AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner (CFP) and have performed fee only investment management and financial planning services for the past 11 years.
Question QUESTION: Where can I find information about the risk of keeping stocks with brokers, (i.e. in "street name") rather than getting stock certificates? I know about the SIPC (it has no government backing and is being depleted by Madoff) and the supposed excess insurance that brokers have.
ANSWER: Hi. As long as you keep the stocks registered with an independent custodian and get accurate record keeping, then you should not be worried about this risk. An example of this would be using a company like Charles Schwab or TD Ameritrade to hold the shares. The situation involving Bernie Madoff went well beyond someone simply holding shares in street name in an account. If you want to better understand the legalities you can go to www.sec.gov. I hope this helps.
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QUESTION: Thanks for your reply. Where can I find answers to questions such as:
If the broker or the clearing agent fails, do customers get absolute rights to their securities because the brokers were merely bailees, or where do customers stand in bankruptcy court? What are the chances of a massive computer glitch destroying brokers' records, due to incompetence, employee sabotage, or terrorism? Are there any articles out there discussing these issues?
Answer Hi. I would visit the SEC website as mentioned in my previous answer. If you don't find the information there then you can also try www.finra.org which may have additional information. Since I am not a securities attorney, there may be other resources that I am not familiar with. I hope this helps.
