Q. I have more than $100,000 invested in different U.S. and Canadian stocks with my bank’s brokerage. If the brokerage goes bankrupt, am I protected?
– Chi L.
A. There are many risks in investing, but the risk of losing your money as a result of your brokerage going bankrupt is small and shrinking.
Full-service brokerages, online brokerages and investment dealers who trade stocks and bonds are regulated by the Investment Industry Regulatory Association of Canada (IIROC) and are automatically members of the Canadian Investor Protection Fund (CIPF).
The role of the CIPF is to step in if a member firm becomes insolvent and is unable to return property it held on behalf of clients. You are covered for $1 million for all non-registered accounts and TFSAs combined, another $1 million for RRSPs and RRIFs, and a further $1 million for RESPs. For full details, see the CIPF website.
Note that mutual fund dealers are not regulated by IIROC and are therefore not covered by the CIPF. However, the Mutual Fund Dealers Association (MFDA) provides similar coverage (except in Quebec) through the MFDA Investor Protection Corporation.
The insolvency of a brokerage or dealer isn’t common, but it happens. The most high-profile in recent years was MF Global Canada in 2011. More recently, Octagon Capital needed over $6.1 million in CIPF funds to compensate its clients in 2015.
While you can feel confident that you’re protected in the event of your brokerage’s insolvency, you should understand what the CIPF does not cover. You’re not protected if your stocks or funds lose money, even if you feel your advisor recommended investments that were inappropriate. Nor does the CIPF guard against fraud or misconduct by an advisor. In these cases, your recourse is to make a complaint to the body that regulates your advisor: generally IIROC or the MFDA. (In Quebec, clients are covered by the Autorité des marchés financiers.)
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