At CWA, protecting client assets is a top priority of our relationship with you. As such, we want to provide you with an understanding of some of the brokerage industry rules and regulations for custodians that safeguard your assets.
We have chosen custodians with the highest standards of security when it comes to safeguarding your assets. These custodians are Charles Schwab, TD Ameritrade (acquired by Charles Schwab) and Fidelity.
What occurs in the event of insolvency of Schwab or Fidelity?
There are multiple layers of protection to safeguard investor assets. These layers of protection include (1) brokerage firms must meet minimum net capital requirements to reduce the likelihood of insolvency, (2) brokerage firms must keep customer securities and cash segregated from their own securities and cash (SEC Rule 15c3-3), and (3) brokerage firms are required to be members of the Securities Investor Protection Corporation (SIPC), which insures customer securities accounts up to $500,000.
SIPC protection of customers with multiple accounts is determined by “separate capacity.” Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits.
What is Securities Investor Protection Corporation (SIPC)?
SIPC is a nonprofit corporation which was created by the Securities Investor Protection Act of 1970 to protect the clients of brokerage firms that are forced into bankruptcy, lapse into financial trouble, or if the assets of their customers go missing. Brokers and dealers registered under the Securities Exchange Act of 1934, members of securities exchanges and most National Associate of Securities Dealers (NASD, FINRA’s predecessor) members are all members of SIPC. U.S. Brokers also are subject to SEC minimum capital and customer protection rules.
SIPC protection has a limit of $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts. Protections under SIPC are limited. SIPC protects only the custody functions of the broker dealer, which means SIPC works to restore the customers securities and cash in customer accounts when the process of liquidation of a brokerage firm begins.
SIPC protects cash in brokerage accounts from the sale of or for the purchase of securities. Securities includes notes, stocks, treasury stocks, bonds, money market funds and other types of securities. The full definition can be found in Securities Investor Protection Act.
SIPC does not protect currency, any commodity or related contracts of futures contracts, any warrant or right to subscribe to or purchase or sell any of the securities including under the definition. Lastly SIPC does not cover cash held in connection with commodities trades.
Custodian Protections and Excess Coverage
Each custodian that CWA utilizes is a member of SIPC and has excess SIPC coverage. Excess SIPC coverage is provided by a private insurer and not by SIPC. The coverage is intended to protect brokerage customers against the risk that customers will recover all their cash and securities in the proceedings under the Securities Investor Protection Act.
For more information see custodian brochures here:
How Clients’ Assets are Protected at Schwab
FI Safeguarding Assets Brochure
Disclosures: For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third party information and may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of the information. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. R-23-5260.
