Summary of "What Happens to Our Investments if Schwab, Fidelity or Vanguard Collapse?"

What Happens to Our Investments if Schwab, Fidelity or Vanguard Collapse?

Key Finance-Specific Content Summary

This video covers important topics related to the safety and handling of investments in the event that major brokers or fund companies collapse. Key points include:

Safety comparison between money market funds and FDIC-insured bank accounts
What happens to mutual funds and ETFs if a broker or fund company fails
Differences in how banks and brokers manage client money
Custodianship and asset protection in brokerage accounts
Relevant insurance coverage for bank deposits and brokerage accounts
Risk management related to broker or fund company failure

Assets, Tickers, and Instruments Mentioned

ETFs/Funds:
- VTI (Vanguard Total U.S. Market ETF)
- SCHD (Schwab U.S. Dividend Equity ETF)
- SNVXX (Schwab Government Money Market Fund)
Companies/Brokers:
- Charles Schwab (SCHW)
- Vanguard
- Fidelity
- Silicon Valley Bank (SVB) — used as a banking example
Other:
- Treasury bills (T-bills)
- Money market funds
- Bank deposits (checking, savings, CDs)

Macroeconomic and Regulatory Context

Bank Deposits: Bank deposits are liabilities on a bank’s balance sheet because the bank owes this money to depositors. Banks invest these deposits in loans and securities, which introduces risk if those investments perform poorly.
FDIC Insurance: Covers bank deposits up to $250,000 per depositor, providing protection in case of bank failure.
Brokerage Client Assets: Brokers like Schwab, Vanguard, and Fidelity do not hold client investments on their balance sheets. Instead, client assets are held separately and cannot be used by the broker for their own operations or investments.
Schwab Example: Schwab’s balance sheet shows $551 billion in assets, but they manage $7.38 trillion in client assets, illustrating the legal and operational separation of client assets from broker assets.
Bank Subsidiaries: Schwab owns a bank subsidiary, Charles Schwab Bank, where deposits are FDIC insured and treated like any other bank deposits.

Investing and Risk Management Frameworks / Methodologies Explained

Understanding Broker vs. Bank Asset Handling

Banks: Bank deposits appear on the bank’s balance sheet and can be used by the bank for loans and investments. This creates risk if the bank fails or makes poor investment decisions.
Brokers: Client assets held by brokers are kept separately, typically in custody accounts, and are not part of the broker’s assets or liabilities.

How to Check Safety of a Fund (Mutual Fund or ETF)

Obtain the fund’s Statement of Additional Information (SAI) filed with the SEC.
Identify the custodian named in the document (e.g., State Street Bank and Trust Company for Schwab and Vanguard funds).
Confirm that the custodian holds the securities and cash separately from the fund company or broker.
Verify that the fund company acts only as an administrator and does not have direct access to the assets.

Insurance Coverage to Know

FDIC Insurance: Covers bank deposits up to $250,000 per depositor per bank.
SIPC (Securities Investor Protection Corporation): Protects brokerage accounts if a broker fails but does not cover market losses. Typical coverage limits are $500,000 per customer (including $250,000 for cash). Some brokers (e.g., Fidelity) purchase additional excess SIPC coverage.
SIPC protection applies against broker insolvency or theft but does not protect against investment losses due to market fluctuations.

Key Numbers and Timelines

FDIC insurance limit: $250,000 per depositor
SIPC coverage: Up to $500,000 per customer (including $250,000 cash)
Schwab total assets on balance sheet: $551 billion (as of end of last year)
Schwab client assets under management: $7.38 trillion
SVB bank deposits example: Nearly $200 billion in deposits

Explicit Recommendations and Cautions

Bank accounts under FDIC limits remain very safe despite recent banking turmoil.
Money market funds are also considered very secure but carry some risk.
Investments in ETFs or mutual funds at Schwab, Vanguard, or Fidelity are safeguarded by custodianship and legal separation of assets.
Even if Schwab, Vanguard, or Fidelity were to go bankrupt, client assets like SCHD or VTI would remain intact and administered by custodians, though market values could fall due to broader economic turmoil.
Beware of investment advisors who want direct control over your assets; this is a red flag.
SIPC does not protect against market losses, only broker failure or theft.
In the event of a broker failure, client assets are typically transferred quickly to another registered brokerage firm.

Disclosures / Disclaimer

This video is an explanation of how brokerages and banks operate with respect to client assets and is not financial advice.

It references official regulatory filings (10-Ks, Statements of Additional Information) and regulatory protections (FDIC, SIPC).

While no system is risk-free, the risk of losing assets due to broker failure is minimal given current structures and regulations.

Presenter / Source

Rob Berger, host of the Financial Freedom Show

Additional Resources Mentioned

SEC filings (10-Ks, Statements of Additional Information) for banks and brokers
FINRA guidance on brokerage firm closures and asset safety
Fidelity’s website explanation of FDIC vs. SIPC insurance
FDIC website for bank certification information

Summary

Rob Berger explains the fundamental differences between bank deposits and brokerage accounts, focusing on the safety of investments if major brokers like Schwab, Fidelity, or Vanguard collapse. Client assets in brokerage accounts (e.g., ETFs like SCHD or VTI) are held separately by custodians and are not part of the broker’s balance sheet, making them protected from broker insolvency. Bank deposits are insured by FDIC up to $250,000, and brokerage accounts have SIPC protection for broker failure but not market losses. While no investment is risk-free, the structural safeguards and regulatory environment make the risk of losing brokerage assets due to broker collapse very low.