Federal officials say they engineered the rescue of Bear Stearns because its failure could have undermined the nation's financial system. But if you're a client of Bear or another tottering brokerage, you likely have a more mundane matter on your mind: Is your money safe?
The answer is, almost certainly yes.
To protect investors, federal law requires that brokers segregate customer assets from their own. When bankruptcy appears inevitable, the Securities Investor Protection Corp. steps in. In most cases, it transfers customer accounts to a healthy brokerage before a sick one declares bankruptcy so that investors retain control over their assets.
If the brokerage is already insolvent, SIPC puts bankruptcy proceedings on hold while it replaces securities or other assets missing from clients' accounts. It covers losses of up to $500,000 per account, including up to $100,000 in cash. Many brokers also carry supplemental insurance.
Don't expect SIPC to protect you against fraud, inappropriate investment decisions or declines in the value of your stocks, bonds and mutual funds, says SIPC president Stephen Harbeck. "We don't bail out investors from trading losses."
Fund concerns. What if you own a broker-sponsored mutual fund or exchange-traded fund? No sweat. Funds are set up as independent legal entities, and money in them is kept separate from brokers' assets. If, say, UBS or Morgan Stanley were to collapse, fund directors would just hire new advisers.
Broker-sponsored exchange-traded notes are another issue. ETNs, such as the Bear Stearns-sponsored BearLinx Alerian MLP Select Index ETN (symbol BSR), don't actually invest in assets. Rather, they are unsecured debts, with the issuer pledging to repay shareholders based on how the index fares. If an ETN's issuer goes belly-up, holders will have to stand in line with other creditors and may or may not get back their full investment.
9 Things You May Be Getting Wrong About the Sandwich Generation
Sponsored Those caught in the middle could be getting “squeezed” by children and aging parents more than you think.
By Sponsored Content Published
Stock Market Today: Stocks Close Lower on Cyber Monday
The main indexes were choppy to start the week, though several e-commerce stocks jumped on encouraging online holiday shopping numbers.
By Karee Venema Published
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
Stock Market Holidays in 2023: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2023.
By Kyle Woodley Last updated
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
I-Bond Rate Is 5.27% for Next Six Months
Investing for Income I-Bonds issued November 1 to April 30 will have a rate of 5.27%.
By David Muhlbaum Last updated
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy Published
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck Published