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).

  • Do you have a brokerage account with Fidelity through which you are buying the Fidelity mutual funds in your retirement accounts (i.e. can you buy and sell individual stocks and bonds in your IRA and 401k) or did you invest in a Fidelity IRA by going to the Fidelity site and clicking on the link that says "Open a new IRA" or something similar and chose a Fidelity mutual fund to invest in? Does your 401k plan allow investments in individual stocks and bonds or just (a possibly restricted subset of) Fidelity mutual funds? The answers are different in the two cases. Commented Jan 17, 2013 at 12:46
  • Hi Dilip, my Roth is a brokerage account (I hold only FRESX in it). My 401k does allow me to buy non-fidelity mutual funds, but in this case I have chosen two Fidelity funds, FUSVX and FSITX. I also have a non-retirement brokerage account at Vanguard with VWNFX.
    – Jeremy
    Commented Jan 17, 2013 at 22:24

2 Answers 2


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:

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.

  • 1
    The title of the question refers to mutual funds about which this article says that mutual fund investments are not covered by SIPC unless they are held in a brokerage account and it is the brokerage that fails. Many people who invest in mutual funds buy them directly from the fund itself which is organized as a separate company (e.g. Fidelity Puritan Fund) from its management (Fidelity Management Company) and failure of FMC does not affect the assets of Fidelity Puritan Fund. Commented Jan 17, 2013 at 12:39
  • Sorry - I read "with Fidelity" not "in Fidelity Mutual Funds," but I do see that clearly, you are correct, that was his intent. My answer was good, only for a different question, more like - "what's my risk of having my investment all at one brokerage house, say Schwab." The question here is a bit more involved than that. Commented Jan 17, 2013 at 17:03
  • I've added more information as a comment to my original question.
    – Jeremy
    Commented Jan 17, 2013 at 22:25

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