What Changes in the Financial World Mean to Customers

One clear implication of the tumult in the financial world is that some of the biggest brains in the business, from the Federal Reserve to Wall Street, have no idea what will happen next or how to respond.

Wall Street in Crisis
Wall Street in Crisis

So you are forgiven if you found yourself panicking as two Wall Street firms fell victim on Monday and the stock market took the biggest one-day fall in seven years. It’s incredibly difficult to predict where the markets are headed in the coming weeks.

As for the long term, it rarely makes sense to sell everything or to stop contributing to a 401(k) in the hope of knowing when the market has hit bottom and it is time to invest again.

Meanwhile, you probably have more immediate concerns if you are among the millions of consumers who have dealings with Merrill Lynch , Lehman Brothers and its Neuberger Berman unit, or the American International Group .

Here is what we know now:

Merrill Lynch

If you are among the clients of the more than 16,000 Merrill Lynch financial advisers, you continue to have access to your accounts online or can call your stockbroker at the same number as you did last week.

“It’s business as usual,” said Scott Silvestri, a spokesman for Bank of America , which reached an agreement on Sunday to acquire Merrill Lynch. “As we move further into the integration process, we’ll have more to share with customers when we can.”

This is what generally happens next in these situations: Recruiters besiege the best brokers with lucrative offers to move elsewhere and avoid the tumult that is part of working for an acquired company. If your broker bolts, you will have to decide whether to go along. If you do, the transition period is a bit of a bother and you may lose access to your funds for a week or two as the new firm moves your securities from Merrill.

There may be similar hiccups if you and your broker stick with Merrill, however, if Bank of America decides to use different technology for tracking Merrill accounts or a new account numbering system. This has been a problem in previous mergers, though the Financial Industry Regulatory Authority has made efforts to fix it.

Lehman Brothers

First, it is important to note that Lehman’s brokerage unit did not file for bankruptcy; its parent company did. So for high net worth investors with accounts there, things continue as they were last week.

“You can buy and sell, you can move your assets as you wish,” said Stephen P. Harbeck, president of the Securities Investor Protection Corporation.

Investors in Neuberger Berman’s mutual funds can also continue to trade.

Brokerage investors are protected by rules set by the Securities and Exchange Commission, as well as the Securities Investor Protection Corporation, which keeps a special reserve to help investors at failed brokerage firms.

Advice for Investors

Eventually, Lehman’s brokerage accounts will find a new home. Regulators are working at Lehman’s offices to make sure customer assets are transferred in an orderly fashion to one or more brokerage firms insured by the Securities Investor Protection Corporation.

Right now, customers do not have anything to worry about. That is because their assets are kept separate from the brokerage firm’s own assets and cannot be touched by the failed institution or its creditors. If customer money is missing — and that did not occur when JPMorgan acquired Bear Stearns — that is when the investor corporation would step in.

“We would transfer the accounts to a solid brokerage firm, using our money to replace any missing assets,” Mr. Harbeck said. “If we became involved, we would locate a brokerage firm that was ready, willing and able to take the accounts and we would have transferred them in bulk.”

If any assets are missing, the corporation will insure an account up to $500,000; of that amount, it can insure up to $100,000 in cash. But the maximum amount covered can be much higher. For instance, if you have a brokerage account, a joint brokerage account with a spouse, an I.R.A. and a 401(k), each account would receive up to $500,000, Mr. Harbeck explained, totaling $2 million in protection.

“Each account held in a separate legal capacity would be considered separate,” Mr. Harbeck said.

The corporation covers a lot of assets, but not all of them. Investments in stocks, bonds, mutual funds, other investment company shares and other registered securities are covered. But coverage does not extend to instruments like unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interests in gold, silver or other commodity futures contracts or commodity options.

Insurance concerns

The investor protection corporation has $1.5 billion in reserves, which is invested in Treasury securities, as well as a $1 billion line of credit with an international consortium of banks and another $1 billion line of credit with the Treasury.


When we were taking questions on nytimes.comon Monday on how the trouble in the financial services industry will affect consumers, a number of people wrote in with questions about A.I.G.’s life insurance and other policies. Just to reiterate, A.I.G. is still in business, though it is desperately in need of more capital.

“We have a very strong message for consumers,” said David Neustadt, the deputy superintendent for public information for the State Insurance Department in New York, where A.I.G. has its headquarters. “If you have a policy with A.I.G. insurance company, they are financially strong and solvent. They have the capability to pay on any claims, and our job is to ensure that they continue to have the ability to pay.”

Some insurance agents expressed confidence as well on Monday. Lance Whitney, of HBW Insurance and Financial Services in Sterling Heights, Mich., said he fielded a call from a nervous client who had life insurance through the American General subsidiary of A.I.G.

Mr. Whitney said he had told the client that his boss purchased 1,000 shares of A.I.G. that day to show that he was still confident in the company. His boss also said that even if A.I.G.’s troubles eventually affected American General, that unit would probably be bought by another, stronger company.

It is hard to predict, however, how clients may act on their own. Glenn Daily, a fee-only insurance adviser in New York, said he had heard Monday from a client with $11 million in cash value life insurance with A.I.G. The client’s plan was to take out a big loan against his policy and hang onto the money for the next few weeks as a precaution, just to see what happened.

“If everyone does this, the company could be driven out of business,” Mr. Daily said. “It’s a hard call to make. You don’t want to be socially irresponsible, but you also have to consider the client.”

In the event of insolvency, entities known as guaranty funds would step in. Each state has at least two of these, one dealing with claims against defunct life and health insurance companies and the other handling property and casualty claims, as well as workers’ compensation. They’re a bit like the Federal Deposit Insurance Corporation, which provides protection to account holders when banks fail.

Each state sets its own limits, though most of the life insurance funds provide at least $300,000 in death benefits on a life insurance policy and $100,000 for cash surrender or withdrawal value for both a life insurance policy and an annuity. Some states may cover more.

You can look up your own state’s limits (and many more details on how this process works) on the Web site of the National Organization of Life and Health Insurance Guaranty Associations, found at www.nolhga.com/factsandfigures/main.cfm/location/stateinfo.

As for property and casualty insurance, like auto and home insurance, a $300,000 limit often applies as well. For more information, the Web site of the National Conference of Insurance Guaranty Funds offers some helpful details in the first two links after clicking “About Us” on the home page, www.ncigf.org.