SIPC Broker-Dealer Insurance Coverage

Congress first created the Securities Investor Protection Corporation (SIPC) in 1970 to help protect consumers of member broker-dealers that fail and/or be liquidated. If securities or cash are missing from customer accounts, the corporation will step in and replace the lost securities and/or cash. Protection is limited to $500,000 per customer which includes cash up to $100,000. SIPC does not protect customers against market risk which could be defined as losses resulting from a fall in a security’s value.


How Does SIPC insurance work?
SIPC will generally provide adequate coverage in the event of a liquidation or failure of an insured member broker-dealer. Federal securities laws require that customer accounts be segregated from the firm's own assets. Audits, both internal and external, enforce this segregation of assets as well as regulatory exams and periodic reporting requirements. Member broker-dealers will hold customer assets in book entry form, not in physical possession by the firms themselves. In the event of a brokerage failure, SIPC funds would be used to cover a limited portfolio amount (protected amounts up to $500,000 including a $100,000 limit for cash). Some firms, depending on size of the firm, will provide additional private insurance beyond SIPC limits as an added value to their customers.


How do SIPC and FDIC insurance compare?
The Federal Deposit Insurance Corporation (FDIC) protects customer deposits up to $100,000 in most U.S. banks and savings associations in the event that the institution fails or becomes insolvent. FDIC will not cover loses from any type of investment related product- SIPC insurance will cover a limited amount of investment related items.


SIPC has a limit. What if you have more?
SIPC will limit insured amounts, however, most investment brokerages are increasingly providing private insurance to cover amounts beyond what SIPC insurance covers. To find out the insurance policies of your investment brokerage, as your investment representative for an explanation of the protection they provide. Your investment representatives should be able to explain SIPC and private insurance limits and qualifications. Often times just knowing that you are with a financially stable and well insured brokerage is enough assurance of the safety of your assets.

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