Years ago, investors registered shares in their names and put the certificates in a safe-deposit box. They did that because worried that if their broker went bust they could lose their shares. Canadian Investor Protection Fund, or CIPF, eliminated this risk.
Government-sponsored protection for all Canadian investors
Today, it makes sense to let your broker hold your shares—with two exceptions: when you want to enroll in dividend re-investment plans, or DRIPs, or if you’re ‘trigger happy’.
To enroll in a DRIP, you need to register the shares in your name. If you’re ‘trigger happy’—that is, if you react and sell every time you hear scary news—the time that it takes to get to your safe-deposit box and hand over your certificate to your broker gives you a ‘cooling-off’ period. In other words, you have time to reflect on the wisdom of selling.
The CIPF protects you against losses from the bankruptcy of member brokerage firms—be they full-service or discount firms. The Fund covers your losses of securities and cash in each account—up to a million dollars—due to the bankruptcy of a member firm. Even better, you have full coverage at each CIPF member you deal with. So if you’ve invested over a million dollars, you can gain full protection by keeping under a million dollars in a single member brokerage firm.
Each account is covered
The CIPF covers each of your accounts as part of your general account or as a separate account. Your general account includes TFSAs (Tax-Free Savings Accounts), cash, margin, short sales, options, futures and foreign currency accounts. Separate accounts include registered retirement accounts, joint accounts, testamentary trusts, genuine trust accounts, personal holding corporations and partnerships.
Your separate accounts are not combined with other separate accounts unless you hold them in the same capacity or in the same circumstances. For example, if you hold two personal holding corporations, they would be combined and treated as one account. Similarly, if you have several registered retirement accounts the CIPF will combine them and treat them as a single separate account. As for joint accounts, your proportionate interest gets combined with your general account.
You should make sure your brokerage firm is a CIPF member. You can check at www.cipf.ca. Also, members must use the CIPF’s official symbol at their offices and in account statements sent to you.
If your brokerage firm goes bankrupt, you have 180 days to file a claim. The 180-day period begins on the date of bankruptcy or the date of insolvency as determined by the CIPF. Claims are valued at the date of the bankruptcy.
Benefit from these five advantages
The CIPF will determine your net equity in each of your accounts. The CIPF does not, of course, cover losses you might suffer if your investments drop in value. This, in turn, provides you with five main advantages:
1. Discount brokers charge extra money to register shares in your name. Let the firm hold your shares and you skip these fees.
2. You can sell fast. This is important with speculative stocks that can suddenly soar or plunge.
3. You save yourself a trip to your safe-deposit box and a second trip to your broker every time you want to sell. Non-Key stock Redline Communications Group, which we regularly reviewed on The Back Page, has sold out to a Texan company. If you hold Redline with your broker, you’ll receive 80 Canadian cents for each share. If you hold Redline in a safe deposit box, you’ll have to take a number of extra steps to sell.
4. You’ll keep your portfolio up to date automatically. When a company such as Non-Key stock Bombardier consolidates your shares, you’ll see it in your statement of account.
5. Replacing a lost or misplaced certificate is a long and complicated undertaking
This is an edited version of an article that was originally published for subscribers in the July 15, 2022 issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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The Investment Reporter •8/18/22 •