SIPC Insurance: What It Does and Does Not Protect

SIPC insurance for brokerage firms is similar to FDIC protection for bank failures. Here’s what is and isn’t covered.
Dayana YochimJan 15, 2019
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Your bank account balances are insured by the FDIC. Assets in your brokerage are also protected, but by a different entity — the nonprofit Securities Investor Protection Corporation, or SIPC.

In the unlikely event your broker or robo-advisor financially fails — and also fails to move your money to another protected firm — and investors' assets are missing or at risk, the SIPC will step in to make you whole by providing up to $500,000 in coverage.

Here are the basics of brokerage account insurance, including what it does and doesn’t cover.

SIPC coverage provides ...

SIPC insurance doesn’t cover ...

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Scroll to the bottom of nearly any page on a brokerage or robo-advisor firm’s site and you should see the SIPC membership disclosure. If not, it’s time to .

Firms that sell stocks and bonds and other investments to the public — as well as the clearinghouses that handle account transactions — are required by law under the Securities Investor Protection Act of 1970 to be members of the SIPC. Customers don’t have to sign up for it, and individual investors can’t purchase extra coverage.

That depends on ...

Your account balance: Remember, SIPC coverage is limited to $500,000 total per customer. However, if you have more than that at the institution, you may still be insured for a greater amount based on …

How the accounts are titled: The “per-customer” rule of coverage is based on ownership capacity. If, for example, you have an IRA account in your name and a joint account with your spouse, the SIPC treats them as separate accounts and insures each up to $500,000. (Unlike with FDIC coverage, joint accounts aren’t insured to the full amount for each account holder with SIPC insurance.) Other examples of separate capacity include accounts held for a trust or a corporation, by a guardian for a ward or minor or by an estate executor. A margin account is not considered a separate capacity.

The amount of cash in the account: Claims on money that’s not invested and is in cash are capped at $250,000. That $250,000 counts toward the full $500,000 policy. SIPC protection may not be adequate if you keep a lot of cash in your brokerage. Note that money market mutual funds and certificates of deposit (CDs) are considered an investment and not cash under the rules.

If after adding up your assets in all their separate and combined capacities it turns out SIPC coverage falls short, consider moving a portion of your money to a different institution. (Here are instructions on .)

» MORE: NerdWallet’s

If you have a Roth IRA and a traditional IRA at the same institution, SIPC protection treats them as separately insured accounts and provides a total of up to $1 million in protection, or $500,000 on the Roth account and $500,000 for the regular IRA.

Even if your brokerage does shut down or become insolvent, other layers of protection will shield you from loss before the SIPC needs to step in. As FINRA points out: “In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm.”

Those other layers of protection include regulatory requirements for brokerage firms to keep customer assets segregated in separate accounts from the firm’s own money and to have a minimum amount of liquid assets on hand, kind of like an emergency fund for a broker.

If against all odds your broker gets to the liquidation phase before you get back your money, you’ll be notified by a court-appointed trustee for the liquidation on how to file a claim. (As a backup you can always go to sipc.org to request a claim form.)

The amount of your claim will be the value of the cash and securities in your account minus any debt you owe the brokerage firm (any margin loans, for example) on the date the SIPC files the court application for liquidation.

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