How Safe Is Your Money? A Look At Investor Protections In Canada

While we might worry about the stock market, we take for granted that when we work with a financial institution or advisor, our money is safe and secure. 

But just how safe is our money? What protections are in place for Canadians in the event a wealth management firm, ETF or fund provider, or even a bank goes bankrupt?

 

If Your Dealer Fails

Generally, when you work with an independent wealth management firm, your investments are held by a third-party custodian. 

There are some cases where banks or registered firms can act as custodian for their own clients, however significant walls are put up to separate their custodial business from the rest of their operations. 

In both cases, the custodian holds the assets in trust for you, and your assets do not form part of their operations.

That means if your wealth management firm fails, your assets, being held by a custodian, would not form part of any bankruptcy proceedings or creditor claims on that wealth management firm.

 

If The Fund Company Fails

Likewise, when you buy shares or units of an Exchange Traded Fund or Mutual Fund, the holdings of the fund are held in custody by a third-party. So again, if the fund company fails, you still own the underlying stocks and bonds of the fund, and the value of these assets can be returned to you.

You would be given advanced notice that the company was closing its doors and given the choice of selling the units on the open market or having them liquidated for you. The fund price shouldn’t be affected, since the price reflects the assets it holds, not the value of the ETF company itself.

 

If The Custodian Fails

So, you’re safe if the wealth management firm and the fund company go belly up. In both cases, custodians are holding your investments in trust for you.

So what if the custodian fails?

In most cases, custodians act simply only as record-keepers. The custodial business of these firms is separate from any other business lines they may have. If the custodian becomes insolvent, the trustees should be able to claim the securities held on their behalf, and thus your assets wouldn’t be involved in the company’s liquidation. 

In this case, as in the two cases above, a more likely scenario is another company would step in and buy the failing firm. In such a case your assets would be transferred to the new company.

The bigger issue in these examples is liquidity. There may be lengthy court proceedings that prevent you from accessing your money in a timely manner.

 

If Your Bank Fails

Some of Canada’s larger banks have been around for over 150 years. Collectively known as the ‘Big 6’, they dominate the Canadian financial landscape and employ hundreds of thousands of Canadians.

While the probability of one of them collapsing is low, it’s not impossible. 

The Bank of Canada, Canada’s central bank, recently released a report that simulated a large recession and its impacts. 

The goal was to assess whether the Canadian banking system could withstand a severe and prolonged recession, without significant government support.

The scenario included a 30% drawdown in real estate values, and GDP and unemployment rates far worse than we saw in the past three recessions. 

The result?

They are resilient. While they would incur large losses, at no point would any of them be under threat of breaching capital requirements. They would remain solvent with no risk of collapse. 

If a bank did fail, new legislation passed in 2018 would limit the consequences. Under the new bail-in regime, rather than leaving taxpayers with the bill like we saw in the US Great Financial Crisis, it’s the stock and bondholders that would suffer.

It allows the Canadian Deposit Insurance Corporation (CDIC) to take control of the failing bank and convert long-term bonds, which are a liability to the bank, into equity. By eliminating the banks liabilities, it allows the bank to maintain the safety of its deposits.

It should be noted that although regular bank products, like chequing, savings accounts and GICs, are liabilities for the bank, they are specifically excluded from being converted into equity. Only the long-term bonds are affected.

It’s also worth noting that a Big 6 bank failing is among the worst possible financial catastrophes the country could face, and it’s highly unlikely the government would stand idly by in such an event. There are other powers at their disposal to resolve a failing bank, and they would certainly use them.

In addition to all of this, Canada has several protections that provide insurance against consumer losses.

CIPF

The Canadian Investor Protection Fund backstops all IIROC regulated dealers. Membership in the CIPF is compulsory for all IIROC-regulated firms.  

Their role is to provide limited coverage in the event thatif your dealer fails, and your assets are not returned to you. Coverage is limited to $1,000,000 per account type, per person:

  • $1M for aggregate TFSAs, holding companies, and non-registered accounts 
  • $1M in aggregate for registered accounts like RRSPs, LIRAs, RRIFs, 
  • $1M for RESPs where you are the subscriber
  • $1M for other business accounts

For example, let’s say you own two ETFs in your RRSP. We’ll call them ONE and TWO. Assume each ETF has a current market value of $1M. 

If your wealth management firm went bankrupt, the custodian’s job is to return your assets to you. If for some reason they were able to return all your shares of ONE, but none of your shares of TWO, the CIPF would step in and provide you with the missing $1M.

Note the value you would receive is based on the value of the ETF shares at the date of insolvency.

While the CIPF has had to step in numerous times in its history, it prides itself on a 100% success rate historically in recovering investor funds up to the prescribed limits. 

Other Protection

There are other forms of protection as well:

  • The Canada Deposit Insurance Corporation insures bank deposits up to $100,000 per account type, per institution
  • Credit unions have their own separate coverage. In BC, Alberta, Saskatchewan, and Manitoba, 100% of your deposits are insured.
    • Other provinces vary from $100,000 to $250,000
    • Ontario insures non-registered accounts up to $250,000, and registered accounts have unlimited protection
  • Every life insurance company authorized to sell insurance in Canada is required, by the federal, provincial, and territorial regulators, to become a member of Assuris. Assuris covers up to 85% of your life insurance benefits in the event your insurance company fails.  https://assuris.ca/how-am-i-protected/list-of-assuris-members/

 

So how safe is your money? About as safe as it gets. We’re fortunate to have one of the most stable and secure financial industries on the planet.

While no system is perfect and there is room for improvement, I’ve got better things to worry about. 

 

Mark McGrath, CFP®, CIM®, CLU®

Sweeney Bride Strategic Wealth Advisory      

Wellington-Altus Private Wealth Inc.

The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.

Amy Sweeney

AMY SWEENEY

Associate

Amy was born and raised in Squamish, is David’s oldest daughter and now the newest member of the Sweeney Bride team. Many may recognize her as she has worked periodically for the team for over 20 years. For the past five years, she has gained administrative experience and more running her own business as a Kinesiologist after completing a bachelor’s degree in Kinesiology at the University of British Columbia in 2016. Now, Amy is officially ready to join the finance industry. Currently residing in North Vancouver, Amy spends all her “free” time raising Dave’s two wonderful grandchildren.
Liam Hill

LIAM HILL

Associate Investment Advisor

Originally from Sydney, Australia, Liam moved to the Sea to Sky region in 2013, leaving the beaches behind to embrace the mountains. He hasn’t looked back since and enjoys exploring the wilderness by both land and sea.

Liam’s unique strength lies in his capacity to adapt and fine-tune strategies to match the ever-changing financial world. He’s a passionate advocate for adaptability and flexibility, believing these traits are crucial for securing financial well-being.

Liam holds the Canadian Securities Course qualification and is currently pursuing the Chartered Investment Manager (CIM) designation.

He shares his industry knowledge and business skills to empower individuals, families, and businesses on their path to financial success.

Liam is committed to educating our clients about the financial services industry and helping them make the most of available resources to achieve prosperity.

SHARON FIELDS

Administrative Assistant

Sharon worked for Sweeney Bride from 2014 to 2016 and recently rejoined the team as an Administrative Assistant in 2021. She has years of administrative experience in a variety of industries including working in legal and accounting firms. She enjoys being detailed, organized and efficient. When not hard at work, she enjoys exploring the great outdoors with her dogs, playing co-operative strategy board games and relaxing while sipping a nice Craft beer.

Carrie Freitag

CARRIE FREITAG

Administrative Assistant

Carrie is the newest member of our team and is our Administrative Assistant. She has previous industry and administrative experience and her fascination with the finance industry is rapidly growing. Carrie moved to BC in 1994 from Ontario and never looked back. While not working she loves hanging out with her two kids, awesome cat Leo, and enjoys a competitive game of 21, and her gardens.

Katie Norton

KATIE NORTON

Associate

Katie is a Business Administration graduate who joined the Sweeney Bride team in 2016. She takes care of on-boarding as well as managing account administration for our existing clients. She works hard to ensure the clients feel supported throughout the on-boarding process and is always available to answer questions.

A BC resident since 1997, Katie and her husband moved to Squamish to raise their two girls. They enjoy all of the outdoor activities and natural beauty that Squamish has to offer.

Liz Woodsworth

LIZ WOODSWORTH

Office Manager

Liz joined the Sweeney Bride team in 2015 as office manager. She is the gatekeeper in the office and is the face that greets you as you come through the door. If she can’t help you, she will ensure you speak with someone who can. Liz is a long-time Squamish local; when not in the office she spends her days soaking up all that this town has to offer while chasing her two active boys. Liz brings her valuable organizational skills and enthusiastic attitude to the team. 

Janet Bride

JANET BRIDE

CFP®, CIM® | Senior Wealth Advisor

Janet Bride is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 15 years’ experience in the Industry Janet holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Janet grew up in Ontario and moved out to beautiful British Columbia in 1995 with her husband, Paul, who is an adventure travel photographer. Her passion is to travel the world. Always interested in exploring different cultures and landscapes, she is grateful to have traveled to over 50 countries across 6 continents. She also enjoys continuous learning, spontaneous adventures with family and friends, and an active lifestyle in the Sea to Sky. Janet is proud to be a Big Brothers Big Sisters Alumni member since 2004.

She is highly motivated by helping people reach their financial dreams by creating comprehensive financial plans for individuals & families. While using a holistic approach to wealth management, she specializes in tax strategies and her goal is to encourage savings and help build our client’s wealth for a healthy and prosperous future.

David-Sweeney

DAVID SWEENEY

CFP®, CIM® | Senior Wealth Advisor

Dave Sweeney is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 31 years’ experience in the Industry Dave holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Dave has lived in Squamish for most of his life. Married to his wife Donna, since 1987, they proudly have 3 lovely daughters, Amy, Danielle and Jamie. With his time in Squamish, it has allowed him an opportunity to become involved in many valuable groups.

Dave is a retired Captain of Squamish Fire Rescue after 35 years of service. Another passion was sports and he has been a coach for Squamish Youth Soccer Association where he dedicated 10 years to coaching girls Rep teams. Additionally, he is a former member and Treasurer of the Sea to Sky Community Services Board. Dave is a frequent contributor to Mountain FM’s Mountain Monitor, providing general advice and financial commentary.

Dave continues his volunteer work as Treasurer for both the Squamish Hospital Foundation and the Squamish Downtown Business Improvement Association. He is also a sitting Board member of the Squamish Community Foundation.

Professionally, Dave started his Financial Planning practice in 1994. After living through both his parents’ demise and witnessing what a lack of understanding they had, he realized what sound planning techniques could do to ensure that an untimely death did not destroy one’s lifetime work. For over 20 years, he has made it his passion to assist others in not facing the same plight.