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SIPC Insurance details on a recovery

Hello Cullen,

Thanks for bringing back the forum and all of the information that you have posted over the years!  I really appreciate it and have learned a lot from this website.

I was wondering if you know much about SIPC insurance?

If one of these new FinTech startup brokerage companies had to close up shop due to a non-profitable business model, what steps would be taken to transfer securities out to another company?

How would SIPC know what securities an investor owns in the case that the records are corrupt at a closed shop?

Just curious if you or anyone else knows how a recovery would take place and how "bullet proof" it really is.




Most of the products inside of a robo are ETFs or mutual funds. They're really secured by the quality of the underlying assets, not the robo itself. SIPC is more for the cash balances of an account, kind of like FDIC insurance. But again, your cash balance is related more to the integrity of the underlying assets and not the brokerage firm so much.

So, for instance, if WealthFront went out of business they'd just sell some portion of the business as a holding company. Your ETFs would transfer to that new brokerage firm in-kind. The only time that really becomes an issue is when the broker is itself the issuer of related products. If you have ETNs at Barclays and Barclays goes bust then your ETN could go bust also. ETNs and some derivatives are specifically structured like that though so you need to be careful, but in general the viability of ETFs and mutual funds inside of a brokerage account are not a real concern.

Hope that helps!

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche


That helps a lot in easing the concern with using one of these new guys to manage a basic portfolio.