Brokerage accounts allow investment brokers to manage the association's funds for a fee.

Risky Investments. Generally, account managers like to invest their clients' monies in stocks, bonds, and mutual funds--all of which should be avoided by boards because of the risk. If boards were to restrict brokerage firm investments to CDs, T-bills, and Ginnie Mae securities, then the associations monies are considered secure. The downside to brokerage accounts are (i) the payment of commissions to the brokerage firm to manage the account, and (ii) its limited protections against loss by the SIPC.

Insolvent Brokers. The Securities Investor Protection Corporation (SIPC) was created in 1970 as a non-profit, non-government, membership corporation, funded by member broker-dealers. The SIPC does not protect against market risk. Its primary role is to return funds to investors if the broker-dealer holding these assets becomes insolvent. See SIPC website.

RECOMMENDATION: To maximize convenience while minimizing risk, associations should consider the CDARS program.