Protection for Investors: How It Works

But if you suffer a loss because of a decline in market price, SIPC will not cover that loss. The same is true if you miss out on an investment opportunity that would have provided significant gains or if you were sold a worthless stock or bond.

In addition, there are several categories of investments SIPC does not protect. These include commodity futures, fixed annuities, currency, hedge funds and limited partnerships. Also, there is no coverage for the partners, directors and officers of a failed firm or anyone else with a significant ownership interest in it.

SIPC typically gets involved when a firm is about to liquidate. It will usually ask a federal court to appoint a trustee to oversee the liquidation, including the distribution of customer assets.

In a FDIC bank takeover, customers usually have access to their funds the next business day -- if not sooner via an ATM. But that process can take much longer in a brokerage firm liquidation.

Most customers should expect to wait one to three months to receive their assets after a brokerage firm failure, according to the SIPC. The length of the wait will depend upon on the accuracy of the failed firm's records.

That's a wait most of us would rather avoid, but it's better than the alternative -- no protection at all.

To learn more about SIPC protection for your investment accounts, check out the group's Web site: www.sipc.org.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.

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