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Clarification regarding Wealthsimple Cash and Wealthsimple Save
January 27, 2020
1:30 pm
Doug
British Columbia, Canada
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Further to this thread, I thought I would separate the discussion with a more specific subject line for findability reasons. Okay, to Norman, Briguy, and others who may be interested, I believe I've found out what happened to Wealthsimple Save.

Short answer: in June 2019, it was renamed from the Wealthsimple Smart Savings Account to Wealthsimple Save. At some point between then and January 2020, when Wealthsimple Cash launched, Wealthsimple Save was discontinued and made a grandfathered account. It is no longer offered to new clients. (See: https://help.wealthsimple.com/hc/en-ca/articles/360024448493-What-s-the-difference-between-Wealthsimple-Save-and-Smart-Savings-)

The difference is that Wealthsimple Save accounts are like a single savings account that is underpinned by a series of broker-held nominee form HISAs eligible for CDIC insurance up to $100,000 per depositor and per issuer. You still receive a separate T5, apparently, from each issuer (which itself is odd since, normally, the carrying broker will issue you one T5).

Nevertheless, Wealthsimple Cash is a prepaid credit card issued by Peoples Trust Company, who handles the card issuance and certain administrative functions. Wealthsimple Payments, Inc., the issuer of the Cash account, does hold your funds in Canadian financial institutions, so it is CDIC insured to $100,000 per CDIC member issuer to Wealthsimple Payments Inc. as the unique depositor, but that's it. CDIC insurance does not apply. This is all on the back-end in terms of where your funds are held. Your funds are no more protected than you applying a credit balance to your credit card account.

Yes, you are protected, notionally, to $1 million in the event that Wealthsimple's carrying broker, Canadian ShareOwner Investments Inc., which it wholly owns, fails and doesn't have your funds on its books, but that process is by no means as streamlined as the CDIC process to make depositors whole.

Also, in the event one of the underlying banks fails, your CIPF protection will not protect you. Wealthsimple Payments, Inc., who holds your funds, is protected only to the first $100,000.

Crucially, though, funds placed in a Wealthsimple Cash account are not considered deposit instruments.

For that reason, Briguy et al., if you are considering opening an account, I strongly advise you limit the amount you put in your account to $1,000.00 CAD (no more than $5,000.00 CAD)—in short, whatever you prepared to potentially lose. sf-cool

This is a payment card that pays you interest, nothing more. No CDIC insurance. Do not pass go.

I actually wouldn't be surprised to see them face some class-action lawsuits over this as they use a number of weasel words and language that is misleading, in my view.

Cheers,
Doug

January 27, 2020
2:04 pm
Briguy
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@Doug -
The Globe and Mail article on the new Cash account says the bank accounts will be covered up to 1 Million dollars:

CEO Michael Katchen would not reveal which banks are partners in the program, but confirmed that Wealthsimple does not have a banking licence. Rather, the two unnamed banks will hold client assets and client money will be protected up to the $1-million limit guaranteed by the Canadian Investor Protection Fund (CIPF).

January 27, 2020
2:53 pm
Doug
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Briguy said
@Doug -
The Globe and Mail article on the new Cash account says the bank accounts will be covered up to 1 Million dollars:

CEO Michael Katchen would not reveal which banks are partners in the program, but confirmed that Wealthsimple does not have a banking licence. Rather, the two unnamed banks will hold client assets and client money will be protected up to the $1-million limit guaranteed by the Canadian Investor Protection Fund (CIPF).  

@Briguy, if the Globe is referring to it as a "bank[ing] account," that's factually inaccurate, and should be corrected. It is a prepaid credit card/prepaid card/payment card that pays you interest. Note that I didn't say deposit interest because it's not a deposit. It's protected by Canadian Investor Protection Fund in as much as it's part of your individual or joint account, as applicable, that you hold with Wealthsimple Invest (its robo-advisor) or Wealthsimple Trade (its no-fee discount brokerage platform). Note, too, this limit is per unique account holder, and is not $1 million per Wealthsimple Trade, Invest, and Cash account one holds.

The two unnamed banks hold Wealthsimple Payments, Inc., funds in a trust account similar to a real estate or property management's trust account that holds client assets. It is not a trust account that is separately segregated for CDIC insurance purposes. Note, too, that Wealthsimple Cash goes to great pains to avoid using the term "deposit" or "deposits." If they did, CDIC and OSFI would be on their back so fast it would make their head spin.

This is no different than one who loads funds onto their Stack, Koho, or Mogo prepaid credit card. The funds are not deposits.

CIPF protection does NOT protect your funds in the event of the bank's failure whatsoever. It only protects you, to the $1 million, in the event that Canadian ShareOwner Investments, Inc., were to abscond with your funds or become insolvent and not be able to pay its liabilities. This is useful protection, don't get me wrong, but it's not deposit insurance. Does that clarify it more?

Put another way, let's say you hold the Mawer Balanced Fund (MAW104) in a discount brokerage account. If MAW104 were to decline in value or go to zero (unlikely as it is a globally diversified, balanced mutual fund, as the name suggests), CIPF would not protect you because it doesn't protect against investment losses. It protects you only in the event your discount brokerage firm becomes insolvent or is otherwise able to pay its liabilities. If you'd held MAW104 directly through a mutual fund dealer (distributor), the Mutual Fund Dealers Association Investor Protection Corporation would protect your account to $1 million as well under terms similar to CIPF. This is no different: the only party protected by CDIC insurance in this case is Wealthsimple Payments, Inc., to $100,000 of their $500 million to $1 billion in client assets.

Cheers,
Doug

January 27, 2020
3:13 pm
Briguy
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As you would say, I'll take a hard pass on this. I have Stack and Revolut for foreign ATM, Scotia Passport Visa for foreign purchases (and lounge passes and travel insurance), Rogers and Presidents Choice and Triangle CCs for local purchases, RRSPs with Hubert and Saskatchewan Pension Fund, TFSA with Achieva, HISA with LBC and Motive, and ITrade for stock purchases. I now have 5 free Itrade trades a year with the Ultimate package chequing account plus unlimited free ETF purchases and sales of XGRO and XBAL, so I have no need of SimpleWealth.

With the SimpleWealth you may lose your money if the bank that's holding your money fails, you will lose on cash back if you use the debit card instead of a credit card, and you may get your account hacked if you accidentally swipe at a terminal with a skimmer attached.

January 27, 2020
3:22 pm
Doug
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Briguy said
As you would say, I'll take a hard pass on this. I have Stack and Revolut for foreign ATM, Scotia Passport Visa for foreign purchases, Rogers and Presidents Choice and Triangle CCs for local purchases, RRSPs with Hubert and Saskatchewan Pension Fund, TFSA with Achieva, HISA with LBC and Motive, and ITrade for stock purchases. I now have 5 free Itrade trades a year with the Ultimate package chequing account plus unlimited free ETF purchases and sales of XGRO and XBAL, so I have no need of SimpleWealth.

With the SimpleWealth you may lose your money if the bank that's holding your money fails, you will lose on cash back if you use the debit card instead of a credit card, and you may get your account hacked if you accidentally swipe at a terminal with a skimmer attached.  

All true, though to be clear, your Revolut and Stack cards (not sure why you'd need both; I'd personally pick the better of the two—and, actually, my preference would be for Mogo or Koho due to better no-ATM owner surcharge cash access) are the same as Wealthsimple Cash. Keep your balance on your Revolut and Stack cards low; I'd recommend no more than $1,000 on each at any given time. It's completely unprotected funds.

As to the Scotia Ultimate Package Account, I'm disappointed in that in that you still have to hold a large balance in your chequing account to waive fees. I'm surprised you'd go with that. $4,000 @ 3% works out to $120/year, so you're implicitly paying $10/mo. to keep that package. It would've been better if they'd made it like the CIBC Smart Plus Account whereby you'd pay no monthly fee if you hold at least $100,000 in your iTRADE or other Scotia accounts.

Cheers,
Doug

January 27, 2020
3:39 pm
Briguy
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@Doug
I have Mogo, but I earn a higher rate with Rogers CC (1.75%) compared to the 1.5% I get with Mogo for local purchases. And for foreign purchases I get 4% cash back with Rogers, and 3% with Mogo. For foreign ATM- Stack and Revolut have no foreign transaction fees and no ATM charges other than what local ATMs charge, and there is a list of ATMs that don't charge anything. And Revolut foreign currency conversion rate is supposedly the best one of all the cards.
Just checked for Mogo- there is a $1.50 fee for domestic ATM withdrawals and $3 for international ATMs, a $1.99 inactivity fee, and a 2.5% fee for foreign currency purchases, so not much use for foreign ATM or domestic ATM

I'm sticking with Scotiabank because of inertia, and I feel I'm getting the 10.00 a month value for lost interest
ie. free Scotia credit card, free American dollar account and free 2nd chequing account ( of a lower tier ), free safety deposit box, free cheques, free bank drafts, and 5 free Itrade trades. The main negative is having to go into the branch for more than you would for a different big 5 bank.
Scotia Ultimate package chequing account is my main daily driver, but I still have accounts at many other FIs although only significant amounts of money at a couple ( like Bill ).

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