How are your assets protected?

As a savvy consumer of financial services, it’s important to understand how your assets are safeguarded.

Wealth management assets

If you work with a Registered Investment Advisor (RIA) to manage your personal wealth, conversations about your investment objectives and risk tolerance and implementation of your financial plan are overseen and carried out by your financial advisor and other experts at the RIA. However, your investments are likely held in a brokerage account at a custodian broker dealer like Fidelity Investments or Charles Schwab.

Not only do these custodians give advisors flexibility, coupled with a full suite of financial products such as mutual funds and ETFs, but they are backed by important insurance that helps protect our clients’ assets.

SIPC and excess insurance

SIPC Coverage: The Securities Investor Protection Corporation (SIPC) is a nonprofit organization that protects stocks, bonds, and other securities in case a brokerage firm goes bankrupt and assets are missing. It was created in 1970 and membership is mandated for most broker-dealers. Most custodians are members and purchase SIPC insurance that protects up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account. It’s important to note that SIPC does not cover investment losses due to market action.

Excess SIPC: In addition to SIPC coverage, some custodians hold excess SIPC insurance. Like SIPC, excess SIPC does not cover investment losses due to market fluctuations, but it will protect securities in a brokerage account should the custodian go bankrupt. Excess SIPC is only used once SIPC coverage is exhausted. Although coverage levels vary by custodian since this insurance is above and beyond legal requirements, they can range from $1.5 million to $1.9 million.

FDIC insured sweeps

Every brokerage account has what is called a "sweep" feature that holds cash awaiting investment for a variety of reasons. For example, your advisor may put some of your money in cash to manage your asset allocation to meet your investment objectives. You may also receive dividends from stocks and mutual funds that, first, go to the sweep account before being invested. These accounts can sweep into a bank or variety of banks and are therefore eligible for FDIC coverage.
Certain providers will offer sweep for FDIC insurance levels up to $1 million but that varies per provider. Be sure to check with your advisor to verify how this applies to your situation.

Coverage varies based on the program implemented at each RIA.

Trust & fiduciary services assets

Some people find Trusts to be a great way to protect their assets. For information on the many benefits of Trusts, see this article )

If your bank serves as a fiduciary and/or custodian of assets, which include Trust, Investment Management and Custody, they do not become assets of the bank and are segregated from other assets and liabilities. Importantly, these assets are held solely for the benefit of the Trust alone.

“Custody services are a vital part of the multi-layered financial system for holding securities, clearing, and settling transactions. As a bank, we offer clients the safety of a custody solution where assets are fully segregated and collateralized, ensuring access to their funds. How we deliver is different from many larger firms, we focus on the needs of our clients with highly personalized service through a dedicated custody officer.” says Gerald Baker, Head of Trust & Fiduciary Services at SVB Private.

Here are important things to know:

Fiduciary and Custody Assets: By law, your assets that are held in fiduciary (trust and investment management) and custody accounts with SVB Private Bank & Trust Company do not become assets of the bank and are segregated from the Bank’s assets.

  • These assets are held in separate accounts on the Bank’s Trust & Fiduciary Services business’s official books and records. There are thorough controls in place over the acceptance, management, and safeguarding of assets.
  • The Bank’s fiduciary and custody clients’ assets are held by the Bank solely as fiduciary and/or custodian for the benefit of its clients.
  • The assets of our custodial clients are held by the Bank either in the name of the client, or in Nominee Name, expressly as agent for the account and exclusive benefit of the client. This means that assets held in fiduciary and custody accounts cannot be utilized by the Bank to satisfy or secure the Bank’s corporate obligations to any other party.
  • Fiduciary assets are not loaned from these accounts to the Bank or for the Bank’s benefit.
  • They cannot be used by the FDIC or others to pay the Bank’s depositors or creditors.

Assets Held in Cash: The treatment of any assets held in cash within the fiduciary account and/or in deposit accounts in another area of the Bank is different.

  • Deposits held in cash within a fiduciary account are eligible for FDIC insurance up to the applicable insurance limits.
  • The Bank is required to fully collateralize all fiduciary account (trust, investment management or other fiduciary account) funds at the Bank which are in excess of the applicable FDIC insurance.

It’s important to check with your advisor to verify which vehicle will provide the best rate, a bank sweep or a Money Market Fund, this will vary based on the custodian of your account.***

Banking assets

It is important to recognize that not all financial institutions are classified as banks. As a consumer, you should always be aware of the type of financial institution you are using and understand how that impacts the safety of your assets.

There are a few ways your banking assets may be safeguarded.

FDIC Insurance: The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that insures cash deposits at FDIC member banks, up to $250,000 per depositor. All banks are required to be members of the FDIC.

Above and beyond FDIC Insurance, there are products that can protect your assets beyond the $250,000 per depositor limit.

Promontory Interfinancial Network is the #1 provider of FDIC-insured deposit allocation services in the United States. Promontory, a network of over 3,000 US financial institutions, is owned by The Blackstone Group, one of the largest multinational private equity firms in the world and a Fortune 500 Company. Through this network, some banks can insure client deposits up to $190 million based on eligibility.

“Access, safety, and returns on cash are of paramount importance to investors. This is true for investors who are not only looking to sleep better at night but to opportunistically invest in a market where they may see opportunities. Numerous additional options are available to these investors for this cash, many of which were developed after the last crisis for this very reason.” says Bill Woodson, Head of Wealth Advisory and Family Office Services at SVB Private.

  • ICS Money Market – A product that earns interest, can FDIC-insure a client’s personal or business deposits up to $125 million1 per Taxpayer Identification Number (TIN), and is limited to 6 withdrawals per month.
  • ICS Demand Deposit Account (ICS DDA) – A product that earns no interest, can FDIC-insure a client’s personal or business deposits up to $125 million1 per TIN, and has unlimited monthly withdrawals.

Savvy consumers take the time to understand how their assets are protected and employees at financial institutions should be willing to discuss this topic as a prerequisite of being entrusted with those assets.

Gerald E. Baker

Gerald Baker is the head of Trust & Fiduciary Services and co-head of the Center for Wealth Planning Excellence at SVB Private.

Bill Woodson

Bill Woodson is the head of Strategic Wealth Advisory and Family Enterprise Services at Silicon Valley Bank.

This publication discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice and does not represent a complete analysis of every material fact with respect to the economy, financial markets, interest rates, and any industry or sector mentioned in the publication. The graphs and charts presented were created for informational purpose only and may use data sourced from third parties. The accuracy and completeness of sourced data is believed to be reliable, but has not been independently verified. 

Any investment idea or strategy discussed herein is provided for information purposes only. There is no guarantee that a strategy will achieve its objective and the readiness and efficacy of such strategy will depend on your particular facts and circumstances. Please consult with your independent professional advisers for final recommendations before changing or implementing a financial strategy. 

Investment products mentioned herein, including stocks, bonds, and mutual funds may lose value and carry investment risks. Due diligence processes seek to diminish, but cannot eliminate risk, nor do they imply low risk. Asset allocation, diversification and rebalancing do not guarantee a profit or protect against a loss in declining markets. Past performance is not indicative of future results, which may vary.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.