As a follow-up to my posts on the financial sector crisis and TradeKing account protection, I wanted to share this CNNMoney article, “What to Do if Your Broker Fails”. I added this link as a comment to my earlier post, but it’s such a useful read I wanted to be sure to share it with all of you.

If you’re ready for some good news for a change, you’ll be happy to learn that brokerage failure is, by and large, not something investors need to worry about. The article does a great job of explaining the differences between banks’ and brokerage’s business models that create more customer risk in the former and a lot less for the latter.    

As reporter Joe Light writes, "For the most part, you really don't have to worry. Even if your firm goes under, your securities should still be there. That's because brokerages aren't allowed to use your money for their own purposes. Your stocks and bonds and other securities are segregated from your broker's other accounts...Brokers function differently from banks. Banks are in the business of investing your deposits - lending out your savings to other customers, who might renege on those loans. Brokerages, on the other hand, aren't supposed to do anything with your securities other than hold them."

The article also explains the ins and outs of SIPC account protection and makes it clear how very rare a brokerage failure actually is. Again, to quote Mr. Light: "Truth is, despite all the bad news in this economy, few brokers have collapsed. Between the end of 2006 and mid-August, only two firms - a small outfit in Orlando and another in Madisonville, La. - have gone belly up....In its entire 38-year history, SIPC has had to spend only $508 million to recover customer assets. And just 349 customers total have failed to get their entire portfolios back."

Again, we’re here to answer your questions and help us all pull through this uncertain time. Feel free to keep the conversation going by adding your comments here…

[image: CNNMoney logo from their website]

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