Are banks' brokerage products protected?

Don TaylorQuestionDear Dr. Don,
I have all of my savings invested with Wells Fargo. On my statement it states that it is not insured by the FDIC. When I ask my adviser, he says the bank has its own insurance and gave me that information. Am I safe investing with the bank?
-- Jane Juncture

AnswerDear Jane,
There's a difference between investing in a "bank product" and a "brokerage product." Most commercial banks also have a brokerage business, and the brokers often have their desks in the bank branch. You can easily find yourself investing in a brokerage product that isn't insured by the Federal Deposit Insurance Corp.

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Wells Fargo Bank is a member bank of the FDIC. However, its brokerage products and services are offered through Wells Fargo Advisors. If your statement is telling you that your investments aren't FDIC-insured, you've invested in a brokerage product.

The safety of the investment depends on how you've invested. The insurance protection for brokerage services is to protect you against insolvency, not investment losses. The Securities Investor Protection Corp., or SIPC, is the agency that reimburses investors with assets in bankrupt and financially troubled brokerage firms to a limit of $500,000 per customer, including a maximum of $250,000 for cash claims.

But Wells Fargo Advisors has insurance over and above the coverage it has as a member of the SIPC. Still, it doesn't protect you against bad investment decisions.

Don't panic. Meet with your adviser and get an understanding of what you're invested in and the risks you face with that investment. If you can't get comfortable with how you're invested, get a second opinion by consulting with a fee-only financial adviser.

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