SIPC Protection and Custodial Insurance

The SIPC (Securities Investor Protection Corporation, a U.S. federally mandated, non-profit member corporation) safeguards client assets in the event of broker-dealer insolvency or liquidation under the Securities Investor Protection Act of 1970.

• Coverage Scope: SIPC covers up to $500,000 per customer, which includes a maximum of $250,000 for cash claims. This coverage only addresses the failure of the broker-dealer to return custody of your assets; it does not protect against market losses or fraud in the underlying issuance of securities.
• Asset Separation: Under the SEC’s Customer Protection Rule (Rule 15c3-3), broker-dealers must segregate customer securities from their proprietary accounts. This ensures that in a liquidation, customer assets are insulated from the broker’s general creditors.
• Excess SIPC Coverage: For multi-million dollar portfolios, the $500,000 SIPC limit is a baseline. Major institutional custodians carry private excess-of-SIPC insurance policies, typically underwritten by Lloyd’s syndicates. These policies provide aggregate coverage extending into the tens or hundreds of millions of dollars per client. Chasing the $500,000 limit by splitting a portfolio across a dozen brokers introduces unnecessary complexity; instead, verify your primary custodian’s excess policy limits and credit rating.
• Dispute Documentation: To preserve SIPC eligibility in a dispute (such as an incorrect trade confirmation), you must submit your complaint to the broker-dealer in writing immediately. Verbal complaints do not satisfy the statutory notice requirements.