Ira's and mutual funds Solvency?

Question

If a person has over $500K with a Non-bank firm in IRAs and mutual funds, what happens to that money if the firm fails? My understanding is none of this is backed by the FDIC. I am talking about firms like Charles Schwab, Vangard and Ameriprise.

Answer 1

You are correct;  mutual funds, etc., are not FDIC insured.

Answer 2

Investors are covered by the SIPC (Securities Investors Protection Corporation).  So if a firm becomes insolvent the SIPC covers up to $500,000 per account.

Answer 3

What does this have to do with solvency?

It's very much illegal for an investment house to use AUM to pay it's debt, so where exactly does solvency enter the equation?  If a company is using AUM to finance itself, you're talking about big-time fraud here.

SIPC will protect up to 100k in cash or 500k total (per account).  But all they do is make sure that you het back what you thought you had to start with (correct # of shares).  SIPC has never been involved in a massive criminal fraud case like the one that would happen if AUM were pirated to service the company's debt.