Are securities held in an account at an unstable brokerage safe?

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Cloudfire's picture
Cloudfire
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Are securities held in an account at an unstable brokerage safe?

I am considering investing in an open-end physical gold fund that trades only on the Swiss stock exchange.  Most brokerage houses require a large minimum balance to trade on the foreign exchanges.  I'm only looking to invest about 20-30K.  I found that Wachovia will facilitate trading on a foreign exchange, with no minimum balance.  But I hear that Wells Fargo, who recently bought Wachovia, is on shakey ground. 

Can someone who is knowledgable about investment firms and the procedures of bankrupcy weigh in on this?  If I hold securities through Wachovia, and Wells Fargo goes down, will my investment be in jeopardy?  Might I have trouble getting access to my investment as TSHTF?

If this is an inadvisable strategy, can anyone recommend a firm that will facilitate trading on a foreign exchange, without a large minimum balance?

 

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Re: Are securities held in an account at an unstable ...

There is insurance similar to FDIC, see http://www.sipc.org/who/sipcmission.cfm.  Basically, your investments legally belong to you, and would not be considered the brokerage's in the event they went bankrupt or mismanaged or traded fraudulently in your account. 

Nevertheless, there is still some risk.  For example, the transition to the receiver of the bankrupt company might take some time, in which case, there could be delays accessing your account.  Or in the case of mismanagement or fraud, it could take months or years for any insurance settlement.  In either case, the value of your investment is whatever the market decides, and as you know, that can change dramatically in less than a day. 

IMO, adding foreign trades into the mix increases risk because you're relying on the goodwill, stability, and legal processes of someone else's government.  I wouldn't have wanted to own an oil company in Venezuela hoping that Hugo Chavez would play nice.  

 

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Cloudfire
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Re: Are securities held in an account at an unstable ...

All good thoughts, that confirm much of my own thinking.  I agree that foreign trades increase risk, and that inaccessiblity can have a devastating effect on the value of an account, as the securities can change value at the blink of an eye.  If one already held domestic gold, physical and otherwise, do you think that it still makes sense to hold a small portion on a foreign exchange, as a hedge against, say, domestic conviscation?

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jerrydon10
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Re: Are securities held in an account at an unstable ...
c1oudfire wrote:

Can someone who is knowledgable about investment firms and the procedures of bankrupcy weigh in on this?  If I hold securities through Wachovia, and Wells Fargo goes down, will my investment be in jeopardy?  Might I have trouble getting access to my investment as TSHTF?

 When my company writes an investment for a client and they intend on funding that investment with securities they think are in a brokerage account with say.....Wachovia....I do not even contact Wachovia. Heck, they would try to talk my client into keeping the money with them.

I have my own stock broker cash out the securities. So, if securities, you really don't have anything with Wachovia, they are just handling them for you (buying, selling, stops, etc).

If Wachovia goes under, someone else can begin handling your investments. No biggy.

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Cloudfire
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Re: Are securities held in an account at an unstable ...
jerrydon10 wrote:
c1oudfire wrote:

Can someone who is knowledgable about investment firms and the procedures of bankrupcy weigh in on this?  If I hold securities through Wachovia, and Wells Fargo goes down, will my investment be in jeopardy?  Might I have trouble getting access to my investment as TSHTF?

 When my company writes an investment for a client and they intend on funding that investment with securities they think are in a brokerage account with say.....Wachovia....I do not even contact Wachovia. Heck, they would try to talk my client into keeping the money with them.

I have my own stock broker cash out the securities. So, if securities, you really don't have anything with Wachovia, they are just handling them for you (buying, selling, stops, etc).

If Wachovia goes under, someone else can begin handling your investments. No biggy.

Thanks for your response, jerrydon.  I have so many qurestions:  So, could I purchase those securities through, say Wachovia, then transfer them to a new or existing brokerage account with a better safety profile?  Am I missing something . . ?  When it comes time to sell those securities, I still need a broker who works on the foreign exchanges . . . If Wachovia goes under, might my assets be frozen/inaccessible? 

Can I ask what firm you are with?  Does your firm trade on foreign exchanges?

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Ragnar_Danneskjold
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Re: Are securities held in an account at an unstable ...

My hedge against domestic confiscation would be a well secured personal safe or burial.  I also question the logic in putting assets in foreign hands with any thought of fleeing to another country, and would let history and your common sense be a guide.  For example, how many Jews made it out of Germany with their wealth in tact?  If you have tons of gold on hand, you could probably afford to buy some personal protection and safe passage elsewhere, if the TSHTF.  If you don't have much physical gold, and what you have can be easily and safely transported with you, what is the point in storing any of it somewhere else?

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Re: Are securities held in an account at an unstable ...

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Re: Are securities held in an account at an unstable ...
c1oudfire wrote:

Thanks for your response, jerrydon.  I have so many qurestions:  So, could I purchase those securities through, say Wachovia, then transfer them to a new or existing brokerage account with a better safety profile?  Am I missing something . . ?  When it comes time to sell those securities, I still need a broker who works on the foreign exchanges . . . If Wachovia goes under, might my assets be frozen/inaccessible? 

Can I ask what firm you are with?  Does your firm trade on foreign exchanges?

I run this company:

http://usaestateservices.com/

As estate planners, we get people out of the market into investments that benefit their estates (such as long term equity indexed annuities), not place them into the market.

The investment you are referring to is stocks. Those stocks are not in a Wachovia account, you are in the stock market. Thus if Wachovia goes belly up, your stocks will not be affected.

Any of the larger banks with investment depts should be able to get you out by selling those stocks should something happen to Wachovia.

iNo, your assets cannot be frozen or become inaccessible. But If it was me I would wait a few months as I think gold may go down.

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Cloudfire
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Re: Are securities held in an account at an unstable ...

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Re: Are securities held in an account at an unstable ...

HI c1oudfire

For what it's worth, in mid '07, I faced a situation kinda similar to what you're asking.  The brokerage where I had an account closed due to its investments into CMO's (I am certain I dont have all the facts correct as to "why" but
the net effect is still the same - they suddenly went outta business!)  If you want to know the details, google Brookstreet Securities and read some of the articles.


To my knowledge, the only people that lost money were those that had money in those investments.  (Makes sense to me -a bad investment goes south, you lose money.  It's no different than owning stock in a company that goes bankrupt - the
shareholders lose).   My holdings were both in stock and cash.  I was able to wire transfer the assets out to a different brokerage that same day - without ANY problem - it took two phone calls.  One to the new brokerage for the wire transfer
info, and a 2nd phone call to the failed broker to give them wiring instructions.
I'm assuming the simplicity of the transaction was due to SIPC.  

Admittedly, this was NOT a SHTF  scenario...

JL Lord

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Cloudfire
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Re: Are securities held in an account at an unstable ...
JL Lord wrote:

HI c1oudfire

For what it's worth, in mid '07, I faced a situation kinda similar to what you're asking.  The brokerage where I had an account closed due to its investments into CMO's (I am certain I dont have all the facts correct as to "why" but
the net effect is still the same - they suddenly went outta business!)  If you want to know the details, google Brookstreet Securities and read some of the articles.


To my knowledge, the only people that lost money were those that had money in those investments.  (Makes sense to me -a bad investment goes south, you lose money.  It's no different than owning stock in a company that goes bankrupt - the
shareholders lose).   My holdings were both in stock and cash.  I was able to wire transfer the assets out to a different brokerage that same day - without ANY problem - it took two phone calls.  One to the new brokerage for the wire transfer
info, and a 2nd phone call to the failed broker to give them wiring instructions.
I'm assuming the simplicity of the transaction was due to SIPC.  

Admittedly, this was NOT a SHTF  scenario...

JL Lord

Hi, JL;

Thanks so much for the detailed, real-life account.  That's really helpful in helping not only visualize the situation, but in having a concrete Plan B ready, in case of shenanigans.  Thank you!

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JL Lord
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Re: Are securities held in an account at an unstable ...

hi c1oudfire

You're very welcome - glad to hear that others can benefit from one's real-life experience(s).

This occurred before 98% of the world had heard of a CMO, CDO, CDS, or any other alphabet-soup that has now become common cocktail chatter. 

I can remember seeing the headlines that morning..."brokerage fails".
My first thought was "....profane words....this aint good - that's my broker!"

I then thought, "what's the worst case?"...the quick answer was "$ = poof, gone.  Possible, but probably not likely" 

I remember SIPC popping into my head but I didnt know if this is what they covered. 

Then I recall thinking "people are gonna be calling with moods ranging from pissed to hysterically frantic"  So, to maybe push my phone call or paperwork to the top of the heap, I needed to be nice...dripping with so much sugar it becomes syrup, nice.  I figured, if necessary, I'd drive over with a box of bagels/donuts for the staff.

As it was - none of that was necessary - it went smoothly.

The take-away for me:
Add an element to your Plan B - if you have to deal with staff, think about how you might get stuff done if you were in a 3rd world-esque environment, where "a little sum-sum" for the staff goes a long way in getting your stuff pushed through.  

My dad once told me, "Once you act like an a**,  it's hard to wipe off the stink." (btw, that idea could be taken to heart by a few people whose comments you and I read here...but I digress!  ;)

So, applying that mantra in this kinda sitch....have some idea on what you might do should you need assistance in getting things done.  It is easy to do when the office is within driving distance - it requires some forethought should the office be across the globe.  It is doable, but it requires a smidge of advance thought.

JL Lord

Cloudfire's picture
Cloudfire
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Re: Are securities held in an account at an unstable ...

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JL Lord's picture
JL Lord
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Re: Are securities held in an account at an unstable ...

 

 You're very welcome!    I should have heeded my comments to you prior to making my last phone call to a customer service rep on an outstanding issue.....Don't tell dad, but I am now probably labeled as a not-so-nice type and now I get to go wipe up the stink!!  But the problem got resolved!

 

JL Lord

 

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