Whether you’re a novice investor or an experienced one, putting your money at stake to other people’s account is quite risky and financially dangerous. To make sure that your investments are still intact in case the brokerage firm has gone bankrupt, ceases to operate and formally closes its doors to the public including investors, you should know what to do prior to this unfortunate event and be protected. In this article, we will discuss the reasons why we need to guard assets and money from securities brokers.
Why We Need Protection From Securities Brokers
1. Brokers may declare bankruptcy and you can’t take you securities back.
To compensate for your loss, usually accounts are covered by the FDIC. But what happens when they are not? The answer is that they would be covered by SIPC or the Securities Investor Protection Corporation. This group takes charge of your cash and securities, making you worry less when emergency arises and specifically when the security brokerage company becomes busted.
2. Stability of a brokerage firm is not guaranteed.
Brokerage firms might be in the business for several years and even decades, but we can never tell when they will be hit by a “tsunami.” As there are frequent changes in the trends of the economy, your account should be protected. SIPC will come to save you against fraudulence and financial turmoil but it does not secure your account from losses in the market.
3. Brokers may fail and they are not accountable to transfer stocks or bond to make up for investors’ missing shares.
If the brokerage firm is registered with SEC (Securities and Exchange Commission), investors would have another layer of protection aside from the FDIC which protects bank deposits in cash. Also, when it goes to serious trouble, you will not get into the hassle of losing all your money. SIPC again takes your back here as it will have to merge the existing brokerage firm with another or sell part of its enterprise and rebuild your portfolio to make up your lost shares. If shares are not available when the brokerage firm fails, SIPC will be responsible to return you cash value back. This might take two to three months for you to get control over your account and recover from the limbo.
4. The broker might disappear
Brokers are regular people who have a job. Since you entrust them your money, they are held responsible for taking good care of it with guarantee. However, there are instances when they are at the end of their wits and they need money. So they don’t have other choices but to turn your assets to cash and run away without your knowledge. You will have to present documents to prove this case and win over your losses. There is no assurance that you can take everything you have lost.
Investors need protection to prevent being swindled by brokers. Before starting a transaction with one, check the background and profile of the broker whom you’re going to entrust your money and assets with. Times now are difficult. Everything has risks attached to it.
Kristen Francis Willis is a Financial Consultant by Profession. From time to time, she does some side business with her photography skills. She loves taking pictures, capturing every moment means a lot to her. She’s currently building her reputation as an online writer with the help of PFMP.