Remember, the B/D is irrelevant to the client (it only affects your business, not their investments).

Version #1: SIPC Protection¶

Watch What happens to my account if your BD goes belly-up? VIDEO

Prospect: Would my assets be safe, if your company goes under?

Advisor *Well, if the broker/dealer goes out of business, it doesn't affect your account because your funds are being held at the investment company, such as American Funds.

Now, if the investment company goes belly-up, which is highly unlikely, an organization named Securities Investor Protection Corp (SIPC) will step in to make sure that customer accounts are transferred to a financially sound institution. In most cases, this happens within a few weeks of insolvency.

Version #2: The "car dealership" analogy¶

I think what you are asking about is what would happen in a disaster situation. If something happened to me then my back office would assign another advisor to your account and you have a choice of working with them. I would certainly recommend this because that person is going to share the same philosophy that we have embraced, however you will be able to decide if you like and trust that person enough to work with them.

If my broker dealer went out of business it really wouldn't affect your investments at all because the money is not held there. A good analogy might be if you bought a car and the dealership you used went out of business. Would it affect the ownership and operation of your car? Probably not. My broker dealer's job is not to hold assets but to supervise the business we do together and make sure it's suitable. In this situation, I would unhook my wagon from the broker dealer that went out of business and attach it to another one. Nothing in terms of your investments would change.

Lastly, the question you may have is what happens to us and our money if the investment company we use goes out of business. First, I would say that the situation is similar to the broker dealer in that the money isn't actually being held at the investment company. It is invested in the particular companies a that are part of the mutual fund. I would also add that this is unlikely to happen for two reasons. Number one, I only work with companies that have a long and successful track record. Number two, the recent financial crisis has changed the way these companies operate. In a nutshell, the standards are higher in there is more transparency. If there actually was a problem however, at the investment company level what would most likely happen is, is another company would come in and buy them out. In this case your account would technically move with a new company. If the company actually got into financial trouble an organization would come in at that point called the SIPC securities investor protection corporation and they would help transition the accounts to a more financially sound institution. Again, this is extremely rare and why I recommend the companies I do.