2019, 03:42 PM   #7
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Remember, too, that the brokerage house is a custodian or agent for clients. Schwab does not own the securities in our portfolio -- they are not Schwab assets.

In theory, at least, the main risk from a brokerage house failure is that clients' securities will be tied up for some period of time (months, maybe) while the house's records are moved somewhere else and sorted out. I believe this to be the same in the case of mutual funds. The fund holders own the individual securities. The manager (Fido, VG, etc.) is simply that and failure of a manager would again gum things up pretty badly but would not affect the clients' ownership position. IOW, customers' assets are never 'bought up' by someone else; custody of them is simply transferred. Other assets of the company (desks, etc.) would be "bought up" as part of a bankruptcy.

Criminal activity, of course, might mean that clients do not actually own what they think they own, as in a Ponzi scheme. AFIK Bernie Madoff's customers did not actually own anything, for example.

This is all in sharp contrast to things like CDs, GICs, annuities, etc. where the product is simply an obligation of the issuer. Banks have FDIC. States have funds from which insurance company customers can be paid if the insuror fails. AFIK customers also have a place a the unsecured creditors table in bankruptcy.

@pb4uski will probably be along soon to add details and correct any errors in my understanding. IIRC he used to work for an insurance company.
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Old 06-25-2019, 03:51 PM   #8
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Originally Posted by OldShooter View Post
Remember, too, that the brokerage house is a custodian or agent for clients. Schwab does not own the securities in our portfolio -- they are not Schwab assets.

In theory, at least, the main risk from a brokerage house failure is that clients' securities will be tied up for some period of time (months, maybe) while the house's records are moved somewhere else and sorted out. I believe this to be the same in the case of mutual funds. The fund holders own the individual securities. The manager (Fido, VG, etc.) is simply that and failure of a manager would again gum things up pretty badly but would not affect the clients' ownership position. IOW, customers' assets are never 'bought up' by someone else; custody of them is simply transferred. Other assets of the company (desks, etc.) would be "bought up" as part of a bankruptcy.

Criminal activity, of course, might mean that clients do not actually own what they think they own, as in a Ponzi scheme. AFIK Bernie Madoff's customers did not actually own anything, for example.

This is all in sharp contrast to things like CDs, GICs, annuities, etc. where the product is simply an obligation of the issuer. Banks have FDIC. States have funds from which insurance company customers can be paid if the insuror fails. AFIK customers also have a place a the unsecured creditors table in bankruptcy.

@pb4uski will probably be along soon to add details and correct any errors in my understanding. IIRC he used to work for an insurance company.
Great info. Thank you!
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Old 06-25-2019, 03:59 PM   #9
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Cede & Co. is the legal owner of all street name stock (almost all stock in the USA).
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Old 06-25-2019, 04:02 PM   #10
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Regarding FDIC:

Many years ago, I was doing a lot of stoozing (borrowing money on 0% credit cards and sticking it somewhere to make money - I always went with FDIC savings accounts.) IndyMac went under when I had about $250K on deposit with them. At that time the limit was $100K, so I had three different accounts, each with a different one of my three kids as POD. I even called the FDIC before IndyMac went under to confirm my understanding of their insurance rules to make sure I was covered - I couldn't afford to lose that money.

The bank went into FDIC receivership on a Friday afternoon. I was able to log in on Monday (same URL, user, and pass) and confirm that the money was all there and accounted for. Never lost a penny.

I will always try to stay under FDIC limits. Investments are at Vanguard and not concerned at all about those.
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Old 06-25-2019, 04:14 PM   #11
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Originally Posted by OldShooter View Post
Remember, too, that the brokerage house is a custodian or agent for clients. Schwab does not own the securities in our portfolio -- they are not Schwab assets.

In theory, at least, the main risk from a brokerage house failure is that clients' securities will be tied up for some period of time (months, maybe) while the house's records are moved somewhere else and sorted out. I believe this to be the same in the case of mutual funds. The fund holders own the individual securities. The manager (Fido, VG, etc.) is simply that and failure of a manager would again gum things up pretty badly but would not affect the clients' ownership position. IOW, customers' assets are never 'bought up' by someone else; custody of them is simply transferred. Other assets of the company (desks, etc.) would be "bought up" as part of a bankruptcy.

Criminal activity, of course, might mean that clients do not actually own what they think they own, as in a Ponzi scheme. AFIK Bernie Madoff's customers did not actually own anything, for example.

This is all in sharp contrast to things like CDs, GICs, annuities, etc. where the product is simply an obligation of the issuer. Banks have FDIC. States have funds from which insurance company customers can be paid if the insuror fails. AFIK customers also have a place a the unsecured creditors table in bankruptcy.

@pb4uski will probably be along soon to add details and correct any errors in my understanding. IIRC he used to work for an insurance company.
Great explanation and spot on based on what I was able to learn when researching this same topic..stated better than I was able to up-thread, but my intentions were good ..
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Old 06-25-2019, 04:19 PM   #12
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Originally Posted by jim584672 View Post
Cede & Co. is the legal owner of all street name stock (almost all stock in the USA).
Very interesting. https://en.wikipedia.org/wiki/Cede_and_Company

Apparently my understanding is out of date. So to whatever extent it is a risk, maybe it is Cede that we would worry about. But we are probably secured creditors if I understand : "Thus, investors do not themselves hold direct property rights in stock, but rather have contractual rights that are part of a chain of contractual rights involving Cede."
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Old 06-25-2019, 04:25 PM   #13
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Very interesting. https://en.wikipedia.org/wiki/Cede_and_Company

Apparently my understanding is out of date. So to whatever extent it is a risk, maybe it is Cede that we would worry about. But we are probably secured creditors if I understand : "Thus, investors do not themselves hold direct property rights in stock, but rather have contractual rights that are part of a chain of contractual rights involving Cede."
Having one owner makes it easy to transfer ownership, it all becomes a journal entry internal to the brokers themselves, no transfer agent needs to get involved.
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Old 06-25-2019, 04:36 PM   #14
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Having one owner makes it easy to transfer ownership, it all becomes a journal entry internal to the brokers themselves, no transfer agent needs to get involved.
Yeah, it makes sense. I guess I missed the memo on the change. In any event, I'm not too worried. Probably SIPC doesn't even apply but OTOH Cede is probably "too big to fail" so we may be protected that way.
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Old 06-25-2019, 04:58 PM   #15
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Yeah, it makes sense. I guess I missed the memo on the change. In any event, I'm not too worried. Probably SIPC doesn't even apply but OTOH Cede is probably "too big to fail" so we may be protected that way.
The Madoff scam would have been easily picked up if the SEC would have checked the DTCC (Cede) records against Madoff's fake statements.
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Old 06-26-2019, 06:31 AM   #16
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So no worries with Fido! Was just reading about their limits.
I asked about Fido's limits when I was putting together my ER plan back in 2008. I would be more than doubling my Fido account's holdings as part of it, putting me well over the $250k SIPC limit. I also learned at the time that if you have accounts of different types, such a taxable brokerage and an IRA, each is protected by its own, separate limit.
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