Safety and Security of Client Assets



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The continuing uncertainty in the financial arena has prompted some of our clients to ask about the security of their assets at Fidelity Investments (“Fidelity”) and Charles Schwab & Co., Inc. (“Schwab”). We certainly understand the concern. However, we want to assure you that we have the utmost confidence in each of these companies in their roles safeguarding the custody of our clients’ investments.

Safety and Security of Custodial Accounts at Fidelity and Schwab

Both Fidelity and Schwab are healthy, stable and solvent companies. Collectively, the two firms have been in the financial services business for almost 100 years. Both of these firms have diversified lines of business, which are not embroiled in the credit problems affecting most commercial and investment banks. Both companies have healthy and growing revenues and together they custody more than $5 trillion dollars for their customers.

Like other financial institutions, Fidelity and Schwab are members of various regulatory and industry organizations. These organizations provide a variety of investor protections, via governmental and stock exchange regulations as well as insurance provided by the SIPC. In addition, both have supplemental policies to cover excess losses. While none of this insurance protects against declining values in your securities, it does provide protection for the securities themselves.

The majority of our clients’ accounts are held in what are known as “cash” accounts versus “margin” accounts. The difference in these accounts is that investors are allowed to borrow money from the custodian in their margin accounts and this is not allowed in a cash account. The distinction is an important one as, pursuant to SEC Rule 15c3-3, non-margin assets are segregated from the assets of the broker/dealer. If the broker/dealer were to become insolvent your assets would not be at risk.

Non-margin assets are held separately and can simply and quickly be transferred to another broker/dealer under the supervision of the SIPC. Because all assets would be transferred, there would be no need for any of the insurance protections which the government or custodians provide. Anecdotally, customer assets held at Bear Stearns and Lehman Brothers, two of the major casualties of the current crisis, have been simply and efficiently transferred by investors to alternative custodians.

For those clients with margin accounts, the SIPC coverage provided for both firms includes $500,000 worth of security coverage (money market funds are considered securities), including $100,000 in uninvested cash. In addition to the SIPC coverage, both firms carry additional insurance far exceeding the SIPC limits. We believe this combination of coverage at both firms is adequate to protect our margin account holders from a loss.
If you have additional questions, or would like more information on Fidelity or Schwab’s asset protection programs, please let us know.

Thank you for your continued confidence and support in our services.

Best regards,

Horizon Advisors, LLC

Horizon Wealth Advisors
Horizon Wealth Advisors is a Houston-based, privately owned, fee-only financial advisor established in 1999. Our mission is to develop long-term relationships with thoughtful, successful individuals, families, and organizations by supporting and assisting them in achieving their financial goals.

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