Seven Layers of Investor Protection at Luther Wealth

Investor protection is probably the #1 thing I spend time thinking about at Luther Wealth. As an independent financial adviser, it can be tough for a prospective client to trust that I will safeguard their savings. Although I’m constantly looking to improve, I am very proud of the level of security I can offer my clients.

  • Diversification
  • Liquidity
  • Separating Custody from Advisory Services
  • Financial Health of My Custodian Brokerage
  • Segregation of Client Assets
  • SIPC
  • Insurance in Excess of SIPC Coverage
purple bank vault door

Seven layers of protection

I think of each aspect of investor protection at Luther Wealth as protecting against one of two things. Some safeguards protect against market volatility. Other safeguards protect against the counterparty and operational risks of handing your savings to an unknown person.

I also tend to think about investor protection in terms of layers. This is because investing in ETFs and mutual funds is actually a pretty safe activity. So, when I’m trying to increase investor protection, I try to focus on how to protect client assets in the event of multiple, simultaneous system failures. That’s why I try to take a layered approach, where each layer backstops a failure or failure in other layers.


Stock picking is pretty fun, but I don’t think it’s a good idea these days. It’s much, much riskier than investing in broad, diversified index funds. And it’s very hard to beat the millions of people vying against you to pick the right stock.

If you invest in a single stock, or in bitcoin, or in ethereum, or in your buddy’s business, you might lose all of it. It’s technically possible for the same to happen if you invest in the full stock and bond market through ETFs, but it’s much less likely.

All of my client portfolios are diversified with respect to capital structure (stocks vs. bonds), geography, firm size, and riskiness.


Luther Wealth invests primarily in ETFs with extremely high daily trading volumes. These securities are easy to liquidate. And they have very transparent pricing that is publicly available. This helps reduce the risk of a large loss due to transaction costs when exiting a position.

Separating custody from advisory services

Luther Wealth is a small, startup, financial advisory firm. I do not have the resources to competently hold client funds and securities on my own. Instead, Luther Wealth’s client assets are held by my custodian broker, Interactive Brokers.

This allows my clients to rest assured that their assets are being stored by a large custodian brokerage that specializes in safeguarding financial assets. And frankly, it also allows my clients to rest assured that I cannot personally abscond with their life savings. I have no capability to remove client funds or securities.

As an added benefit, all sensitive financial transactions are handled directly between my clients and Interactive Brokers, which is something I would struggle with from a security perspective.

Financial strength of Luther Wealth’s custodian

Interactive Brokers has over $348 billion in client equity. They hold $9 billion in equity capital, which is $6.5 billion in excess of regulatory requirements. It was rated the #1 Online Broker by Barron’s in 2021 for the fourth year running. Standard and Poor’s rates Interactive Broker’s creditworthiness as BBB+. More information about the financial strength of Interactive Brokers can be found at their site.

Segregation of client assets within Interactive Brokers

If Interactive Brokers were to go bankrupt, Luther Wealth’s client assets will be safe from the bankruptcy procedure. Client assets are reserved and segregated at Interactive Brokers. Luther Wealth does not use leverage in its client accounts, so client assets will be immediately available for return.


The Securities Investor Protection Corporation is a private company, established by Congress. It provides protection for investors in securities for up to $500,000, of which up to $250,000 can be cash. If Interactive Brokers went bankrupt, and securities belonging to Luther Wealth clients were missing, then SIPC would step in to make investors whole. In this case, Luther Wealth clients would recover their pro-rata share of Interactive Brokers recovered assets through bankruptcy, plus their additional protection through SIPC, up to $500,000.

However, SIPC does not protect against the decline in value of any securities.

Insurance in excess of SIPC coverage

Interactive brokers also carries supplemental insurance for the benefit of Luther Wealth clients for up to $30,000,000. However, I tend to regard this supplemental layer as fairly thin, because it is subject to an aggregate cap of $150,000,000 for all of Interactive Broker’s assets under management, which are approximately $232 billion.

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