Is it unwise to keep all your retirement/investment accounts with one brokerage?

That sounds like a great question to ask your broker. As it turns out, most items in most accounts are going to be insured, up to some pre-set limit. But keep in mind that if a huge company like Fidelity or Vanguard were to go broke, we would probably have some far worse problems to worry about, like the break down of society.

-john-

Btw you can see account balances in some non-Fidelity accounts (in my case, a Merrill Lynch 401(k)) through the Fidelity web site.

I think there is little risk, but I suggest reading about the Securities Investor Protection Corporation (SIPC) at

. The Fidelity site says "Securities in accounts carried by National Financial Services LLC ("NFS"), a Fidelity Investments company, are protected by the "Securities Investor Protection Corporation ("SIPC") up to $500,000 (including cash claims limited to $100,000). For details, please see NFS has arranged for additional insurance protection for cash and securities to supplement its SIPC coverage. This additional protection covers total account net equity in excess of the $500,000/$100,000 coverage provided by SIPC. Neither coverage protects against a decline in the market value of securities."

Brokerages are required to periodically clients with a "Statement of Financial Condition", for which there is a link at

. Maybe someone here can suggest how such astatement should be scrutinized. Mutual fund assets are not held by the fund management company (FMC) but by a custodian bank, so financial problems at the FMC ought not to cause losses for fund investors.

Money market funds are heavily regulated are supposed to be managed not to "break the buck" (have the NAV decline below $1.00), but there is no absolute guarantee. A deep-pocketed brokerage firm might choose to bail out a money market fund to avoid embarrassment. You can read about this fairly remote risk by Googling 'money market fund "break the buck"'. To reduce risk you could invest in a money market fund that invests only in Treasury Bills.

I think 401(k) accounts are regulated separately from ordinary brokerage accounts.

Your assets may not be at risk, but your accessibility to them may suffer.

Since most of my money and my parents' money is with Fidelity, I emailed them and received the following reply. I think the bottom line is that accounts are insured up to $100 million in case Fidelity goes bust.

"Fidelity mutual funds and their assets are legally separate entities from Fidelity (FMR Corp.) and are administered by trustees who contract certain services from Fidelity, such as portfolio management. Therefore, if Fidelity were to experience financial difficulty, there would be no risk of loss to our mutual funds, nor would the funds be subject to any claims made against the Fidelity corporation.

Unlike some bank deposits, mutual fund shares are not insured by the FDIC or other deposit insurers.

However, as required for all mutual funds, all investors' money is held by a third-party custodian and not by the mutual fund company. So, even if the fund company experiences financial problems, it can't use the shareholders' money. The money in a mutual fund can be used only for making investments of the type described in the fund's prospectus. Fidelity has very sophisticated surveillance techniques that ensure fund managers and traders are in compliance with the investment parameters detailed in the fund's prospectus.

We do not offer any mutual funds that are insured against market loss. However, we offer several funds that invest in bonds that are insured against default. We also offer funds that invest solely in government debt securities, which are considered to be the most credit worthy of all debt instruments because they are backed by the full faith and credit of the United States government

Mutual funds are required by the Investment Company Act of 1940 to maintain a bond that covers the fund in case of misconduct by its officers or employees. Also, each fund is audited annually by an independent accounting firm, which insures the books are kept in order.

All brokerage accounts at Fidelity Brokerage Services LLC are carried by National Financial Services LLC, a separately registered broker/dealer and a Fidelity Investments company. In the unlikely event of the financial failure of either Fidelity brokerage company, each customer's brokerage account is protected up to $100 million. The Securities Investor Protection Corporation (SIPC) protects customer accounts up to $500,000, with a limit of $100,000 for cash balances. Fidelity has purchased $99.5 million of supplemental coverage for accounts that exceed $500,000. Of course, this coverage doesn't protect against a decline in the market value of securities."

I've always wondered the same thing, why brokerages needed SIPC insurance.

I understand why banks needs FDIC, because they take your money and invest it elsewhere, like loans. So it is possible for them to lose their investment (your money), go bankrupt, and not be able to give your money back.

However, with a brokerage, the money you invest in stocks and bonds is actually invested in stocks and bonds. Mutual funds are also actually invested in stocks and bonds. They don't just pretend to be buying stocks and bonds for you, but actually investing it elsewhere, right? So if the brokerage goes bankrupt, you would still own all your stocks and bonds.

I guess if you had money market funds with the brokerage, those could go bankrupt. So is this what SIPC is protecting, just the money market funds?

Thanks for all the great responces and links, looks like I should feel safe to put all my eggs in one basket! :)

I did some research at

The main protection for SIPC is when you are missing cash or securities after a brokerage fails. Theoretically, you should still own all of your stocks and bonds after a brokerage fails, but in the case of a failed brokerage, there may have been poor accounting or a scandal. If they don't return all your investments to you, then that's where SIPC steps in.

I don't think large brokerages failing are out of the question. It's not like the U.S. Treasury failing that we would be worried about food and shelter. There's always the possibility for a huge scandal to happen.

Not necessarily. The vast majority of holdings in brokerages are held "in street name". While you still legally own the assets, they are registered in the *broker's* name.

See (last question) and

In fact, the SIPC is *not* protecting money market funds. SIPC protects your *ownership* of stuff - not the value of the stuff you own. If a money market fund breaks the buck, you lose money and SIPC has nothing to do with it.

See

SIPC is the first line of defense in the event a brokerage firm fails owing customers cash and securities that are missing from customer accounts. When a brokerage is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customer's cash, stock and other securities.