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How safe are your brokerage accounts?

- Alan Lavine and Gail Liberman

We've been getting lots of inquiries about the safety of brokerage accounts.

If you own stocks, bonds, mutual funds or exchange traded funds, most of the risk is yours. That's why you need to carefully do your homework, stick with good quality companies and make sure you're well-diversified.

Expect no financial backing from the U.S. government if the value of those investments drops, as a lot, unfortunately, have. Let's just hope they rebound!

The Securities Investor Protection Corp. (SIPC) covers you to $500,000, including $100,000 in cash, if your brokerage is a member.

"We do not insure against market losses," reiterates SIPC president Stephen Harbeck. Nor does it cover investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts, like limited partnerships that are not SEC-registered.

Harbeck says each brokerage firm is required to segregate customer assets from the assets of the brokerage. Securities in brokerage accounts, except, perhaps, for market values, should remain in tact if your brokerage fails.

About the only circumstance in which SIPC might step in is if there's a possibility your assets are missing at a brokerage house.

SIPC does not protect against fraud or an inducement to purchase a security. "There would have to be an inability to return the securities to those customers," Harbeck stresses.

If you've been defrauded or misled, you may have other recourse if you file complaints with the brokerage firm, state division of securities or Financial Industry Regulatory Authority. Or, you might sue.

SIPC is a Washington, D.C.-based membership company created by federal statute. Brokerage firms are required to contribute to a fund, which tallies $1.5 billion. The SIPC also has a $1 billion line of credit with an international consortium of banks and a $1 billion credit line with the U.S. Treasury.

Neither has ever been tapped.

Claims largely have involved brokerage houses that misused customer money.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

To read more columns, please visit the column archive.

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