Thieves Emptying Brokerage Accounts

The financial world offers plenty to worry about, from corporate shenanigans to identity theft. Fortunately, your credit card losses from fraud are capped at $50. And the assets in your brokerage account are typically insured, by the SIPC, for as much $500,000. (Is your brokerage insured?) That protection is only there in case your brokerage fails or goes out of business, though. It won't protect you from the results of bad investments -- or theft.

Imagine this: You've been saving and investing diligently for your retirement. Perhaps you've held shares of Clorox (NYSE: CLX) for the past 20 years, watching them grow in value from $5,000 to $74,000, while the dividend was hiked by a compound annual average of a little less than 10%. Maybe you bravely bought shares of a not-so-huge biotech outfit called Amgen (Nasdaq: AMGN) 20 years ago, and your $2,000 investment grew at a compound annual average clip of 25%, turning into a whopping $178,000. All that time, you've been patient with most of your holdings, and they now total more than $500,000. That is, until one day when your brokerage statement arrives, showing a balance of zero.

Tragically, that could happen. A post on our discussion boards recently led me to a scary article at MSNBC.com's Red Tape Chronicles, in which Bob Sullivan told this (true) tale:

"One moment Dave DeSmidt had $179,000 in his 401(k) retirement account, the next he had nothing. In an instant, 25 years of savings had disappeared. With a few clicks, someone raided DeSmidt's retirement account with JPMorgan Chase and ordered a full disbursement to a private checking account. Then came the really bad news. While credit card and online banking accounts are legally protected in the event of fraud, DeSmidt's brokerage account came with no such insurance. Two months after the theft, his balance still read $0."

There was a happy ending -- DeSmidt got his money back. It came from the brokerage, though, not the thieves. And before he got it, he expended a lot of time and energy trying to find someone to help him.

What to do
What lessons can we learn from this? What can we do to protect ourselves? Well, here are a few ideas:

• Be careful with your brokerage passwords. Protect them and your other account information, and ideally, change your password regularly.
  
  
• Consider choosing brokerages that are likely to treat you well in the event of theft. Sullivan reported that "Both E*Trade and Charles Schwab offer credit-card style guarantees." TD Ameritrade also offers protection, and it's probably not alone.
  
  
• Let your brokerage know you're interested in some insurance or assurances from it, regarding theft. I suspect that as this issue becomes more well known, more brokerages will offer protection -- if only because they must, to maintain customer confidence.
  
  
• If you invest in any brokerages, keep an eye on this topic, as it could potentially be a costly one for them.

Find the best brokerage
Odds are, you can find a better brokerage for yourself, one that charges you less than you're paying or that offers the services or protections you want. A few minutes in our Broker Center may help you do just that. This article on finding the right brokerage may be helpful. Indeed, some very reputable brokerages now charge commissions of $5 or less per trade. (Our comparison table may be particularly helpful.)

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. JPMorgan Chase is an Income Investor recommendation. Charles Schwab is a Stock Advisor pick. The Motley Fool has a full disclosure policy.