Understanding Custody: Bank and Brokerage Asset Safety

Protecting client assets is a top priority for us and ensuring the safety and security of your money in custody is an essential element of that responsibility.

Just as we vet and closely monitor your investment funds and managers, we care about the security and safety of your assets in custody as well as the service your custodians provide. We do not simply recommend custody arrangements for your accounts; we perform ongoing due diligence on our recommended custodians: BNY Mellon Pershing and Charles Schwab. Your assets at both institutions are protected by rigorous internal and external control measures.


Banks and brokerages are required by law to segregate their clients’ assets from their own in order to protect them in the event the financial institution fails. The laws and regulations pertaining to both are extensive but different from each other, as we explain below.

How Coverage Works at Brokerages

If a brokerage firm such as Pershing or Schwab were to fail, the most likely outcome is that the Securities Investor Protection Corporation (SIPC) would ensure that custody accounts are moved to another brokerage in their entirety. To the extent assets were not properly segregated or assets were missing, SIPC would step in to protect customers.

SIPC coverage provides up to $500,000 of insurance per customer (or per account; for customers with multiple accounts, protection is determined by whether those accounts are of separate capacity). Up to $250,000 of that total can be applied to protect cash within a customer’s account that is not yet invested in securities.

This coverage is for assets that are not segregated (held in the name of the beneficial account owner or owners) at the time a brokerage fails.

Assets that are not segregated can include:

  • Sweep money market that has been swapped into actual cash to settle a trade
  • Assets lent to the broker through drawing on margin

Assets that are segregated, such as stocks, mutual funds, and money market holdings, will be moved to a new SIPC member firm and would not be subject to the SIPC insurance process.

Any assets that cannot be accounted for in a segregated account at the time of the failure, either due to the reasons above or as the result of fraud, could still be covered by SIPC coverage and then “excess” SIPC coverage, which becomes available once SIPC limits have been exceeded. Both Schwab ($600 million) and Pershing ($1 billion) have excess SIPC coverage available.

Given the extra safeguard of excess coverage, 99% of assets have been returned in failures over the past 50 years because of the protection offered by the SIPC.

How Custody Works at Banks

Bank custody is unlike retail banking, where customers’ assets such as checking accounts are not segregated from the bank’s assets and are on its balance sheet. The bank makes money by using your assets when you are not. That is not the case in the custody world; assets are separated.

Custody assets are held in trust at banks; they are not part of a bank’s assets or balance sheet. This includes sweep money markets and position-traded money markets in our client custody accounts. Those are not covered by FDIC insurance because they are held in a segregated account.

If a bank fails, the FDIC steps in and compels another bank to take on the custody accounts intact and pay the failed bank for them.

If you are using a “bank deposit” cash option in a Schwab account, that cash is on the Schwab bank’s balance sheet and would be subject to the FDIC’s $250,000 coverage limit if Schwab Bank failed.

Our custodians play an important role in the safekeeping of your assets and we monitor and work with them closely to ensure a smooth and secure process.

For more information on our main providers and how coverage works, see the following links.

Pershing / BNY Mellon
Understanding the Protection of Client Assets

Asset Safety

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://adviserinfo.sec.gov/ for additional information about Altair Advisers’ business practices and conflicts identified.