Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
SIPC insurance article by Scott Burns
Old 07-04-2014, 07:43 PM   #1
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
SIPC insurance article by Scott Burns

AssetBuilder - Will Congress Keep Your Investments Safe? Maybe. Maybe Not. - AssetBuilder Inc., Registered Investment Advisor

Quote:
Well, it turns out the SIPC has a different definition of “net equity.” It isn’t the value of your account on the last statement from your brokerage firm. It is the amount of money you deposited with the firm, less any amounts withdrawn.


Very scary.

Anyone know how this applies to mutual funds accounts?
__________________

__________________
walkinwood is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-04-2014, 08:43 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,878
I like Scott Burns but I'm not sure about this. It seems this is a special ruling dealing with Madoff. Since the account values and trades were fictitious I can see how the ruling was made. They couldn't pay claims on phony account values, so they gave you back what you put in less what you took out. I don' t think this would apply with a legitimate accounts with proof of the trades being made.

On SIPC web site they still have this definition of net equity

What is "net equity"?

"Net equity" is the cash and securities held by a broker for a customer, minus any amount owed by the customer to the broker.


SIPC - Claim FAQs
__________________

__________________
rbmrtn is offline   Reply With Quote
Old 07-04-2014, 10:07 PM   #3
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
This is a bill targeted at extending SIPC protection to accounts at Madoff-like shops that do not actually hold any securities, but just make it all up. It's astonishingly irresponsible that Scott Burns is drumming up support for this bill by spreading scary rumors.

I would be very concerned that this would put the SIPC on the hook for even the most transparent cons, meaning investors need take no care in selecting investments. Any charlatan promising extravagant returns is as good as a guarantee, because SIPC will stand behind any ridiculous statements the promoters issue. Not to mention the risk of SIPC claims in severe downmarkets, as claims of fraud suddenly look more attractive than accepting market results.

Madoff was well connected and many influential people lost money in his con. It's concerning that people are suggesting "special rules" for making those investors benefit, as if the investments had been real. A dangerous precedent.
__________________
growing_older is offline   Reply With Quote
Old 07-05-2014, 12:50 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,283
Quote:
Originally Posted by growing_older View Post
This is a bill targeted at extending SIPC protection to accounts at Madoff-like shops that do not actually hold any securities, but just make it all up. It's astonishingly irresponsible that Scott Burns is drumming up support for this bill by spreading scary rumors.

I would be very concerned that this would put the SIPC on the hook for even the most transparent cons, meaning investors need take no care in selecting investments. Any charlatan promising extravagant returns is as good as a guarantee, because SIPC will stand behind any ridiculous statements the promoters issue. Not to mention the risk of SIPC claims in severe downmarkets, as claims of fraud suddenly look more attractive than accepting market results.

Madoff was well connected and many influential people lost money in his con. It's concerning that people are suggesting "special rules" for making those investors benefit, as if the investments had been real. A dangerous precedent.

IF a shop like Madoff has SIPC insurance.... I think they SHOULD cover up to the stated limit. I think that SIPC should have something in place to make sure the the firms they are covering actually have what they say they do...

Who has a better shot at determining is someone is cheating or not.... the average investor off the street or the SIPC The firm putting out that there is insurance in place is doing it to show the avg Joe that he does not have to be concerned...


The insurance is there in case of fraud by the company.... so when there is fraud.... pay up...
__________________
Texas Proud is offline   Reply With Quote
Old 07-05-2014, 06:56 AM   #5
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Madoff victims were not covered by SPIC because they invested in pooled investment vehicles.

I would not be overly scared of loosing money in for example Schwab Brokerage account.... SIPC has extremely good track record.
__________________
eta2020 is offline   Reply With Quote
Old 07-05-2014, 08:26 PM   #6
Recycles dryer sheets
 
Join Date: Dec 2012
Posts: 78
I read this article earlier today and it convinced me that a fool and his money really are soon parted. I agree with Texas Proud above that if a shop has SIPC insurance, it should cover up to the limit reflected on the last statement. HOWEVER! Investors have a responsibility in selecting where they put their money. Chasing impossible returns inherently means a tremendous amount of risk. People really need to learn that lesson for themselves rather than expecting our government to continually bail them out of their poor decisions.
__________________
BuysToys is offline   Reply With Quote
Old 07-05-2014, 11:58 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,283
Quote:
Originally Posted by BuysToys View Post
I read this article earlier today and it convinced me that a fool and his money really are soon parted. I agree with Texas Proud above that if a shop has SIPC insurance, it should cover up to the limit reflected on the last statement. HOWEVER! Investors have a responsibility in selecting where they put their money. Chasing impossible returns inherently means a tremendous amount of risk. People really need to learn that lesson for themselves rather than expecting our government to continually bail them out of their poor decisions.

I will disagree with you.... all I should need to do for due diligence is look to see if they are insured.... period.... I should not have to care if they have unrealistic interest rates etc. etc..... that is the insurance companies job to manage...


Remember that if a bank is closed down, they can cash out all the high interest rate CDs if they wish.... BUT, they still have to pay you all your principal and any interest earn to date up to the $250,000 limit...

What good is insurance if they tell me that I should have known that it was a scam and have to share in any loss...


Now, if Madoff did not have insurance... then I agree that the holders should not get back anything that was fake earnings.... but if there was insurance... then I think they should...
__________________
Texas Proud is offline   Reply With Quote
Old 07-06-2014, 07:55 AM   #8
Recycles dryer sheets
 
Join Date: Dec 2012
Posts: 78
Quote:
Originally Posted by Texas Proud View Post
I will disagree with you.... all I should need to do for due diligence is look to see if they are insured.... period.... I should not have to care if they have unrealistic interest rates etc. etc..... that is the insurance companies job to manage...


Remember that if a bank is closed down, they can cash out all the high interest rate CDs if they wish.... BUT, they still have to pay you all your principal and any interest earn to date up to the $250,000 limit...

What good is insurance if they tell me that I should have known that it was a scam and have to share in any loss...


Now, if Madoff did not have insurance... then I agree that the holders should not get back anything that was fake earnings.... but if there was insurance... then I think they should...
Texas Proud, I agree with you. What I didn't state clearly last night is that there will always be people who will claim, after the fact, that they didn't realize their investment choice was not insured. SIPC should perform due diligence before insuring the investment. It just feels like we are once again looking to the government to protect us (the generic unwashed masses us) from our own poor decision making.
__________________
BuysToys is offline   Reply With Quote
Old 07-06-2014, 08:35 AM   #9
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Quote:
Originally Posted by Texas Proud View Post
IF a shop like Madoff has SIPC insurance.... I think they SHOULD cover up to the stated limit. I think that SIPC should have something in place to make sure the the firms they are covering actually have what they say they do...

Who has a better shot at determining is someone is cheating or not.... the average investor off the street or the SIPC The firm putting out that there is insurance in place is doing it to show the avg Joe that he does not have to be concerned...


The insurance is there in case of fraud by the company.... so when there is fraud.... pay up...
While it certainly sounds good for the SIPC to review their covered firms' accounts....logistically, I think it would be a sheer impossible undertaking to say the least, given the current budget and staff. (I could make a snide remark about wasteful gov't spending on ludicrous projects vs spending it on things like SIPC audits, but I'll restrain myself). Imagine how many offices there are that would need to be audited - not just Merril Lynch, but every single Merril Lynch "advisor", et. al. You would probably need as many auditors as the IRS!

And those who have more knowledge can correct me if I'm wrong - but in the case of FDIC (and Federal Reserve?) bank examiners, they don't visit each individual branch, but just the main HQ, or regional HQ, correct? Big difference between having to audit each and every single bank branch (yikes!) vs regional or main HQ. I'd imagine the SIPC would need to visit each individual investment advisor, since each one can operate independently to a certain degree (yes, investments are still held by the main clearing agent....but fraud could still happen on an individual branch level by the investment advisor, given the relative ease it would be, compared to, say, a local bank branch engaging in fraud that would likely be near impossible to pull off).

Also, I disagree about the SIPC coverage for fraud - for FDIC insurance, if there is fraud by the bank you aren't made whole by the FDIC for numbers that didn't actually exist. Just guessing, but the reason that banks haven't been engaged in fraud like Madoff, et. al, is probably because it's more difficult to offer outrageously high CDs paying insanely high, above-market rates, because you have to show all of your assets and liabilities to the bank examiners on a regular basis, and perhaps it would be more difficult to make money disappear into your pocket when they're scrubbing your books.

One final item - it's likely more difficult for a bank to open for business to the public and engage in fraud, because they have actual, significant costs (branch location, employees, etc.). It's far more easy for a con artist to visit fraternal groups, churches, civic gatherings, pass out a few business cards, and announce that they're an "investment advisor" and can generate great returns, with peoples' friends as word of mouth advertising. You can run an extremely low-overhead shop without having to spend much money to get your con going. If you had to come up with money to actually run a bank for a fraud, you've got a hell of an expense to overcome, and it's easier to overcome that big of an expense with a legit operation, rather than coming up with $5MM cash, and then trying to bilk a few million out of people and running for South America.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Old 07-06-2014, 09:50 AM   #10
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,817
Keep in mind - SIPC covers your shares, not the value of the shares. So if a meteor hits, your bluechips can become penny stocks... SIPC won't be involved at all. It's only involved if something happens to the shares (they disappear). At least that's the way it was explained to me when I first started investing. You can be completely wiped out and not trigger SIPC coverage.
__________________

__________________
rodi is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
SIPC insurance? cyclone6 FIRE and Money 44 12-12-2009 04:34 PM
no sipc insurance on mutual funds mathjak107 FIRE and Money 11 03-30-2008 10:19 AM
Scott Burns burns Home Depot REWahoo Other topics 17 03-06-2007 10:09 PM
SS benefits, delay taking Social Security, Scott Burns article landover FIRE and Money 11 11-29-2005 06:58 PM
Scott Burns Article today - Home Own vs. rent Cut-Throat FIRE and Money 34 09-01-2004 07:09 AM

 

 
All times are GMT -6. The time now is 05:25 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.