Kiplinger’s Personal Finance: Protection for your assets | Business News

Brokerages are required by law to keep customers’ investments separate from their own funds, but if the firm fails and customers’ assets go missing — due to theft, fraud or unauthorized trading, for example — SIPC can replace customers’ cash and securities.

It doesn’t get involved until the firm has exhausted all other options. (Look for the SIPC disclosure on a brokerage firm’s website, or check the membership directory at www.sipc.org.)

SIPC isn’t a government agency and can’t investigate fraud at brokerage firms. That’s up to Finra, the industry’s self-regulatory organization, and the Securities and Exchange Commission, which refers brokerage failures to SIPC. After that, SIPC will file an application in federal district court, which will notify customers.

SIPC first divides up the broker’s remaining assets among investors, then uses its own funds — up to $500,000 per account, with a limit of $250,000 in cash — to buy the same number of shares you originally owned and replace your cash.

Depending on the amount of property the brokerage is able to recover, you may receive more than $500,000, said Josephine Wang, CEO of SIPC. SIPC has been successful in making most customers whole, she said.

If your bank fails, you don’t have to do anything — the FDIC will mail you a check. But if your brokerage fails, you must file a claim, and you should do it as soon as possible. If your securities decline in value after you file your claim, you won’t be reimbursed for losses that occur while your account is in limbo.