What happens to the money if a investment management house goes under?

Question

I have a friend who uses Wachcovia Securities to invest in different bonds for him. Wachcovia is in a bit of financial trouble right now. If it goes bankrupt or whatever, what happens to the money invested? Its not like a CD where it would be insured under FDIC I don't think.

Thanks for any help.

Answer 1

That is a brokerage.  It is separate from the bank.  Investors' securities are held in separate accounts from the firm's own money.

Answer 2

Bond investments are a very secure form of investment since the bonds are backed by the government (local/state or federal)

If the investing agency is some kind of a hedge fund which deals in high risk investments , in that case an investor can end up loosing his investment in case the investing agency goes under.

Answer 3

The investments held within a brokerage account are insured by the SIPC (www.sipc.com). While the level of insurance varies, it is typically $5 million per account (check with Wachovia for the specific amount). You will get the market value of your investments back even if Wachovia goes bankrupt. That said, it may be a pain in the neck to transact business with a firm that is in trouble and is reducing its workforce, or to collect through the SIPC, so I would still suggest transfering the account to a more secure financial institution.