Angela Shaw, director and founder of the Stanford Victims Coalition and the director of the Alliance for Investor Protection, said simply that advisors should warn clients the investor protection from SIPC does not exist.

J.W. Verret, a prominent conservative academic who recently served as chief economist for Jeb Hensarling, chairman of the U.S. House of Representatives’ Financial Services Committee, said a warning label should accompany the ubiquitous SIPC logo everywhere it appears.

“This label would warn customers SIPC coverage only applies under limited circumstances, and SIPC reserves the right to deny claims despite reasonable expectations of coverage,” said Verret, who is also a law professor at George Mason University.

The root of the problem, argue many critics, is that SIPC is beholden to member brokerages that pay into a pool. The more money SIPC pays out, the more the brokers would have to pay in. Brokerages currently pay it one-quarter of 1 percent of net operating revenue.

The alleged greater interest of SIPC to keep assessments low rather than to reimburse harmed investors is a thumb on the scale in favor of the brokers for trustees, argued Vitter.

He added that SIPC trusteeships count for a large portion of the business of some law firms the agency uses multiple times. The trustees know that if they approve generous payouts, SIPC is unlikely to use them again, he said.

At the Senate hearing, Vitter took aim at SIPC President and CEO Stephen Harbeck, who defended the agency’s record by saying all retail customers of Lehman Brothers were paid in full after the 2008 bankruptcy of the company that triggered the financial crisis.

He added that every investor who had $975,000 or less with legendary fraudster Bernard Madoff has received every cent back and those who invested more have recovered 48 cents out of every dollar originally entrusted to him.

When Vitter repeatedly asked Harbeck what the agency could do to prevent brokerage failures from fraud, mismanagement and market declines, the CEO responded that SIPC is not a regulator.

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