I made a big error concerning SIPC

hondo

I had been under the impression that SIPC covers JOINT accounts for $500K for each of the joint owners, or $1M for a couple.
I found out today that the coverage is only $500k for the whole account.

I now have far more in our joint account than the SIPC will cover. I could sell a lot of it and move it to another brokerage firm, but that would involve a very large CG tax.

Does anyone know any way to get around this?

yugo

Coverage is $500K per 'separate capacity' - defined, loosely, by account ownership and type: https://www.sipc.org/for-investors/investors-with-multiple-accounts

Since it sounds like everything is currently in a "joint" account, you could open an 'individual' account at the same firm and move some of the assets there.

Alternatively, you can move assets to another firm "in-kind", which would not be a taxable event.

BaluBalu

My brokerages are the well known staid old guard. I do not worry that they will commit fraud on my account of usurp my funds. Many people maintain multi- million dollar accounts at a single brokerage. Sorry this does not answer your question but thought it might be useful info.

msf

Many brokerages carry "excess of SIPC" coverage. For example, Fidelity writes:

Excess of SIPC: In addition to SIPC protection, Fidelity provides its brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts, including losses due to market fluctuation. For example, fraud claims would not be covered if the brokerage firm was still in operation. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.

Both SIPC and excess of SIPC coverage is limited to securities held in brokerage positions, including mutual funds if held in your brokerage account and securities held in book entry form

https://clearingcustody.fidelity.com/app/proxy/content?literatureURL=/9860886.PDF

Alternatively, you could transfer securities "in-kind", meaning that they are not sold but merely moved from one brokerage to another. This only works if the receiving brokerage is able to hold the securities being transferred. Usually MMFs have to be transferred as cash and some proprietary mutual funds cannot be held by all brokerages.

yogibearbull

If you hold CDs within a brokerage a/c, the FDIC coverage limits will still apply in case of bank failure. SIPC will treat them as securities under its coverage.

The SIPC coverage kicks in only when brokerage itself fails. Moreover, the brokerage cash coverage limit is $250K out of the total $500K account coverage; m-mkt funds are treated as securities by the SIPC, not as brokerage cash. The brokerage cash should be transactional cash waiting to be deployed. As noted already, major brokerages carry additional insurance.

Derf

I have 4 accounts with Schwab, 2 IRA's , 1 Roth , 1 Individual. How much SIPC coverage do I have ? $2 million , or $500k ?

yugo

@Derf per Schwab: "The combined total of our SIPC coverage and our "excess SIPC" coverage means Schwab provides protection up to an aggregate of US$600 million, limited to a combined return of US$150 million per customer, up to US$1.15 million of which may be in cash. This protection becomes available in the event SIPC limits are exhausted."

https://international.schwab.com/account-protection

Standard SIPC coverage is described here and - depending on how your 2 IRAs are set up - would be between $1.5M and $2M total w $500K per "account" as defined by SIPC via 'capacity' ($250K cash).

hondo

yugo said:

Coverage is $500K per 'separate capacity' - defined, loosely, by account ownership and type: https://www.sipc.org/for-investors/investors-with-multiple-accounts

Since it sounds like everything is currently in a "joint" account, you could open an 'individual' account at the same firm and move some of the assets there.

Alternatively, you can move assets to another firm "in-kind", which would not be a taxable event.

Thank you yugo, opening 'individual' accounts is exactly what we are doing and then moving some of the 'joint' account shares 'in-kind' to the individual A/Cs. Thanks for your comment.

hondo

BaluBalu said:

My brokerages are the well known staid old guard. I do not worry that they will commit fraud on my account of usurp my funds. Many people maintain multi- million dollar accounts at a single brokerage. Sorry this does not answer your question but thought it might be useful info.

I agree with what you say. I really do not fear that the brokerage we use will fail, but to be on the safe side ---. Thanks for your comment.

hondo

msf said:

Many brokerages carry "excess of SIPC" coverage. For example, Fidelity writes:

Excess of SIPC: In addition to SIPC protection, Fidelity provides its brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts, including losses due to market fluctuation. For example, fraud claims would not be covered if the brokerage firm was still in operation. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.

Both SIPC and excess of SIPC coverage is limited to securities held in brokerage positions, including mutual funds if held in your brokerage account and securities held in book entry form

https://clearingcustody.fidelity.com/app/proxy/content?literatureURL=/9860886.PDF

Alternatively, you could transfer securities "in-kind", meaning that they are not sold but merely moved from one brokerage to another. This only works if the receiving brokerage is able to hold the securities being transferred. Usually MMFs have to be transferred as cash and some proprietary mutual funds cannot be held by all brokerages.

Thanks msf for bringing up the 'excess' SIPC coverage. I called my brokerage firm to make the 'in-kind' transfers and ask about 'excess SIPC' coverage. I explained what I wanted to do, and before I asked about the excess SPIC, he brought it up. It turns out that we, (wife & I) have multi-millions of coverage through the excess SIPC. In-kind transfers are off.