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Difficulty: MediumSIPC vs. FDIC Protection and Coverage Limits

A financial advisor is comparing regulatory protections for a client who maintains accounts at both an FDIC-insured commercial bank and a SIPC-member broker-dealer. Which of the following statements regarding the coverage limits and asset eligibility of SIPC and FDIC protection are correct?

  1. SIPC provides protection up to 500,000perseparatecustomeragainstbroker−dealerinsolvency,whichincludesamaximumcapof500,000 per separate customer against broker-dealer insolvency, which includes a maximum cap of 250,000 for cash claims.Answer
  2. FDIC insurance covers deposit accounts up to $250,000 per depositor per bank, but does not cover investment products such as mutual funds or corporate bonds.Answer
  3. C
    Commodity futures contracts and fixed annuities held in a brokerage account are protected under SIPC up to the $500,000 overall limit.
  4. D
    SIPC indemnifies investors against portfolio value declines caused by adverse market movements and poor investment recommendations.

Answer

The correct statements are that SIPC covers up to 500,000perseparatecustomer(includingupto500,000 per separate customer (including up to 250,000 for cash claims) upon broker-dealer failure, and that FDIC covers bank deposit accounts up to $250,000 per depositor per bank while excluding investment securities.
SIPC protects customer claims in broker-dealer insolvencies up to 500,000totalperseparatecapacity,withamaximumof500,000 total per separate capacity, with a maximum of 250,000 allocated to cash claims. FDIC protects traditional bank deposit accounts up to $250,000 per depositor per institution, but does not insure investment products such as stocks, bonds, or mutual funds.

Step-by-Step Solution

1
Evaluate SIPC coverage rules and cash caps.
SIPC coverage limits are 500,000perseparatecustomer,withasub−limitof500,000 per separate customer, with a sub-limit of 250,000 for cash.
This matches statutory SIPC protection limits for broker-dealer liquidation.
2
Evaluate FDIC coverage rules and non-covered assets.
FDIC covers traditional deposit accounts up to $250,000 per depositor, per insured bank, but does not cover stocks, bonds, or mutual funds.
FDIC is designed for bank deposits, not investment market risks.
3
Identify excluded products under SIPC and the nature of SIPC protection.
SIPC excludes futures contracts and fixed annuities, and does not cover market losses.
SIPC only replaces missing cash and securities resulting from broker-dealer insolvency, not market declines or non-security products.

Key Concept

SIPC vs. FDIC Protection Limits and Asset Eligibility
Estimated Time:1m 30s
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SIPC vs. FDIC Protection and Coverage Limits

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