Broker Bankruptcy

[adamu]

Here's the FAQ page from the Japan Securities Dealer's Association.

https://www.jsda.or.jp/jikan/qa/002.html

It says two things:

1. Brokers are legally required to manage customers' assets separately from company assets.
2. In the worst case, the association covers 10M yen per customer - although this may still result in an equivalent cash payment, rather than the underlying assets.

Here's an interesting article explaining why you shouldn't assume brokers keeping customers' accounts separate is a secure guarantee:
https://www.finumus.com/blog/what-if-my ... -goes-bust

Are there any good strategies to handle this risk, beyond just having accounts at different brokers?
Does anybody know of any examples where brokers actually failed in Japan, and how it was handled?

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Pre-empting the "10M yen?! Not my problem!" response: I think this is an issue that could creep up on any long-term investor. Due to compound growth, you could find yourself sitting on, for example, more than 20M yen before you retire, and even two brokerage accounts is not going to cover you in that case. If you get rich enough, there probably aren't enough brokerages

[RetireJapan]

I have two brokers in Japan (Rakuten and Monex), and my wife also has two (Rakuten and SBI). Most of my investments are with Rakuten, as are maybe 2/3 of hers.

Might think about shifting that a bit so we are a bit more distributed.

Having said that, I think there is not much risk of a major broker failing to the point where they take everyone's money with them. If that happened and the government allowed it to, I can't imagine the rest of the economy would be in a workable state

I am somewhat paranoid, so I also have investments abroad, and we hold quite a bit of cash. Most likely overkill at the end of the day.

[Established]

The advice not to put all your eggs in one basket also is important for bank accounts.

Only 1000 万 is insured, and small banks have indeed gone bust. One such bust led to the economic destruction of Nikko.

I think 2, 3 Securities accounts is a good thing. Especially to take advantage of free credit card points via SBI, Rakuten and soon Money.

However, keep it simple, a few funds at most. As we were reminded recently, we will need to manage all this in old age.

[captainspoke]

In the US:

The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that was created by federal statute in 1970.

Unlike the FDIC, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if the firm fails financially. Coverage is up to $500,000 per customer for all accounts at the same institution, including a maximum of $250,000 for cash.

[fools_gold]

I think 2, 3 Securities accounts is a good thing. Especially to take advantage of free credit card points via SBI, Rakuten and soon Money.

If you're really worried about these kind of things, it might be worth splitting your money between asset managers as well. For example, half in eMaxisSlim and half in Tawara No Load.

[Established]

I think 2, 3 Securities accounts is a good thing. Especially to take advantage of free credit card points via SBI, Rakuten and soon Money.

If you're really worried about these kind of things, it might be worth splitting your money between asset managers as well. For example, half in eMaxisSlim and half in Tawara No Load.

My iDeco (basically my second pension at 81万 a year), is all Rakuten Vanguard VT wrap.

If that fund goes bust the world is probably on fire.

Everything else is Emaxis Slim.

[mighty58]

I'm a bit confused by exactly what is and what isn't covered.
I have a Monex account. Do I really need to worry about the holdings in funds managed by third parties (e.g. eMaxis slim funds)? Or stocks/etfs that are bought/sold on the open market? For both of these examples, the securities company (Monex in this case) is just the go-between that facilitates the transaction, they don't actually hold or manage the money for me, they just keep the ledger.

Even if we're talking about cash in the securities account, the cash is actually put in a third-party money-market fund, so again, it's arms-length from Monex.

The only scenario that is not arms-length is for funds that Monex itself manages, or also perhaps for other plays such as currency-related holdings.

For anything else, it would seem that the securities (funds/stocks/etc) and the records of my ownership of them, are secure, and could be transferred to a separate broker's account if necessary. Am I wrong about this?

[Established]

I'm a bit confused by exactly what is and what isn't covered.
I have a Monex account. Do I really need to worry about the holdings in funds managed by third parties (e.g. eMaxis slim funds)? Or stocks/etfs that are bought/sold on the open market? For both of these examples, the securities company (Monex in this case) is just the go-between that facilitates the transaction, they don't actually hold or manage the money for me, they just keep the ledger.

Even if we're talking about cash in the securities account, the cash is actually put in a third-party money-market fund, so again, it's arms-length from Monex.

The only scenario that is not arms-length is for funds that Monex itself manages, or also perhaps for other plays such as currency-related holdings.

For anything else, it would seem that the securities (funds/stocks/etc) and the records of my ownership of them, are secure, and could be transferred to a separate broker's account if necessary. Am I wrong about this?

In theory, the accounts of the customers and the business should be separate. Some have concerns about how true this is in practice.

In an absolute worst-case scenario, 1000万 worth of assets are guaranteed. This could simply be an advanced payment, as it could take accountants and auditors years to go through all the data.

In my humble opinion diversifying your cash holdings between different bank accounts (if they exceeded １０００万) is to make sure that money is covered by a similar insurance scheme among banks. This is very common in Japan, as many have huge cash holdings. My mother-in-law actually mentioned this to us. Smaller local banks have failed, so if you are not with the Postbank, MUFJ or alike you might want to consider diversifying accounts.

My main reason for diversifying between different firms is to take advantage of free points through Tsumitate investing, but it does not hurt to have two brokerage accounts. Mainly, because they have different speacilities. Many people get a Monex account just to trade US stocks in English, or to get Emaxis Slim All country in their ideco. While they have Rakuten for CC investing and SBI for CC investing and IPOs etc etc.

[Ori]

As someone who has experience with having deposit in a big bank which went down in 2008 crash, I must say that being insured is not really a safety net.
I was fast and lucky enough to get my money out literally a day before they went out of cash, but many of the people I knew were not. And yes, they got their "guaranteed" money back, but it was months or even years after the crash due to the very long queue. And what's worse, the inflation ate large portion of their deposits at that point.
Surely, this is less likely to happen in Japan, but still not impossible.
So yeah, diversify and watch out