As a French expat living in the United States, I understand that there are many barriers to feeling secure in a foreign culture. One of the largest of these is financial independence. It is difficult to understand the proper steps to gaining control of your finances in one’s own country, let alone in a foreign one. I am passionate about both educating, and helping fellow expats navigate their financial decisions so that they may feel more secure in their lives abroad. In this article, I answer some of the common questions I hear from clients to give you a great head start reaching your financial goals.

If you have any questions after reading this article, I, Théotime Desmulier, Financial Planner would be happy to help answer them in anyway that I can. Please contact me at theo.desmulier@raymondjames.com or call me at (321) 947-5445.

Today’s article will focus on educating you on the investments insurance in the USA, the “Securities Investor Protection Corporation”. To download a summary, please download the PDF below.

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What is SIPC Insurance?

SIPC stands for Securities Investor Protection Corporation. The SIPC protects your accounts in the event of the bankruptcy, hacking, fraud or insolvency of a SIPC member brokerage firm. For example, if an unauthorized trade occurs in your account, the SIPC insurance will cover it.

SIPC only covers cash and securities (such as stocks and bonds). Another important thing to note: not all brokerage firms are SIPC members. Fixed annuities, commodities, futures contracts and any other investments that are not registered with the U.S. Securities and Exchange Commission are not covered by SIPC. 

Why are some investments not covered?

Some investment types, such as those mentioned above are not covered by SIPC insurance because they are considered risky. These account types are incredibly volatile and thus, difficult to insure.

How much of your account is covered?

Up to $500,000, including $250,000 for cash (i.e. amount not invested yet) per person and per account. Note that Raymond James has purchased an “Excess SIPC Coverage” covenant allowing you to be covered on up to $1.9M for cash above basic SIPC limit. 

Am I covered for ID Theft?

SIPC insurance does not prevent you from having your identity stolen. This is why, at Raymond James, more than 1,000 professional associates are continuously working on security management of your accounts (see doc attached)

What’s the difference between SIPC and FDIC?

In this article (https://moneywiththeo.com/2020/04/fdic-insurance/), I describe what FDIC insurance is and how it works. I also give a lot of examples to help you understand. 

Briefly, FDIC is a government agency that insures deposits in the United States in the unlikely event that the bank should fail.

SIPC however, is investment related, meaning that it protects your accounts in the event of the bankruptcy or insolvency of a SIPC member brokerage firm (see above). 

If, for example, you have an IRA account in your name and a joint account with your spouse, the SIPC treats them as separate accounts and insures each up to $500,000. (Unlike with FDIC coverage, joint accounts are not insured to the full amount for each account holder with SIPC insurance).

Note that Certificate of Deposits (CDs) and Money Market funds are considered as investments and not cash under the current rules.

What if my account balances are higher than SIPC coverage?

Very simple, you will need to consider moving a portion of the account to another account that may allow you to be within the insurance coverage limit. 

How to find out if my accounts are SIPC insured?

Simply go to your broker/dealer official website or statements. Next, look for the disclosures “Securities offered through [YOUR BROKER], Member FINRA/SIPC”. 

If you don’t see this mentioned, there is a high probability that the broker/dealer you are invested with is NOT covered at all in the event of an embezzlement or fraud. If this is the case, you should definitely seek another broker/dealer who is an SIPC member. 

I believe this is the first thing that you should look for when you consider trusting a specific broker/dealer. If you skip this step, you are putting your estate directly at risk.

What to do if your current brokerage is NOT covered?

Check-in with your advisor to verify whether your accounts are covered or not. If they are indeed not covered, you can seek out a brokerage that is covered. Switching your assets to another brokerage may seem challenging, but with the help of an advisor, it’s actually a smooth process and completely worthwhile to know you are mitigating a risk.

Are my retirement accounts (IRAs, 401(k)s) SIPC insured?

As a general rule — and, if your financial institution is a SIPC member — SIPC will insure your IRAs/401(k)s. Note that If you have both a Roth IRA and a traditional IRA at the same institution, they will be SIPC protected on up to $1M ($500,000 on your Roth IRA and $500,000 on the Traditional IRA).

Key Takeaways

 

  • FDIC insurance protects your bank accounts and liquidity.
  • SIPC insurance protects your investments, including your retirement accounts.
  • It is extremely important to structure your accounts in a way that allows the maximum amount of coverage of your assets.
  • Many people (Americans and US resident expatriates) are unknowingly exposed to major risk because they are unaware of how FDIC and SIPC insurances work.

If you’d like a trusted professional to take a look at your assets, please feel free to contact me. You also can reach out to me with any questions on SIPC or FDIC insurance or anything else regarding your financial plan.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Theo Desmulier and not necessarily those of Raymond James.