Asset Protection at Charles Schwab

With the recent merger between TD Ameritrade and Charles Schwab, many of you may be asking, “are my accounts safe at Schwab?” To answer this question, we assembled information relating to the asset protection provided for assets held at a custodian, i.e., Charles Schwab.

How are my securities protected at a custodian?

First off, it’s important to know that your securities, which include things like stocks, bonds, mutual funds, exchange traded funds, and money market funds, are your assets. They are not commingled with Charles Schwab’s assets. The SEC’s Customer Protection Rule prevents brokerage firms from using customer assets to finance their own business endeavors.

Your assets are held at third party depository institutions and custodians like the Bank of New York and the Depository Trust Company. In the unlikely event Schwab would become insolvent, your securities are protected against creditor’s claims. There are strict reporting and auditing requirements in place to ensure all brokers comply with these regulations.

What is SIPC coverage and how does it work?

The Securities Investor Protection Corporation (SIPC) provides protection for securities and cash in client brokerage accounts. In the rare event that your broker-dealer files for bankruptcy or client assets are missing due to fraud, the SIPC protections would kick in. Since the inception of the SIPC, 99% of eligible investors received their investments back in the event of a failed broker-dealer.

The SIPC protects against the loss of cash and securities (stocks, bonds, mutual funds, etc.) held by a customer at an SIPC-member brokerage. The limit of protection is $500,000 for each separate capacity, or account titling. The coverage reimburses clients if there is a shortage after all assets held at the failed brokerage firm were recovered.  SIPC coverage does not protect against market loss and promised market performance.

Are there additional protections beyond the SIPC limits?

Yes! All Charles Schwab clients receive an extra level of coverage through “excess SIPC,” which is meant to act as an additional layer of protection for securities and cash. This helps ensure claims will be covered if a brokerage firm fails and funds covered by the standard SIPC are exhausted. Schwab’s excess SIPC program has a $600 million aggregate in coverage.

The regulations in place to ensure your assets are not commingled with Schwab’s, as well as the different insurance protections available, should offer peace of mind.

Additional details on the protections provided for investor accounts are available at the following links:

SIPC – What is SIPC?

Is my money safe at Schwab?

Please don’t hesitate to contact us for more questions!