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You might already know that any deposits you have in a Canadian bank account are insured by the Canada Deposit Insurance Corporation in the event the bank runs into financial troubles, but did you know there’s also a similar program for your investments?
The Canadian Investor Protection Fund (CIPF) is designed to protect Canadian investors in certain situations. But what is the CIPF, exactly, and what are its limitations? Let’s take a look.
CIPF stands for Canadian Investor Protection Fund. It’s a not-for-profit organization that helps protect the money in Canadians’ investment accounts. CIPF’s mandate was established by Canada’s provincial and territorial securities regulators, and offers protection to customers who may suffer financial losses if a member firm becomes insolvent.
In simple terms, this means that if the firm or institution holding your investments runs into financial trouble and has to file for bankruptcy, your investments are insured/secure if they are a member of the CIPF.
The CIPF itself is funded by the members of its organization.
CIPF coverage extends primarily to what’s known as missing property. This may include:
Coverage is only provided to eligible clients whose funds are not returned to them following the investment firm’s insolvency – hence the term “missing.”
While the CIPF offers coverage for losses in cases of an investment firm’s insolvency, it’s also important to understand what type of coverage is not included in the CIPF’s mandate. CIPF coverage does not include the following:
When purchasing investments, you want to ensure your money is protected. You can do so by checking if the company is a member of the Canadian Investor Protection Fund.
To become a member firm, the company must be part of the New Self-Regulatory Organization of Canada (New SRO). The New SRO is responsible for overseeing all investment dealers, mutual fund dealers, and trading activity on Canada’s debt and equity marketplaces.
Some types of CIPF-insured firms include:
CIPF coverage limits are different depending on whether you’re investing as an individual, a corporation, partnership, trust, or unincorporated organization. Coverage is per person per investment dealer.
For individuals, the CIPF offers these general protection limits:
For corporations, partnerships, and unincorporated organizations, the rules are a bit different.
According to the Canadian Investor Protection Fund’s website, “A corporation, partnership or unincorporated organization holding an account with a member firm is generally considered to be separate from its owners or partners for purposes of determining the limit on CIPF protection. The limit on CIPF protection for these types of clients is generally $1 million for all accounts combined. Some exceptions apply.”
If you have a joint account (such as with a spouse) the CIPF assumes both parties’ interest in the account is equal, and offers protection for each person’s interests. Keep in mind that the CIPF will only provide compensation for the market value of the missing investments as determined at the date of the firm’s insolvency.
Let’s say you worked with a financial adviser to set up a portfolio of investments. You purchase 100 shares of stock for $200. A year later, the company your adviser worked for goes out of business and your shares are worth only $150 on the day the company became insolvent. The CIPF would help make sure the value of your investments on the day the firm became insolvent — in this case, $15,000 (100 shares @ $150/each) — is returned to you. In other words, the CIPF doesn’t guarantee the original value of your investment.
To make a claim with the Canadian Investor Protection Fund, a set of procedures must be followed. If the CIPF denies your claim, you can file an appeal within 60 days.
Yes, the CIPF covers stocks, as shares are considered securities. Securities include things such as stocks, bonds, GICs, and mutual funds. In order to be eligible for coverage, stocks must be held by an investment firm that is a CIPF member. Stocks are not covered if you own them directly.
CIPF coverage is automatic when you open an investment account with a member firm. There’s nothing you need to do in order to sign up. You also don’t have to pay any premium for coverage, and you’re eligible for protection even if you’re not a Canadian citizen or resident.
Self-trading investment platforms like Wealthsimple and Questrade are incredibly popular among DIY investors. Generally speaking, self-directed investments at both Wealthsimple and Questrade are covered under the CIPF but managed investments or pre-built portfolios are not. We encourage you to visit each company’s website to learn more.
