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| Frequently Asked Questions About the Protection of Assets in Sims Accounts |
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Learn about the protection you have as a client of Herbert J. Sims.
How are the assets I hold in my brokerage account protected? As outlined below, your assets are held separate from the assets of our clearing firm, Pershing. In addition, your assets are protected by the Securities Investor Protection Act (SIPA), which is administered by the Securities Investor Protection Corporation (SIPC). And for accounts in excess of $500,000, your assets are protected by the Excess SIPC program purchased by Pershing.
I have heard that Excess SIPC is being eliminated or reduced. What is happening with this additional account protection? The domestic insurance companies that provide Excess SIPC protection announced in December 2003 that they will no longer offer this protection. As a result, some securities firms have changed their account protection or have negotiated new account protection. The underlying SIPC protection is not affected by these changes; however, each firm is responsible for notifying its clients of any change in coverage to Excess SIPC. Our clearing firm, Pershing, provides account protection for the net equity of securities positions and cash in your account. Net equity refers to the value of your securities, plus cash, minus any amount that may be owed, such as a margin loan. Of that total, SIPC provides $500,000 of net equity protection, including $100,000 for claims for cash awaiting reinvestment. Pershing purchases the remaining account protection through a commercial insurer, on terms similar to SIPC. Visit www.sipc.org for more information about SIPC. Pershing obtains Excess SIPC through CAPCO. CAPCO is an insurance company licensed by the state of New York and has received an A+ credit and financial strength rating from Standard and Poor’s. CAPCO intends to provide protection that is similar to the Excess SIPC protection that has been available from the domestic insurance market until now. It protects U.S. client accounts and follows the underlying terms of SIPA. Similar to the coverage previously available, each client account, subject to certain conditions and limitations, will be protected up to its net equity for securities and cash held in the account. CAPCO also intends to provide a comparable form of account protection for clients of participating U.K. broker-dealers. How does SIPC protection work? You can have confidence that, given the very high percentage of client assets that are recovered during liquidation, SIPC protection is adequate for nearly all client accounts. Consider the following:
How does Excess SIPC work? After the SIPC limit ($500,000 of net equity protection, including $100,000 for claims for cash awaiting reinvestment) is exceeded, Excess SIPC covers the remaining net equity of securities positions and cash in your account. Pershing purchases Excess SIPC through the Customer Asset Protection Company (CAPCO). CAPCO is an insurance company licensed by the state of New York and has received an A+ credit and financial strength rating from Standard and Poor’s. In addition to Pershing, the 13 firms that formed CAPCO and receive CAPCO’s Excess SIPC protection include: A.G. Edwards; Bear Stearns; Credit Suisse First Boston; Edward Jones; National Financial Services—a Fidelity Investments company; Goldman Sachs; JP Morgan Chase; Legg Mason Wood Walker, Inc.; Lehman Brothers; Morgan Stanley; Robert W. Baird & Co.; Raymond James & Associates; Wachovia Securities; and each firm’s affiliated broker-dealers in the United States and United Kingdom. The Excess SIPC protection Pershing purchases from CAPCO is intended to protect U.S. client accounts and follows the underlying terms of SIPA. Similar to the coverage previously available, each client account, subject to certain conditions and limitations, will be protected up to its net equity for securities and cash held in the account. CAPCO also intends to provide a comparable form of account protection for clients of participating U.K. broker-dealers. I am an investor with an account value at Herbert J. Sims & Co., Inc. that is higher than $500,000. What should I do? Knowing that your assets are held by our clearing firm, Pershing, be assured that your assets are safe and protected. Pershing, a member of BNY Securities Group and a subsidiary of The Bank of New York, is a leading global provider of clearing and financial services outsourcing solutions to more than 1,100 institutional and retail financial organizations, registered investment advisors, and managed account programs. Pershing obtains Excess SIPC for the net equity of your securities positions and cash in your account through CAPCO. CAPCO is an insurance company licensed by the state of New York and has received an A+ credit and financial strength rating from Standard and Poor’s. CAPCO intends to provide protection that is similar to the Excess SIPC protection that has been available from the domestic insurance market until now. It protects U.S. client accounts and follows the underlying terms of SIPA. Similar to the coverage previously available, each client account, subject to certain conditions and limitations, will be protected up to its net equity for securities and cash held in the account. CAPCO also intends to provide a comparable form of account protection for clients of participating U.K. broker-dealers. It is also important to note that CAPCO provides coverage for only one line of business, so it is not subject to potential losses in other lines of insurance like multiline insurance companies who also sell Excess SIPC protection. CAPCO provides net equity protection not subject to a per account limitation, which no other insurance company currently provides. Who are the securities firms that comprise CAPCO? In addition to Pershing, the 13 firms that formed CAPCO and receive CAPCO’s Excess SIPC protection include: A.G. Edwards; Bear Stearns; Credit Suisse First Boston; Edward Jones; National Financial Services – a Fidelity Investments company; Goldman Sachs; JP Morgan Chase; Legg Mason Wood Walker, Inc.; Lehman Brothers; Morgan Stanley; Robert W. Baird & Co.; Raymond James & Associates; Wachovia Securities; and each firm’s affiliated securities firms in the United States and United Kingdom. No other firms currently participate in CAPCO or receive Excess SIPC protection from CAPCO. Is CAPCO rated? Who rated CAPCO and what is the rating? AYes, CAPCO received an A+ credit and financial strength rating from Standard and Poor’s. How long does CAPCO’s policy last? The policy is issued for one year and requires an annual capital review. What are the limits of liability for the Excess SIPC protection Pershing purchases through CAPCO? There is no specific dollar limit to the protection that CAPCO offers for client accounts. CAPCO’s protection is designed to cover the difference between a client’s net equity (as defined by SIPA) and the total of all funds and securities distributed to the client from other resources. Thus, you cannot receive more than the net equity in your account. What are the differences between CAPCO and other insurance companies that offer Excess SIPC protection? CAPCO provides coverage for only one line of business, so it is not subject to potential losses in other lines of insurance like multiline insurance companies who also sell Excess SIPC protection. CAPCO provides net equity protection not subject to a per account limitation, which no other insurance company currently provides. Does the Excess SIPC protection Pershing purchased through CAPCO cover institutional customers? Yes, subject to the terms and conditions generally applicable to all other clients. Is anyone excluded from the Excess SIPC protection Pershing provides through CAPCO? No, all clients are eligible for the Excess SIPC protection Pershing purchases through CAPCO. However, the protection does not apply to all losses. For instance, the protection does not apply to any loss that arises directly or indirectly through fraudulent, dishonest, or wrongful acts on part of the client, or through any such act in which the client is implicated. Are any account assets excluded from the Excess SIPC protection Pershing provides through CAPCO? Certain types of assets that are not protected under SIPA are also not covered by Excess SIPC protection. Among investments that are ineligible for SIPA protection are commodity futures contracts and precious metals, in addition to investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the SEC under the Securities Act of 1933. If my assets are not an asset type that is protected by SIPA, do I have any Excess SIPC account protection? No, your assets must first be protected by SIPA in order to be eligible for Excess SIPC protection. Is there anyone that is excluded from SIPC protection? Most investors are eligible for SIPC assistance. However, SIPC’s funds may not be used to pay claims of any failed securities firm for investors who are:
What does SIPC cover and how does it differ from Federal Deposit Insurance Corporation (FDIC) insurance? SIPC replaces missing stocks and other securities where it is possible to do so—even when the investments have increased in value. SIPC protects the cash and securities, such as stocks and bonds, held at a financially-troubled securities firm. SIPC covers retail brokerage investors, as well as institutional investors. SIPC does not cover individuals who are sold worthless stocks and other securities. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933. It is also important to understand that SIPC protection is not the same as FDIC protection. SIPC does not offer to investors the same blanket protection that the FDIC provides to bank depositors. The Federal Deposit Insurance Corporation (FDIC) protects deposits up to $100,000 in most, but not all, U.S. banks and savings associations in the event that the institution becomes insolvent. For further information about FDIC insurance, see www.fdic.gov. FDIC does not cover securities, mutual funds, or similar types of investments, and money that is invested in a FDIC-insured product is not covered by SIPC. For instance, assume you had $200,000 invested with a firm that is a bank. Of the $200,000 invested, $100,000 is covered by FDIC insurance. The $100,000 balance is not covered by SIPC. To file a claim, you would have to inquire with your bank. The FDIC’s no-questions-asked approach makes sense because the banking world tends to be “risk averse.” Most savers put their money in FDIC-insured bank accounts because they can not afford to lose their money. That is precisely the opposite of how investors behave in the stock market, in which rewards are only possible with risk. Most market losses are a normal part of the ups and downs of the risk-oriented world of investing. That is why SIPC does not bail out investors when the value of their stocks, bonds, and other investments falls for any reason. If I have one account with one SIPC member and one account with another (separate) SIPC member, how are those accounts covered? The accounts are treated as separate accounts. The $500,000 in protection applies to each account. If I have more than one brokerage account with Pershing (or your firm), is each account protected through SIPC? Yes, if you hold the accounts in separate, legal capacities. Meaning, if you hold one account in your own capacity and maintain other accounts as a trustee for another person under certain trust arrangements, you would be deemed a different client in each capacity. Any client having several different accounts must be acting in a good-faith separate capacity with respect to each account. For instance, an investor might have one account in his or her name and maintain a joint account with his or her spouse. All such accounts, however, must meet the requirements of SIPC rules identifying accounts of “separate” clients of your financial organization. Copies of these rules may be obtained by writing to SIPC and requesting the “Series 100 Rules.” As another example, an investor who in a single capacity has several different accounts with his or her financial organization, such as cash and margin accounts, would be considered a single client for the purposes of applying the SIPC account protection limits. How long does it typically take to receive securities and cash from SIPC, if the account protection is instituted? Most clients can expect to receive their property in one to three months. If the firm’s records are inaccurate or if the firm was involved in fraudulent activity, it may take longer. Isn’t it safer to hold my own certificates? No, certificates you hold can be misplaced, stolen, or accidentally destroyed. In addition, when you hold your own securities, you are responsible for collecting interest and dividend payments and monitoring events, such as bond calls and tender offers. Missing such events can cost you money. Can any securities firm be a member of SIPC? All SIPC members must be registered with the Securities and Exchange Commission. If a member loses its SEC registration, its SIPC membership is automatically terminated. Who examines the operational and financial conditions of SIPC members? The securities exchanges and FINRA® are the “examining authorities” for SIPC members. SIPC itself has no authority to examine or inspect member firms. |
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