Funds managed by companies that go bankrupt?

Question

With all the talk of Wells Fargo looking pretty shaky, what's the deal with people that have investments through them? It's their fund, but it's not really in them? What happens to holders of investments that happen to be through Wells Fargo if they go belly up?

Answer 1

First of all, Wells Fargo Bank and Wells Fargo Advisors are separate entities, so even if the bank is in danger of closing (which does not appear to be the case), that doesn't necessarily mean that the brokerage company will as well.

But, to answer the general question...

From FINRA:

In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Multiple layers of protection safeguard investor assets. For example, registered brokerage firms must keep their customers' securities and cash segregated from their own so that, even if a firm fails, its customers' assets will be safe. Brokerage firms are also required to meet minimum net capital requirements to reduce the likelihood of insolvency, and to be members of the Securities Investor Protection Corp (SIPC), which protects customer securities accounts up to $500,000. SIPC protection comes into play in those rare cases of firm failure where customer assets are missing because of theft or fraud.