I don't have any answers when it comes to extreme worst-case "black swan" scenarios. There are two things you should keep in mind that I'm not sure you're aware of.
a) The distinction between what I'll call "promising something" and "holding something." An example of "promising something" is a gift card or a gym membership or an airline ticket. You pay them money now. They promise that when the time comes you can use the gift card, visit the gym, or get on the airplane. An example of "holding your property" would be a bank safe deposit box.
In the case of "promising something," you are really worried about the firm's solvency, because keeping the promise depends on their continuing to operate. If they fold, everything descends into legal bankruptcy limbo. The store is closed, the gym is locked, there is no plane to get on.
In the case of "holding your property," it's your property. You can put a stack of bills or a jade pendant into a safe deposit box. They are there the day you put them in and they stay there. The bank doesn't take them out, use them itself. They are not promising you a stack of bills or a jade pendant. They stay in the box. No matter what happens to the bank's business, they stay there and you can probably get in somehow and get them.
The point is this. A brokerage account, and a mutual fund, are examples of "holding something." You give them money and right away they use the money to go and buy shares, mark them with your name, and keep them. It's not a fractional-reserve thing like a bank. If you invest $1,000, it buys however many shares $1,000 will buy, say 21.78, marks with your name, and held. Your statement shows 21.78 shares from day one. The brokerage had 1,000,000 shares, you place your order, they place theirs, they now have 1,000,021.78 and their computers know that 21.78 of them are yours.
b) The distinction between mutual fund risk and brokerage risk. I'm going to begin with mutual funds because it's less well understood. I didn't understand it for years. When you buy shares of a mutual fund, the mutual fund promptly buys the shares of stock, which are held in the mutual fund's account at a "custodial bank," often JPMorgan Chase for Vanguard funds. This is an example of "holding something." Protection is provided by the regulations of the Investment Company Act of 1940, the requirement for a separate custodian, etc. The SIPC is not involved. If you only buy Vanguard mutual funds "at Vanguard," your statement only shows the name "The Vanguard Group" and there is no SIPC symbol printed on the statement.
I have no idea how good that protection is. Everyone pretty much assumes it's perfect. I don't know of any historical cases that would bear on it, but then there is often a paucity of public information about extreme events. In any case, there isn't any magic $500,000 number. And there is no government insurance. The mutual fund company and its custodian bank carry private insurance called "fidelity bonds;" I'd dearly like to know how often they've ever had to make a claim. Because it's a "holding" situation and not a "promise" situation, in theory, if a mutual fund company were to become insolvent, you shouldn't lose anything, because all the stocks and assets that are "in" your mutual fund shares would all continue to exist. What happens in the real world, in what order and how or when you get your stuff back I have no idea and would like to know.
SIPC protection is a separate layer and deals with a separate, specific risk. It's best understood by looking at the historical events that led to its creation. In the late 1960s brokerages were in a bad way, many were failing. Electronic data processing was new, and the capability of keeping track of accounts and stock certificates, the "back office operations," were stressed and apparently sloppy. The New York Times reported that there were rumors that it wasn't just sloppiness, that there was organized crime involvement, and there was at least one actual case where stock certificates that were supposed to be at a brokerage were physically missing, and later discovered to be physically at a labor union's pension fund office.
All the that SIPC does is to guarantee the accuracy of your brokerage statement--if it shows you own 100 shares of GE, the brokerage really bought them and is really holding them for you, and if for any reason it can't find them when you sell them, the SIPC is supposed to make good.
Notice that mutual fund shares can be held directly, or they can be held for you at a brokerage. In either case, there is what I might call "mutual fund risk," no SIPC involvement, protected by the provisions of the Investment Company Act of 1940.
Holding mutual funds at a brokerage there are two risks: the mutual fund risk is still there and gets no extra protection. In addition to that there is also "brokerage risk," the extra risk because you are holding the funds indirectly, and the SIPC protection counters only that extra "brokerage risk."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.