Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, August 1, 1994                   TAG: 9408010014
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE:                                 LENGTH: Medium

FOR SAFEKEEPING, KEEP YOUR STOCKS, BONDS IN YOUR BROKER'S COMPUTER

If you take possession of your certificates, you might lose them. But if they're kept in street names, the stocks or bonds should always be there, even if your brokerage firm fails. If something's missing, insurance normally covers the loss.

That wasn't always so. Twenty-five years ago - when big-name firms like Goodbody and Hayden, Stone fell apart - sloppy firms didn't know where the money was. Sometimes, securities were missing - not out of villainy, but out of sheer carelessness. In 1971, the Securities Investor Protection Corp. opened for business, to ensure that when a brokerage house fails, investors will get their securities back.

In the early days, the corporation liquidated 20 to 40 brokerage firms a year, says general counsel Ted Focht. Whenever cash or securities were missing, the insurance fund replaced them, up to specified limits.

In the past decade, however, such liquidations have dropped to seven or eight a year. Last year there were three and so far this year, only one.

Many other brokerage firms have failed, including such giants as Drexel Burnham Lambert and Thomson McKinnon. But investors got their cash and securities back, so the securities corporation didn't intervene.

Two big-name firms - Kidder, Peabody and Prudential Securities - are running in the red. But unlike the troubled firms of two decades ago, these are backed by strong corporate parents. Kidder is owned by General Electric Co., and Pru Securities is a subsidiary of the Prudential Insurance Co.

Even firms without Big Daddies are being more careful with investor accounts. Under Securities and Exchange Commission rules, for example, all broker/dealers have to maintain a reserve account, which stands behind the sums they owe to customers.

Contrast this with the risk of keeping stocks and bonds yourself. They might be lost in the mail or scorched in a fire; they might be stolen (a bond issued only to the ``bearer'' can be cashed by anyone); you might misplace some certificates and forget that you own them; your Irish wolfhound might chew them up. Lost or damaged certificates can be replaced, but the cost is high - sometimes 1 percent of the security's face value.

It's also possible to lose track of the stocks you leave in a broker's name. You might move and leave no forwarding address, or die without telling your heirs what you own. So you do need records to remind yourself where the money is.

When the securities corporation does have to liquidate a failing firm, it first distributes all of the assets held for customers. The insurance steps in if there isn't enough to go around. Each account is covered for up to $500,000 in securities (including up to $100,000 in cash). The covered securities can be held in any kind of account: a money market fund, asset management account, mutual funds, pension or profit-sharing plan or Individual Retirement Account, as well as a regular brokerage account.

Most firms also carry private insurance for anywhere from $2.5 million to $50 million per account. Merrill Lynch has just reported an embarrassing case to its insurer. Its NFA World Coin Fund partnership is missing 399 antique coins, originally bought for $3.3 million, that Merrill thought were in a vault. But whether insurance pays or not, Merrill will ``stand by its clients and provide recovery,'' says spokesman James Wiggins.

The securities corporation guarantees only that you will get your securities back. You don't know when (although accounts normally can be transferred to a new broker within two to three weeks) and you don't know what those securities will be worth. The corporation doesn't guarantee that bilked customers will get their original investment back.

In the case of Blinder, Robinson - a notorious penny-stock firm that failed in 1990 - customers couldn't get at their money for three to 12 months because the corporation couldn't find a brokerage firm that was willing to handle so many flaky stocks.

The corporation doesn't cover the firms that specialize in selling mutual funds or annuities. Those investments are kept with outside custodians who are liable for their safekeeping. If your mutual fund's management company fails, your risk is delay. You may not be able to buy or sell until a new manager is found.