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Wealthsimple launches Smart Savings Account
June 25, 2020
5:57 pm
Briguy
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Norman1 said

Doug said

Observation: Although likely classified as "cash and cash equivalents" on one's brokerage statements, we don't know this is treated as a straight cash balance in a brokerage account. I suspect it's not; it is a cash balance held, essentially, as either security for a prepaid payment card account administered by Wealthsimple Payments, Inc., who holds the actual funds in its own name in its own bank account. …

That's not what their product page says. Their product page says the balance in the Wealthsimple Cash accounts are with the broker Canadian ShareOwner Investments, Inc.

Your description of CIPF is also incorrect. CIPF insures the contents of client accounts owed to the broker's clients. CIPF does not cover anything that is owed to the broker or owners of the broker.  

Christopher Liew agrees with @Doug that if the 1 or 2 banks where WealthSimple Cash stores your money go bankrupt, your money will not be reimbursed by CDIC.

https://www.highinterestsavings.ca/2020/06/canadian-deposit-insurance-cdic-vs-cipf-vs-provincial-coverage-should-you-care/

June 25, 2020
6:34 pm
Norman1
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Briguy said

Christopher Liew agrees with @Doug that if the 1 or 2 banks where WealthSimple Cash stores your money go bankrupt, your money will not be reimbursed by CDIC.

https://www.highinterestsavings.ca/2020/06/canadian-deposit-insurance-cdic-vs-cipf-vs-provincial-coverage-should-you-care/

Why would CDIC be involved? The balance of each WealthSimple Cash account isn't held in an individual deposit account with a CDIC member.

Indications are that the money of each WealthSimple Cash account is a free credit balance of an individual brokerage account with CIPF member Canadian ShareOwner Investments Inc. This from the fine print at the bottom of Wealthsimple Cash: Spend, Save, and Earn Interest:

… Our Trade and Save products are offered by Canadian ShareOwner Investments Inc. (ShareOwner), a registered investment dealer in each province and territory of Canada. … Our Cash product is offered by Wealthsimple Payments Inc., a FINTRAC registered money services business. Money in your Cash account is held in an account with ShareOwner.

It really doesn't matter what Canadian ShareOwner Investment does, behind the scenes, with the cash from those free credit account balances. Like any other CIPF member, Canadian ShareOwner Investment doesn't have to segregate that cash and can use the cash as part of its ordinary business.

June 25, 2020
8:09 pm
Briguy
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@Norman1 If Wealthsimple goes bankrupt CIPF will facilitate the return of your money that was held at the 2 banks, or if that money goes missing, they will return it to you out of their own pocket. However if the bank itself goes bankrupt you are out of luck, as stated on Wealthsimple's web site:

ShareOwner deposits the cash you fund into your Wealthsimple Cash account in trust for you at an account with one or more federally regulated, Schedule I institutions that are considered domestically significant banks (DSIBS). You can find more information on what that means at this link. We carefully select these banks using a set of criteria that evaluates the banks’ stability and security.

The accounts at these banks are not covered by Canadian Deposit Insurance Corporation.

https://help.wealthsimple.com/hc/en-ca/articles/360024450033-How-do-you-keep-my-money-safe-

I guarantee you if you phoned up the CEO of Wealthsimple he would agree with this.

June 25, 2020
10:08 pm
Norman1
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That is what Canadian ShareOwner Investment does, behind the scenes, with the cash.

The balance that one is owed is actually held in a Canadian ShareOwner Investment account and not in an account at a bank as the paragraph before the one you quoted states:

How do you keep my money safe?

Balances in your Wealthsimple Cash account are held in an account with Wealthsimple’s affiliated custodial broker, Canadian ShareOwner Investments Inc. (ShareOwner). ShareOwner is a member of the Investment Industry Regulatory Organization of Canada. As a result, your accounts are protected by the Canadian Investor Protection Fund within specified limits in the event that ShareOwner becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF's website.

ShareOwner deposits the cash you add to your Wealthsimple Cash account in trust at an account with one or more federally regulated, Schedule I banks. We carefully select these banks using a set of criteria that evaluates the institutions’ stability and security. The accounts at these banks are not covered by Canadian Deposit Insurance Corporation.

Consequently, it is Canadian ShareOwner Investment that owes one the balance and not the banks that Canadian ShareOwner Investment deposited the cash in.

Those bank accounts are in trust. As such, their balances are owed to and controlled by the trustee, Canadian ShareOwner Investment, and not to or by the trust's beneficiaries.

I think this is the point of confusion: Do funds transferred to WealthSimple Cash

  1. become part of the free credit balance of an individual ShareOwner brokerage account or
  2. purchase a cash-like investment that is held in an individual ShareOwner brokerage account?
June 26, 2020
3:56 pm
Briguy
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@Norman1 By giving different conflicting wording in different parts of their web pages it seems like they are trying to obfuscate matters. Seems almost a bit suspicious.

June 27, 2020
8:05 am
Norman1
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Could also be just sloppiness. They are three half-baked answers to one question.

I just bring the three answers together, read them together, and try to deduce the full answer.

From the fine print at the bottom of Wealthsimple Cash: Spend, Save, and Earn Interest:

… Our Trade and Save products are offered by Canadian ShareOwner Investments Inc. (ShareOwner), a registered investment dealer in each province and territory of Canada. … Our Cash product is offered by Wealthsimple Payments Inc., a FINTRAC registered money services business. Money in your Cash account is held in an account with ShareOwner.

From the FAQ on the same page:

How do you keep my money safe?

Balances in your Wealthsimple Cash account are held in an account with Wealthsimple’s affiliated custodial broker, Canadian ShareOwner Investments Inc. (ShareOwner). ShareOwner is a member of the Investment Industry Regulatory Organization of Canada. As a result, your accounts are protected by the Canadian Investor Protection Fund within specified limits in the event that ShareOwner becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF's website.

ShareOwner deposits the cash you add to your Wealthsimple Cash account in trust at an account with one or more federally regulated, Schedule I banks. We carefully select these banks using a set of criteria that evaluates the institutions’ stability and security. The accounts at these banks are not covered by Canadian Deposit Insurance Corporation.

From your link:

How do you keep my savings safe?

Wealthsimple’s affiliated custodial broker, Canadian ShareOwner Investments Inc. (ShareOwner) is a member of the Investment Industry Regulatory Organization of Canada (http://www.iiroc.ca). Customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at (http://www.cipf.ca).

ShareOwner deposits the cash you fund into your Wealthsimple Cash account in trust for you at an account with one or more federally regulated, Schedule I institutions that are considered domestically significant banks (DSIBS). You can find more information on what that means at this link. We carefully select these banks using a set of criteria that evaluates the banks’ stability and security.

The accounts at these banks are not covered by Canadian Deposit Insurance Corporation.
And, if you have questions, you can reach out to our team here.

June 27, 2020
12:10 pm
Briguy
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@Norman1 would you feel comfortable having your salary deposited at WealthSimple Cash and using them as your main bank assuming they satisfied all the functionality you needed and assuming they matched HISA rate of other leading FIs like EQ bank or LBC ?

I wouldn't feel comfortable doing that.

June 27, 2020
1:50 pm
Norman1
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That won't be a question I would ever have to consider.

I doubt the Wealthsimple Cash product will ever support both direct deposit and pre-authorized debit. I don't know of any IIROC brokerage account that does. The closest are BMO InvestorLine non-registered cash accounts that have an associated AccountLink chequing account with the Bank of Montreal.

Wealthsimple would have to partner with a bank or trust company and pay for that.

I also doubt the Wealthsimple Cash product will ever match the HISA rate of EQ Bank or LBC Digital. For the time being, the balances will earn interest from depositing them with the D-SIB's instead of earning higher interest from actual lending. With their strong debt ratings, the D-SIB's don't have to pay rates on wholesale deposits that come even close to what EQ Bank and LBC Digital pay on their retail HISA's. That spread is quite wide.

Royal Bank short-term banker's acceptances are available from BMO InvestorLine and yield around ¼% per annum. $50,000 minimum. Those might be ½% before BMO InvestorLine's commission. But, both rates are a long way from the 2% per annum rate on EQ Bank's HISA.

June 28, 2020
5:42 am
Briguy
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@Norman1 , a similar situation occurs with funds held in trust for Koho and Stack at Peoples Trust. In UK there's a concept of "ring-fenced" money that's similar. But in UK, that ring-fenced money is not guaranteed to be returned to the owner as there may be preferred creditors that have access to that money first. eg, Beaufort Securities clients that lost money due to the insolvency trustee PWC charging huge bills to handle the proceeding.

https://www.ft.com/content/3641a4e4-5466-11e8-b3ee-41e0209208ec

June 28, 2020
7:49 am
Briguy
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@Norman1 I'm not sure if people on this forum realize, but CIPF guarantee of your money can take up to 10 years to kick in. eg. people who lost money at MF Global got their money back 2.5 years later.
https://www.businessinsider.com/r-mf-global-customers-to-recoup-67-billion-as-final-payout-starts-2014-03

CDIC guarantee of your money is much quicker and preferable to CPIF.

June 28, 2020
8:22 am
Norman1
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Preferred creditors do not have a claim to funds held separately in trust.

However, the bankruptcy trustee or administrator appointed afterwards is allowed to charge expenses and for work done to locate and distribute the trust funds against those funds.

The MF Global article is about the part through bankruptcy court, not through an agency like CDIC or CIPF. Yes, bankruptcy court proceeding can take years to settle. Especially when there is bickering between the creditors like there was in Nortel's bankruptcy.

In Canada, CIPF worked with the bankruptcy trustee KPMG. KPMG started paying out and transferring out MF Global Canada client accounts to RBC Dominion Securities within a month.

June 28, 2020
9:29 am
Briguy
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@Norman1 I think it's important to realize that CIPF is very unlikely to give you back your money within a month. If the majority of your life savings is invested in a brokerage, and you rely on it for day to day expenses after retirement, you may want to put it in a larger brokerage eg. TDDI , that is less likely to go bankrupt than in a smaller one, eg. Virtual Broker, Wealth Simple Trade

June 28, 2020
11:24 am
Norman1
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Yes, one still has to be careful even with CDIC or CIPF coverage.

Unlike CMHC insurace, neither CDIC or CIPF insurance ensures that one will receive assets owed on time after a bankruptcy occurs.

If there is a disagreement about the records, like a depositor claims to have $95,000 in insured deposits but the firm's records only show $45,000, CDIC and CIPF may decline to pay the full amount and wait until the bankruptcy court rules on the correct amount.

June 28, 2020
12:47 pm
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Norman1 said

If there is a disagreement about the records, like a depositor claims to have $95,000 in insured deposits but the firm's records only show $45,000, CDIC and CIPF may decline to pay the full amount and wait until the bankruptcy court rules on the correct amount.  

Does anyone know if this has ever occurred? A few months ago, I was transferring funds between two FIs online. There was a period of a day or three when the funds did not appear on the books of either FI. I found this disconcerting.
I might not have noticed except that it happened during the Dec 31/Jan 1 hiatus and messed up my end of year bookkkeeping as it appeared I'd lost a good chunk of money. If one of these FIs had bankrupted during tha period, could I be sure I would get my money back? I had no way of knowing where it was exactly on those days.
Similarly, would people who have accounts which post interest only at the end of a specific period be coverd for the interest? e.g. Simplii promos, Steinbach CU.
It's a good reminder to retain documentation of all offers as CDIC is obliged to pay you interest up until the time of bankruptcy at the specified rate. Any references to your account will likely disappear from your online view. Make sure you save and/or print all statements promptly.

June 28, 2020
12:57 pm
Briguy
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Loonie said

Does anyone know if this has ever occurred? A few months ago, I was transferring funds between two FIs online. There was a period of a day or three when the funds did not appear on the books of either FI. I found this disconcerting.
I might not have noticed except that it happened during the Dec 31/Jan 1 hiatus and messed up my end of year bookkkeeping as it appeared I'd lost a good chunk of money. If one of these FIs had bankrupted during tha period, could I be sure I would get my money back? I had no way of knowing where it was exactly on those days.
Similarly, would people who have accounts which post interest only at the end of a specific period be coverd for the interest? e.g. Simplii promos, Steinbach CU.
It's a good reminder to retain documentation of all offers as CDIC is obliged to pay you interest up until the time of bankruptcy at the specified rate. Any references to your account will likely disappear from your online view. Make sure you save and/or print all statements promptly.  

Good idea ! Especially important if you are dealing with big sums of money and with these newer digital banks like LBC Digital or fintechs like Revolut, Koho, Stack, and WealthSimple Cash.

June 28, 2020
1:45 pm
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Loonie said
Any references to your account will likely disappear from your online view. Make sure you save and/or print all statements promptly.  

This is prudent to do in any event. Download the PDF statements as they become available. Similarly, I don't know how many times I read about someone complaining that after they transferred their accounts from X to Y that they no longer had access to their PDF statements at X. What do they expect when they no longer have an account there? Online access is gone!

June 28, 2020
4:09 pm
Norman1
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Norman1 said
If there is a disagreement about the records, like a depositor claims to have $95,000 in insured deposits but the firm's records only show $45,000, CDIC and CIPF may decline to pay the full amount and wait until the bankruptcy court rules on the correct amount.

Loonie said

Does anyone know if this has ever occurred?…

Not when a financial institution failed. But, I've read about a case where someone said he had a significant amount in a bank account at such and such branch. He said that to multiple people.

After the person passed away, the executor contacted the branch and was told there was no such account. As well, executor was not able to locate any evidence of the account people heard about, like a statement or a passbook, among the deceased's belongings.

A consumer newspaper columnist was involved. I guess the executor or a beneficiary was suspicious of the bank's claim and wrote a letter to the columnist.

The columnist asked the bank to do an account search. Bank didn't find any account for the deceased at any of its branches in the area!

June 28, 2020
5:35 pm
Norman1
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AltaRed said

This is prudent to do in any event. Download the PDF statements as they become available. …

I agree. One should download the PDF statements as they become available. If one downloads later, the PDF may not be the same as it was months ago!

I noticed that with EQ Bank. They did some kind of upgrade on their site. Afterwards, the GIC number associated with savings account transactions got lost.

The March 2019 PDF I download in April 2019 shows the maturing GIC deposit as "GIC paid out at maturity from [GIC account number]". The March 2019 PDF I downloaded now shows the same deposit as "Transfer from Account"!

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