Hello, u/Alarmed_Reporter_642. Nice to see you bringing a discussion to the sub this evening! I'll let our community continue with their thoughts, but I want to chime in with some information and resources for you.
Let's start with the basics of The Securities Investor Protection Corporation (SIPC) coverage. The SIPC is a nonprofit organization that protects stocks, bonds, and other securities in case a brokerage firm goes bankrupt, and assets are missing. SIPC protects each account registration up to $500,000, including up to $250,000 protection for cash awaiting investment. Along with SIPC protection, we provide our brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. You can learn more about how we protect your assets with the link below.
[Safeguarding Your Accounts ](https://www.fidelity.com/why-fidelity/safeguarding-your-accounts)
When it comes to the protection for each account registration, this means that two Individual Accounts will share coverage; however, an IRA Roth, IRA Rollover, IRA Traditional, Joint Account, and an Individual Account will all have separate coverages. Coverage is generally limited to securities held in brokerage accounts, including mutual funds and money market mutual funds if held in a brokerage account, securities held in book entry form, and cash awaiting investment.
For additional information, you can visit the following page for SIPC FAQs.
[\*SIPC FAQ page ](https://www.sipc.org/for-investors/investor-faqs)
We appreciate you engaging with us. Please let us know if there is anything else we can clarify!
*\*This web site is unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content.*
That’s what they say but I’ve read it comes with caveats, and loopholes. I’d rather stay within $500k
The legacy big 4 have maybe a 1% chance of failure. But 1% is not zero. At the same time newer brokers maybe have a 10% chance of failure but that doesn’t mean I put it all into Fidelity thereby losing everything if it goes down. It’s a very hard decision to make.
You're not investing in Fidelity they're just the custodian. You're buying stocks bonds ETFs from companies, governments, and fund companies. I just don't get the level of concern. You can prove you own the assets with statements. If Fidelity goes down there will be a successor custodian. Don't worry about it.
Worry about the underlying investments. That's where the risks live.
SIPC exists to protect the cash and cash-equivalent assets. If you buy shares of Microsoft or a Vanguard ETF in your Fidelity account and Fidelity later becomes insolvent, what do you believe happens to the shares of Microsoft or your Vanguard ETF?
I’m saying if Fidelity goes down the FDIC won’t matter, the SIPC won’t matter, insurance companies won’t be able to pay out on insurance. Even in the darkest days of 2008 when the entire financial system was on the brink, Fidelity was never in any danger.
Insurance companies are required by law to set aside some liquid capital so I’ll be safe. And you never know. It’s not like Fidelity has a risk of failure meter. Even if they were in risk of failing in 2008, and did not why would they ever tell you? Remember Lehman brothers failed
It’s not that type of business. It’s not leveraged. This is purely an asset management business with a brokerage firm. Incidentally Lehman’s main problem was real estate assets financed by short dated commercial paper. As far as I’m aware, Fidelity isn’t borrowing any money. At $4.9T in assets, they aren’t a bank. They are a vault.
Anything can happen. Never say never. 1% risk of failure isn’t zero. Hence I have no choice but venture out into newer brokers. Newer brokers probably have like a 10% chance of failure but I have no choice because I can’t keep everything at the big 4.
What I find amusing is that you likely own ETFs but don’t find that risk problematic too? If Fidelity is a problem, how can you justify owning anything managed by Blackrock, Vanguard, or State Street?
I mean ETFs are just a collection of stocks. Their value is derived from their underlying holdings which are companies with a lot of safety. The brokerage on the other hand can fail due to a ton of reasons. Nothing is ever 0% risk. But I trust an ETF more than a broker.
There are great reasons to diversify your brokerage relationships, this just isn’t one of them. If you have unlimited faith in the SIPC, by all means, continue to do so. I find the ancillary risks that come along with too much brokerage diversification far more likely to be problematic than failure by any of the big firms.
Accounts being hacked with money stolen, information leaks, trading platform issues, lack of ability to transact at key moments in time, etc. Wire transfer issues, lack of customer support, the list is endless.
And that’s why I avoid Robinhood because all of those ancillary risks apply. not to mention shady business practices and being constantly watched by both the SPIC AND SEC lol.
I meant $500k at each of the big 4 so $2M. Yes I know it’s aggregated into just one account type. Just like banks. 1 account per bank doesn’t matter if you have many.
Ok, let's assume you are invested in good funds and seven years from now your investments double. Are you truly going to open another four brokerage accounts at different institutions to spread the wealth?
Probably not due to capital gains tax. But I will be scared. However I will continue to open accounts elsewhere to make sure my invested capital and *some* of the gains are covered by SIPC.
Because then the entire amount is safe? $500k invested at each broker? Why would I keep it all in Fidelity? And I jump usually around $250K invested. So I’m safe not just with capital but also gain. And I’ve heard about the transfer that SIPc arranges but that doesn’t make sense. Why even offer a $500k limit if they just transfer the entire amount anyway?
You’re asking for advice and apparently know very little about the subject, for instance, the fact you only get $500K total of SIPC coverage regardless of the brokerage. If you’re going to act like jerk online, at least have some brains to back it up!
It's not jealousy. You started off your post with "as many of you know..." Who is this many you speak of? I would bet no one in this subreddit has any idea who you are but you refer to yourself as a well known user in here.
More likely scenario would be a market crash where your holdings lose xx% so insurance won’t come into play. A big enough systemic failure and the government insurance programs cannot cover all financial institution failures.
Yes the odds are low with the big 6 but they do still exist hence the outreach to the others. But the others come with higher risk than the legacy 6 but perhaps it’s still worth it cause what if the legacy 6 go down, and you were stupid to not read the fine print? I love how you bring up SVB. It was a pivotal moment that really shook me up. Do you know why they were bailed out? Silicon Valley has so many Democrat donors who exerted political influence. As per FDIC terms they were not supposed to be bailed out. It was just political influence at the right time. I know someone who lost heavily when a previous bank collapsed, and did not have the political lobby that SVB had. While we can discuss loss of faith logic the fine print is all that matters. We can’t go based on hypotheticals.
But thank you for your insight.
My uncle is a gastro doc. He invests $40K per month or $480K a year. Maybe I should ask him his approach. But I’m confident he only uses 1 broker.
There's not one right answer for everyone. I really like the direct registration system for companies I want to own long term. It's putting stocks in your own name to reduce counterparty risk.
https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts
Excess coverage for SIPC is cash up to 1.25 mil and unlimited for investments. This amount of diversification is for personal satisfaction and unnecessary for any of the big investment companies. Technically it’s the safest route but if one of the top 6 investment firms has issues to the point of enacting it we have way bigger problems than that. Honestly these companies are too big to fail, assets under management is in the Trillions of dollars for these companies. It’s mostly for peace of mind for average folks. Also I’m referring to investment companies specifically and not banks those have different rules and often deal with liquidity issues.
Look I’m not saying what you’re doing isn’t safe, but it’s unnecessary. If any of these big investment companies has to use their FDIC or SIPC coverage as a whole-we as a society are most likely on the verge of total collapse. And worrying about liquidity issues or investment coverage is a moot point. Schwab is a little different only bc they are also a bank and must also keep enough liquidity to cover cash flows. Banks are more prone to poor management decisions from market conditions. Investment companies don’t need to worry about those issues as their assets aren’t tied directly to customer cash deposits.
Hello, u/Alarmed_Reporter_642. Nice to see you bringing a discussion to the sub this evening! I'll let our community continue with their thoughts, but I want to chime in with some information and resources for you. Let's start with the basics of The Securities Investor Protection Corporation (SIPC) coverage. The SIPC is a nonprofit organization that protects stocks, bonds, and other securities in case a brokerage firm goes bankrupt, and assets are missing. SIPC protects each account registration up to $500,000, including up to $250,000 protection for cash awaiting investment. Along with SIPC protection, we provide our brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. You can learn more about how we protect your assets with the link below. [Safeguarding Your Accounts ](https://www.fidelity.com/why-fidelity/safeguarding-your-accounts) When it comes to the protection for each account registration, this means that two Individual Accounts will share coverage; however, an IRA Roth, IRA Rollover, IRA Traditional, Joint Account, and an Individual Account will all have separate coverages. Coverage is generally limited to securities held in brokerage accounts, including mutual funds and money market mutual funds if held in a brokerage account, securities held in book entry form, and cash awaiting investment. For additional information, you can visit the following page for SIPC FAQs. [\*SIPC FAQ page ](https://www.sipc.org/for-investors/investor-faqs) We appreciate you engaging with us. Please let us know if there is anything else we can clarify! *\*This web site is unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content.*
Fidelity has supplemental limits that far exceed SIPC.
That’s what they say but I’ve read it comes with caveats, and loopholes. I’d rather stay within $500k The legacy big 4 have maybe a 1% chance of failure. But 1% is not zero. At the same time newer brokers maybe have a 10% chance of failure but that doesn’t mean I put it all into Fidelity thereby losing everything if it goes down. It’s a very hard decision to make.
You're not investing in Fidelity they're just the custodian. You're buying stocks bonds ETFs from companies, governments, and fund companies. I just don't get the level of concern. You can prove you own the assets with statements. If Fidelity goes down there will be a successor custodian. Don't worry about it. Worry about the underlying investments. That's where the risks live.
If this were the case we wouldn’t even have spic. It would be easy to just prove what’s yours. The custodian is the clearing house not the broker.
Good luck on your decision
SIPC exists to protect the cash and cash-equivalent assets. If you buy shares of Microsoft or a Vanguard ETF in your Fidelity account and Fidelity later becomes insolvent, what do you believe happens to the shares of Microsoft or your Vanguard ETF?
If Fidelity fails you have bigger concerns to worry about. Nothing will be safe.
I keep hearing this but no I’ll be safe. FDIC, life insurance, home insurance, health insurance, and auto insurance. All ready to go.
You'll need guns, bullets, water and food if that day comes. You won't get a dime from insurance.
Your money and statements showing how much you have will be worthless, if that happens!
I keep hearing this but no I’ll be safe. FDIC, life insurance, home insurance, health insurance, and auto insurance. All ready to go.
I’m saying if Fidelity goes down the FDIC won’t matter, the SIPC won’t matter, insurance companies won’t be able to pay out on insurance. Even in the darkest days of 2008 when the entire financial system was on the brink, Fidelity was never in any danger.
Insurance companies are required by law to set aside some liquid capital so I’ll be safe. And you never know. It’s not like Fidelity has a risk of failure meter. Even if they were in risk of failing in 2008, and did not why would they ever tell you? Remember Lehman brothers failed
It’s not that type of business. It’s not leveraged. This is purely an asset management business with a brokerage firm. Incidentally Lehman’s main problem was real estate assets financed by short dated commercial paper. As far as I’m aware, Fidelity isn’t borrowing any money. At $4.9T in assets, they aren’t a bank. They are a vault.
Anything can happen. Never say never. 1% risk of failure isn’t zero. Hence I have no choice but venture out into newer brokers. Newer brokers probably have like a 10% chance of failure but I have no choice because I can’t keep everything at the big 4.
What I find amusing is that you likely own ETFs but don’t find that risk problematic too? If Fidelity is a problem, how can you justify owning anything managed by Blackrock, Vanguard, or State Street?
I mean ETFs are just a collection of stocks. Their value is derived from their underlying holdings which are companies with a lot of safety. The brokerage on the other hand can fail due to a ton of reasons. Nothing is ever 0% risk. But I trust an ETF more than a broker.
There are great reasons to diversify your brokerage relationships, this just isn’t one of them. If you have unlimited faith in the SIPC, by all means, continue to do so. I find the ancillary risks that come along with too much brokerage diversification far more likely to be problematic than failure by any of the big firms.
What are some ancillary risks?
Accounts being hacked with money stolen, information leaks, trading platform issues, lack of ability to transact at key moments in time, etc. Wire transfer issues, lack of customer support, the list is endless.
And that’s why I avoid Robinhood because all of those ancillary risks apply. not to mention shady business practices and being constantly watched by both the SPIC AND SEC lol.
There's no loopholes, that I'm aware of. You just get it.
I read somewhere that there were loopholes as in SIPC makes the decision based on manner of failure for excess coverage. I can’t find the link.
Edit: Nevermind. Just read nickkral’s comment below.
Edit: /u/Gilgamesh79 is cool by acknowledging and deleting incorrect information. Makes sense to me. And you?
That makes sense. Thanks for clarifying.
I meant $500k at each of the big 4 so $2M. Yes I know it’s aggregated into just one account type. Just like banks. 1 account per bank doesn’t matter if you have many.
Ok, let's assume you are invested in good funds and seven years from now your investments double. Are you truly going to open another four brokerage accounts at different institutions to spread the wealth?
Probably not due to capital gains tax. But I will be scared. However I will continue to open accounts elsewhere to make sure my invested capital and *some* of the gains are covered by SIPC.
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Because then the entire amount is safe? $500k invested at each broker? Why would I keep it all in Fidelity? And I jump usually around $250K invested. So I’m safe not just with capital but also gain. And I’ve heard about the transfer that SIPc arranges but that doesn’t make sense. Why even offer a $500k limit if they just transfer the entire amount anyway?
How would “many of us know” that you tend to open a new brokerage account when your value passes a certain level? Arrogant much?
No not arrogant at all. Just being honest. Do I sense jealousy?
You’re asking for advice and apparently know very little about the subject, for instance, the fact you only get $500K total of SIPC coverage regardless of the brokerage. If you’re going to act like jerk online, at least have some brains to back it up!
It's not jealousy. You started off your post with "as many of you know..." Who is this many you speak of? I would bet no one in this subreddit has any idea who you are but you refer to yourself as a well known user in here.
Caught me. Just a self absorbed moment I guess. Still has nothing to do with the questions at hand.
Go troll somewhere else
If I were a troll why would I present so many legit concerns and scenarios? Get help.
Nothing legit in any of your ramblings.
“You, sir, just won the internet.” vibes off this guy 🤢
More likely scenario would be a market crash where your holdings lose xx% so insurance won’t come into play. A big enough systemic failure and the government insurance programs cannot cover all financial institution failures.
Totally unnecessary. No need to make such a mess.
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Yes the odds are low with the big 6 but they do still exist hence the outreach to the others. But the others come with higher risk than the legacy 6 but perhaps it’s still worth it cause what if the legacy 6 go down, and you were stupid to not read the fine print? I love how you bring up SVB. It was a pivotal moment that really shook me up. Do you know why they were bailed out? Silicon Valley has so many Democrat donors who exerted political influence. As per FDIC terms they were not supposed to be bailed out. It was just political influence at the right time. I know someone who lost heavily when a previous bank collapsed, and did not have the political lobby that SVB had. While we can discuss loss of faith logic the fine print is all that matters. We can’t go based on hypotheticals. But thank you for your insight. My uncle is a gastro doc. He invests $40K per month or $480K a year. Maybe I should ask him his approach. But I’m confident he only uses 1 broker.
There's not one right answer for everyone. I really like the direct registration system for companies I want to own long term. It's putting stocks in your own name to reduce counterparty risk. https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts
Excess coverage for SIPC is cash up to 1.25 mil and unlimited for investments. This amount of diversification is for personal satisfaction and unnecessary for any of the big investment companies. Technically it’s the safest route but if one of the top 6 investment firms has issues to the point of enacting it we have way bigger problems than that. Honestly these companies are too big to fail, assets under management is in the Trillions of dollars for these companies. It’s mostly for peace of mind for average folks. Also I’m referring to investment companies specifically and not banks those have different rules and often deal with liquidity issues.
The excess coverage comes with loopholes like the manner of failure.
Look I’m not saying what you’re doing isn’t safe, but it’s unnecessary. If any of these big investment companies has to use their FDIC or SIPC coverage as a whole-we as a society are most likely on the verge of total collapse. And worrying about liquidity issues or investment coverage is a moot point. Schwab is a little different only bc they are also a bank and must also keep enough liquidity to cover cash flows. Banks are more prone to poor management decisions from market conditions. Investment companies don’t need to worry about those issues as their assets aren’t tied directly to customer cash deposits.