Most investors confuse SIPC with FDIC but the two are nothing alike. FDIC protects bank customers against a loss up to a certain amount per customer. SIPC has nothing to do with the risk of investment but protects a customer in case the brokerage firm fails, files for bankruptcy or experiences financial difficulty.
SIPC will not protect an investor from fraud such as that perpetuated by Bernie Madoff.
The amount of coverage per customer account is $500,000 including a maximum of $250,000 for cash.
How can you tell if a firm is a member of SIPC? The answer you’d think is in the business cards, stationary and sign posted in the business itself. The only true way is to call SIPC Membership Department at 202 371 8300.
What doesn’t SIPC cover? It does not cover those individuals who are sold worthless stocks and other securities. It does not cover commodity futures contracts, fixed annuities, currency and limited partnerships that are not registered with the U.S. Securities and Exchange Commission.
Example: A brokerage firm is shut down and you have an account at the firm with 100 shares of XYZ stock which trades at $100 per share. Once a court appointed Trustee is established and SIPC steps in they will ensure that a client receives the 100 shares of XYZ stock or the current market value of the stock. Each customer will be provided with a claim form in order to recover their cash and securities. This is not as difficult as it may seem since customers receive quarterly statements illustrating their holdings.
FINRA has some suggestions on how investors can help themselves:
- Read and keep all documents/or keep copies.
- Check all trade confirms.
- Review statements and call if you notice anything wrong.
- Do not make checks to your sales person but to your SIPC Member.
- Report something not right immediately by phone and in writing to the broker/dealer.
- Not satisfied go immediately to the FINRA website and report your problem on the Investor Complaint Center.
- More info please go to www.sipc.org
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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