Mar 15, 2023 Bank Update

In light of recent events in the banking sector, we wanted to provide a recap and an overview of the impact to your accounts.

Financial markets shook last week as Silicon Valley Bank (SVB), the California bank subsidiary of SVB Financial Group (SIVB), fell into FDIC receivership. SVB is the first FDIC-insured institution to fail since 2020 and the largest by assets since Washington Mutual failed in 2008. SVB’s failure was then followed by another over the weekend, crypto-focused Signature Bank. The news, not surprisingly, caused market participants to speculate if there would be another shoe to drop.

The U.S. government stepped in to prevent spillover by offering SVB customers access to uninsured deposits. In addition, by designating SVB as a systemic risk to the banking system, the Federal Reserve (Fed) and U.S. Treasury Department can use emergency lending authority to help prevent runs on other banks. The government’s actions to backstop deposits and provide short-term funding to banks that need it reduces the odds of a systemic crisis.

Given the increasing pressures on our financial system, these events are an important reminder to stay within the FDIC insurance limits. The limits are $250,000 per individual per bank (For example, a Joint account would be FDIC insured up to $500,000 at one bank).

We also wanted to provide an overview of your investments managed by Leonard Rickey Investment Advisors, PLLC. We do not hold your assets – that is the custodian’s job. We currently use TD Ameritrade and LPL Financial as our primary custodians. TD Ameritrade was purchased by Charles Schwab in 2020 effectively making Charles Schwab the custodian of these assets.

Custody is significantly different than your assets held at a bank. Your assets are kept separate and distinct. The SEC’s Customer Protection Rule (Rule 15c3-3) safeguards customer assets by preventing firms from using customer assets to finance their proprietary businesses. It violates SEC rules for firms to merge customer assets with their own.

In addition, your accounts are covered by SIPC insurance. SIPC protects your assets in the event of Broker Dealer failure in a brokerage account up to $500,000 per customer. Since custodians must keep client assets segregated, a SIPC claim would only arise if the custodian failed. In the unlikely event of insolvency, these segregated assets are not available to general creditors and are protected against creditors’ claims. There are reporting and auditing requirements in place by government regulators to help ensure all firms comply with this rule.

In addition to SIPC, there is an extra level of coverage. Schwab maintains “excess SIPC” insurance protection for securities and cash up to an aggregate claim amount of $600 million and LPL Financial maintains coverage up to a total of $750 million. This coverage helps ensure customer claims will be covered in the event of a brokerage firm failure and funds covered by SIPC protections are exhausted.

Unlike LPL Financial, Charles Schwab is also a bank, but the custody and banking operations are separate. Cash accounts utilize the banking operations, but we have ensured that no account is above the FDIC limits. Walt Bettinger, Charles Schwab’s CEO, maintained that Charles Schwab is conservatively managed and clarified a few points in an article on the Schwab.com website. You can read the full article here.

Please reach out to your advisor for any questions or concerns.

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2023 2nd Quarter Investment Commentary

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Tax Planning

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2023 1099 Release Information

2023 Year-End Tax Planning

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Cyber Security

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Cybersecurity 101

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Important Disclosures

Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein and take no responsibility therefore.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.