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By David Vollrath, Executive Director Union County Foundation In our last article we talked about the specifics of F.D.I.C. protection as they apply to your deposits held at member banking institutions. Today’s article deals with protection provided by S.I.P.C. for assets held at member brokerage institutions. I think it is safe to say that the general public’s understanding of S.I.P.C. is sketchy at best. As stated in our last article please know that you can find more comprehensive detailed information on both of these topics at www.fdic.gov and www.sipc.org. SPIC stands for The Securities Investor Protection Corporation. According to Wikipedia: “SPIC is a federally mandated non-profit corporation in the United States that protects securities investors from harm if a broker/dealer defaults. Investors are not insured for any potential loss while invested in the market. SIPC was created by the 1970 Securities Investor Protection Act.” Here is a point often misunderstood. “SIPC is not a government agency: rather it is a membership corporation funded by its members. The SIPC website emphasizes “SIPC is not the securities’ world equivalent of FDIC (the Federal Deposit Insurance Corporation“. It was interesting for me to find out that at one time the U.S. Congress considered creating a Federal Broker-Dealer Insurance Corporation but determined that such an entity would be out of step in the investment marketplace which is universally known to be inherently risky. Understanding what SIPC doesn’t cover is as important as understanding what it does cover. SIPC is not insurance against fraud. Combating fraud is not its purpose. It is estimated that each year investment fraud in the United States ranges from $10-$40 billion dollars. Your ability to sleep at night shouldn’t be a result of thinking that you are covered against investment fraud by SIPC…you’re not. SIPC protection also does not apply to commodity futures contracts and currency, as well as investment contracts and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission. What SIPC does protect you from is in the event your member brokerage firm fails and your cash and securites are missing from customer accounts. The SIPC web site states that “through 2007 the SIPC has advanced $508 million in order to make possible the recovery of $15.7 billion in assets for an estimated 625,000 investors.” SIPC estimates that 99% of persons who are eligible (eligibility is key) have been “made whole” in the case of failed brokerage firms. Basically the SIPC acts on your behalf in the event of brokerage insolvency. The SIPC statute provides that “customers of a failed brokerage firm receive all non-negotiable securities (such as stocks and bonds) that are already registered in their names or in the process of being registered.” Funds from the slightly more than $1 billion SIPC Reserve Fund are made available to satisfy the remaining claims of each customer up to a maximum of $500,000, which includes up to a maximum claim of $100,000 for cash. Your brokerage firm’s membership in SIPC can be verified at the SIPC web site or through the SIPC Membership Dept. at 202-371-8300. The Union County Foundation is equipped to help you achieve your charitable goals by providin: planned giving and estate planning resource information, charitable gift annuities/life income plans, and a broad array of charitable choices including Scholarship Funds and donor advised funds. The Foundation encourages you to work closely with your professional advisor(s) as you develop your estate plan and consider your present and future charitable goals. Please call us at 937-642-9618, email info@unioncountyfoundation.org,, reference our website at www.unioncountyfoundation.org, or stop by our Marysville office at 126 N. Main St. We are committed to helping you… “preserve your footprint in time.” |
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