Long time Deposit Account reader but just joined and first post. Does anyone really know how FDIC insurance coverage works at brokerage houses like Fidelity or Vanguard? I have bought many broker sold CD's through the years and assumed they were registered in my name just as if i had bought the Cd directly from the bank. I am now being told that they are registered in the brokers name that bought the CD's. If the issuing bank went under the broker would be in charge of distributing the money back into my account but what happens if the brokerage house fails how would that money find its way back to my account? The whole reason why I chose broker sold CD's was the convenience of having all of the CD's at one FI and not worrying about multiple accounts and not going over FDIC coverage limits.
Answers
when the brokerage fails, it's SIPC insurance that you'd look to, not the FDIC. First the regulators (SEC & FINRA) and SIPC would work with the failing firm to transfer your assets to one or more SIPC insured FIs. Since the money in the CDs are held at the bank and not the brokerage, it should be a simple matter of transferring the registration of the CD in your brokerage account from one FI to another. If for some reason your assets can't be transferred, then SIPC would have to cut you a check for the covered assets ("CDs qualify as "securities" under the Securities Investor Protection Act, are eligible for SIPC protection as such...SIPC only protects CDs held in a customer brokerage account at a SIPC-member brokerage firm" see SIPC - Investor FAQs)
