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How to protect your investments if your broker goes out of business
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Updated: August 15, 2023
When buying and selling stocks, ETFs, mutual funds, bonds, and other investments, you likely spend time thinking about the risks and what would happen if those specific investments lose value. But what happens if there's a problem not with your investments but your investment account? It's very rare, but on occasion, investment apps and brokerages do go out of business.
Read on to learn more about what happens if a stock broker goes bust and what you can do to stick with only the safest brokerage firms that work hard to protect your investments.
How to protect your investments
Many people think of investment accounts as being similar to bank accounts. If you put your hard-earned cash or investment assets into the account, you should be able to rest easy that your assets are safe. This is completely true for the most part.
Just as bank accounts are protected by FDIC insurance, investment accounts are protected by SIPC insurance. The Securities Investor Protection Corporation (SIPC) is a government organization that insures U.S. brokerage accounts for up to $250,000 in cash and $500,000 in net equity in a brokerage account.
SIPC insurance doesn't protect your account from bad investment choices or investment fraud. If you own shares of a stock that goes down in price, SIPC insurance won't help you. But if your brokerage firm goes bust and you can't withdraw your cash or investments, SIPC insurance may step in to cover your losses.
Safest brokerage firms
Most major brokerage firms today are safe and secure places to keep your money. SIPC insures investor assets at brokerage firms. And many firms carry additional private insurance policies. Also, brokers work to keep a strong asset position that protects the business and its customers for decades to come.
Some brokers have gotten into trouble with regulators. For example, Robinhood got a slap on the wrist for attempting to create a checking account with SIPC insurance coverage. But customers experienced no losses from this.
To rest easy that your money is safe and protected, check out our top recommended brokerage firms — all with strong SIPC protection — as great options to manage your investments in a way that helps you reach your most important financial goals for the long run.
Our recommended stock brokers to work with
Highlights | E*TRADE | Ally Invest | TD Ameritrade |
---|---|---|---|
Rating | 4.8/5 | 4.5/5 | 4.5/5 |
Min. investment | $0 | $0 | $0 |
Stock trades | $0/trade | $0/trade | $0/trade |
Options trades | $0.65/contract | $0.50/contract | $0.65/contract |
Crypto trades | ❌ | ❌ | ❌ |
Mutual funds | ✅ | ✅ | ✅ |
Virtual trading | ✅ | ❌ | ✅ |
Sign up | Open account | Learn more | Open account |
Review | Read review | Read review | Read review |
What happens if a stock broker goes bust?
Stock brokerage firms are run by financial experts who usually do an excellent job of keeping the company running. However, on occasion, brokerage firms go bankrupt and have to shut down.
Acquisition by a competitor
In some cases, a competitor purchases a flailing brokerage, and accounts move there. Here are some examples:
- During the Great Recession in 2007 and 2008, Wall Street powerhouse Lehman Brothers couldn't survive on its own. Lehman Brothers was split up and absorbed by two buyers (Barclays and Nomura Holdings).
- On September 15, 2008, the bankruptcy of Lehman Brothers was a major milestone in the 2007–2008 Financial Crisis. The largest U.S. bankruptcy ever (the firm held $691 billion in assets prior to the bankruptcy) triggered a huge drop in the stock market. This bankruptcy led the government to bail out other Wall Street firms.
- Another victim of the 2008 crisis, Bearn Stearns, collapsed over a few days in March 2008 when the extent of its mortgage-related investment losses came to light. The company ultimately sold to J.P. Morgan Chase at a 93% discount from its prior week stock price.
Shut down
But if a brokerage isn't bought out or bailed out by the government, the firm may shut down and liquidate. If they don't have enough assets to make everything right with customers, SIPC insurance kicks in to cover the difference up to insured limits.
In some cases, brokerage firms may have additional insurance to protect customer accounts. To find information on additional, private insurance from your brokerage, check out their website's help section or pages focused on regulations and protecting customer accounts.
Failed brokerage firms
As discussed above, most brokerage apps will probably be acquired by a larger competitor rather than go out of business. However, here are some examples of securities and brokerage firms that didn't survive.
- MF Global — MF Global focused on commodities and derivatives, not regular stocks. But the brokerage firm still sent ripples through the stock market with its collapse in 2011. MF Global held $41 billion in assets, but that wasn't enough to make up for the $630 million in missing funds that MF Global was supposed to be holding for its clients.
- Bernard L. Madoff Investment Securities — Disgraced Wall Street investor Bernie Madoff is now known to have made off with many millions of dollars in customer assets through a large and complex Ponzi scheme. This largest financial fraud in history led to huge losses for investors. Trustees for the clients have been able to recover about 76¢ of every dollar that was stolen by Madoff, though less than 70¢ was returned to the clients. SIPC could not help in this instance, since no securities were actually purchased.
- MJK Clearing — Minnesota-based brokerage MJK Clearing went bust was and liquidated in 2001. The SIPC led an effort that returned $10 billion to former customers.
- Adler Coleman Clearing — Adler Coleman held 60,000 customer accounts worth nearly $775 million when it went under in 1995. Customer accounts were transferred to three other clearing firms.
- Bell & Beckwith — Bell & Beckwith failed in 1983 due to a major fraud perpetrated by one of the firm's top partners. The firm had 7,000 customers with $110 million in assets when it shut down. The perpetrator wound up with a 25-year prison sentence for his actions. Most of the investors got all their money back.
As you can see, broker-dealer bankruptcy is a big deal. These events have a huge long-term impact on customers and financial markets.
Are stocks insured?
The SIPC insures stocks, but that doesn't mean you won't lose money when investing in stocks. SIPC coverage is restricted to the insolvency of the investment brokerage firm. It will not cover losses that are the result of poor investment decisions, fraud, or misrepresentation. So, while your stocks and other eligible investments are insured up to SIPC limits, they can still lose value.
The insurance for your stock investments protects the shares you own. When possible, SIPC replaces the missing stocks and other securities.
Stay informed
While brokers don't go bust every day, it can happen. The best way to keep your investments secure is to invest with a trusted company that offers SIPC insurance. Check if your broker has additional insurance policies and make sure to read the fine print. And remember that if your broker fails, there are safety nets in place to make sure your investment money is protected.

Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
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