Recent wall street turmoil

[Santo Gold]

With all the recent Wall Street fireworks involving Lehman Brothers, MLynch, etc, a client called and asked if there is any kind of insurance that they can purhase to cover the plan assets in case of a failure involving the investment/brokerage house? The fidelity bond covers fraud and dishonesty, etc, so that would not apply here. I figure you can get insurance for just about anything, so why not this. But I have not heard of anything relating to this before. Plan is small, has about $250,000 and invests in about 6 mutual funds via a broker.

Thanks

[david rigby]

...any kind of insurance ... to cover the plan assets in case of a failure involving the investment/brokerage house?

Isn't that a description of "credit default swaps"? Unregulated, unaudited and unsecured. Somebody was asleep at the wheel.

[PensionPro]

With all the recent Wall Street fireworks involving Lehman Brothers, MLynch, etc, a client called and asked if there is any kind of insurance that they can purhase to cover the plan assets in case of a failure involving the investment/brokerage house? The fidelity bond covers fraud and dishonesty, etc, so that would not apply here. I figure you can get insurance for just about anything, so why not this. But I have not heard of anything relating to this before. Plan is small, has about $250,000 and invests in about 6 mutual funds via a broker.

Thanks

It should already be insured under SIPC, just as bank deposits are insured under FDIC, and credit union deposits are insured by NCUA. Here is an Investor Alert from FINRA that should be helpful: it describes the limitations on coverage.

http://www.finra.org/Investors/ProtectYour...rAlerts/P116996

[david rigby]

It should already be insured under SIPC...

No expert I, but that coverage is limited, as stated in the linked item:

SIPC protection is limited. It covers the replacement of missing stocks and other securities up to $500,000, including $100,000 in cash claims. However, it does so only when a firm shuts down due to financial circumstances in which customer assets are missing—because of theft, conversion, or unauthorized trading—or are otherwise at risk because of the firm's failure.

SIPC does not cover the following:

Ordinary market loss;

Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (such as limited partnerships) that are not registered with the SEC; and

Accounts of partners, directors, officers or anyone with a significant beneficial ownership in the failed firm.

In my limited understanding, it appears that some (not necessarily all) of these "securities" are exempt from SEC oversight/regulation. However, they resemble insurance products, but no one (insurance regulators, auditors, etc) required any reserving.

[PensionPro]

It should already be insured under SIPC...

No expert I, but that coverage is limited, as stated in the linked item:

SIPC protection is limited. It covers the replacement of missing stocks and other securities up to $500,000, including $100,000 in cash claims. However, it does so only when a firm shuts down due to financial circumstances in which customer assets are missing—because of theft, conversion, or unauthorized trading—or are otherwise at risk because of the firm's failure.

SIPC does not cover the following:

Ordinary market loss;

Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (such as limited partnerships) that are not registered with the SEC; and

Accounts of partners, directors, officers or anyone with a significant beneficial ownership in the failed firm.

In my limited understanding, it appears that some (not necessarily all) of these "securities" are exempt from SEC oversight/regulation. However, they resemble insurance products, but no one (insurance regulators, auditors, etc) required any reserving.

The situation described by the original poster is a plan that holds 6 mutual funds valued at $250,000 through a broker. An investor should read through the complete description of coverage (limitations, disclaimers, and all) and determine whether they have coverage available, or whether they should restructure their investment portfolio to enjoy that coverage.