Securities Litigation Blog

Is Your Financial Advisor Viable? Do They Have E&O Insurance?  Why SIPC Is Not The Answer.

  • Jul 11, 2017
  • By Glenn S. Gitomer

At the bottom of your brokerage account statement, there is often a reference to the broker-dealer being a member of SIPC.  The Securities Investor Protection Corporation, or SIPC, was created pursuant to the Securities Investor Protection Act as a non-profit membership corporation to help oversee the liquidation of bankrupt or financially troubled broker-dealers. SIPC protects against missing cash and securities held in a customer’s account at a financially-troubled SIPC-member brokerage firm -- if funds are available in the SIPC’s limited coffers, currently under $2.5 billion.  The limits of SIPC protection is $500,000, which includes a $250,000 limit for cash.

SIPC does not provide brokerage firms or your financial advisor with errors and omissions coverage.  If you have suffered losses arising from wrongful acts of your financial advisor, you must look to your brokerage firm or your financial advisor for recovery.  This is not an issue when dealing with the major broker-dealers.  When dealing with smaller broker-dealers, it is appropriate to ask your financial advisor do the firm carries insurance and, if so, what are the deductibles and policy limits.

You may also review your broker-dealer’s audited financial statement.  On an annual basis, every registered broker-dealer must file with the SEC an audited financial statement.  These audits are filed as a Form x-17a-5. The audits are publicly available at the SEC’s Edgar database and easily found in a Google search.  For instance, Google search Wells Fargo Advisors Form x-17a-5.  The audits will give you important information about the financial viability of your broker-dealer.  If your broker-dealer appears to be thinly capitalized, the issue of what insurance coverage the firm carries, if any, may be critical to your peace of mind.

Do you have concerns about your financial advisor or broker-dealer? If so, please contact us.

McCausland Keen + Buckman represents investors in securities arbitration and litigation matters involving disputes with brokerage firms, investment advisors and other financial institutions. If you are an investor with concerns about your broker-dealer, your securities portfolio, or a particular investment, please contact us for an evaluation – at no cost or obligation to you. You may have a viable claim for recovery of your investment losses by filing an arbitration claim with FINRA, the Financial Industry Regulatory Authority. 

Glenn S. Gitomer

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Glenn S. Gitomer

Rated as “preeminent” by a leading survey for more than 25 years, Glenn represents defrauded investors and oppressed shareholders in derivative litigation.

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