All brokers are subject to strict government regulation, whether they do business online or the old-fashioned way. If a brokerage fails, SIPC tries to transfer all of the securities that your broker holds in street name to another firm. If the investments aren't available, SIPC will give you cash based on their value when the brokerage went under. The process can take from one to three months, or up to a year if the firm's records were a mess. SIPC won't protect you against fraud, inappropriate investments or market losses while your account is in limbo.
Most brokers buy supplemental insurance.
The Kiplinger Washington Editors, Inc.