My retirement accounts (Roth IRA and traditional 401k) are with Fidelity. In the unlikely even that Fidelity goes under, what happens to my money - is it gone? If so, does it make sense from a risk management/diversification standpoint to move the Roth to another brokerage, such as Vanguard? That way, if Fidelity were to go under, I would still have some assets at Vanguard (assuming whatever took Fidelity down doesn't take Vanguard down with it).
There's some risk, but it's quite small:
- Legally, you own the assets inside the account. The brokerage firm just manages them. Just as you don't lose your investment property if the company you've hired to collect the rent goes bust, you still legally own the assets you've invested in even if the company managing them goes under.
- For the money in cash rather than securities, SIPC should cover them.
The only catastrophic case I can think of is if the brokerage firm defrauded you about purchasing the assets in the first place; e.g., when you ostensibly put money into a mutual fund, they just pocketed it and displayed a fictitious purchase on their web site. In that case, you'd have no real asset to legally recover.
I think the more realistic risks you should be concerned with are:
- Access to your assets could be delayed for the time it takes to sort out the bankruptcy.
- Your account is NOT in any way insured against hacking or theft. As an example, see http://redtape.nbcnews.com/_news/2007/01/05/6346033-in-an-instant-retirement-savings-vanish?lite
The only major brokerage firm that I'm aware of that accepts liability for theft is Charles Schwab: http://www.schwab.com/public/schwab/nn/legal_compliance/schwabsafe/security_guarantee.html
If you're going to diversify for security reasons, be sure to use different passwords, email addresses, and secret question answers on the two accounts.
The article http://www.forbes.com/2008/09/15/bearstearns-lehman-compliance-pf-ii-in_js_0915soapbox_inl.html does a nice job explaining SIPC insurance coverage. The coverage is currently $500k total / 250k of which can be cash, that's the one update I'd offer.