CDIC protection for WS Cash accounts increased to 1M | Page 3 | Wealthsimple | Discussion forum

Mordko, I think that while that is your position and one you fervently believe, I am inclined not to accept your faith in you being connected to that trust. The account holder (you) is a step removed from any trust as Norman1 has explained patiently a number of times. I don't think you will find many members of financial forums agreeing with your position.

I don't see any financial risk in WS due to Power Corp's ownership but I do not consider deposits with WS as CDIC protected. At the same time, I do not know why anyone would have large amounts of cash sitting around in HISA type accounts anyway since a yield less than 4% is likely dead money on an after tax, real dollar basis.

mordko said
I don’t care about “any members” (which is obvious nonsense anyway because you are not a spokesperson for all forum members even if you prefer to cover your opinion by claiming “it's everyone”).
  

An exaggeration since I never did say 'everyone'. I did say many and that is the case when reading posts on a number of forums.

I have considered WS from time to time for an account but don't like some of what I see. It is a work in progress with considerable innovations and deserves consideration, but the latest G&M survey via Surviscor puts WS Trade at #13 out of 15 discount brokerages. I have not deep dived enough to assess why. https://www.theglobeandmail.co.....e-ranking/

I think this is the point Norman is trying to make - in the event of Wealthsimple Payments going bankrupt, your Chequing deposits where they are the trustee would indeed be part of the WSP bankruptcy estate.

Yes, and it's false. It would only be true if:

- the trust was invalid,
- there was a shortfall caused by fraud or operational failure, or
- there were disputes about identifying or tracing the trust property.

The key point is that if the funds are actually held in a valid trust for customers, then under trust law they are not assets beneficially owned by the trustee.

In other words Wealthsimple can’t just go bankrupt for your money to magically become “wealthsimple’s estate”. There must also be fraud and/other serious illegal activity as well as regulatory failure for this scenario to become an issue.

Assuming the laws are being followed, if Wealthsimple Payments became insolvent, assets it holds in trust are not available to its creditors - they belong beneficially to the customers. That's what “trust” means by law.

Nope, no assumptions about the existence of a trust.

Both Wealthsimple and CDIC expressly describe the arrangement as a trust, not merely a generic nominee arrangement. Wealthsimple states that chequing balances are “held in trust” at CDIC member institutions, and CDIC has a specific legal framework governing deposits held in trust, including disclosure requirements for trustees and beneficiaries.

https://help.wealthsimple.com/.....money-safe
https://www.cdic.ca/depositors.....-in-trust/

The Trust exists. It's in black and white. There are multiple layers of regulation that make it difficult for a firm like Wealthsimple to simply advertise a trust that does not legally exist. And the client agreement is contractual. I am not saying it's impossible for laws and regulations to be broken, I am just saying that they would have be broken with massive oversight failure for the hypothetical you are describing under bankruptcy to become a thing.

And this is what Canadian statute says under Bankruptcy and Insolvency Act, s. 67(1)(a): The property divisible among creditors does not include “property held by the bankrupt in trust for any other person.” https://laws-lois.justice.gc.c.....on-67.html

I agree that it's a poor subject for social media. Also agree that it's largely irrelevant for practical purposes. It's just that there is obvious misinformation being presented as if it were a fact. It's being done at regular intervals. And I have a feeling that there might be a conflict of interest which hasn’t been spelled out.

I don’t care about procedure. You are mixing different things.

Yes, I may have to contact the bankruptcy trustee and file whatever process identifies. That does not mean the trust assets are simply ordinary estate assets available to Wealthsimple’s creditors. That’s completely false and obvious.

The Act clearly says property held by the bankrupt in trust for another person is not property divisible among creditors. So the question is not “does the trustee administer the process?” but whether the creditors have any claim to trust beneficiary’s money. And the law says “no”. https://laws-lois.justice.gc.c.....on-67.html

Claiming that reference to BIA “junk” is ludicrous. Again, bringing in irrelevant things like RRSPs/account types. BIA does not talk about account types. What it says, in substance, is that property held by a bankrupt in trust for another person is not property divisible among the bankrupt’s creditors, subject to the Act. It really does not matter what type of account it is. As long as money in chequing account is actually held in trust (as your contract says), it falls under the act.

For CDIC, for reasons known to you, you are going on and on about the legal title, but omitting beneficial ownership. A trustee holds legal title; the beneficiaries hold the beneficial interest. CDIC’s trust deposit regime exists to provide coverage on a per-beneficiary, not to multiply coverage for the trustee personally. Payment mechanics do not change who beneficially owns the trust property. And that's all I care about.

InterestThis said
Like I said before, this won't be really figured out until one of these main Canadian fintechs go bankrupt, then we'll Find Out, when it hit the courts.

A few dozen financial institutions have failed in Canada, and the CDIC covered them.
Meanwhile fintech XTM Inc. failed, and some people lost money.

So fintech is still in the Find Out stage in Canada.  

The safe solution seems to be to simply use WS Cash as an operating account with minimal financial exposure. Place one's more significant sums with an FI with direct CDIC membership. Financial wizardry is not worth potential risks.

mordko said
I don’t care about procedure. You are mixing different things.

Yes, I may have to contact the bankruptcy trustee and file whatever process identifies. That does not mean the trust assets are simply ordinary estate assets available to Wealthsimple’s creditors. That’s completely false and obvious.

The Act clearly says property held by the bankrupt in trust for another person is not property divisible among creditors. So the question is not “does the trustee administer the process?” but whether the creditors have any claim to trust beneficiary’s money. And the law says “no”. https://laws-lois.justice.gc.c.....on-67.html

Yes, certain creditors do have a claim against assets under trust, regardless of section 67.

Many municipalities do for property taxes in arrears, for example. Such creditor municipalities can compel a tax sale of the property. New owner will receive title legally cleared of previous ownership, previous mortgages, previous liens, and claims against previous owner.

There have also been court rulings that certain creditor claims are not technically "claims" under the Canadian bankruptcy laws. Consequently, such a creditor is technically not a "creditor" under those bankruptcy laws, is not subject to section 67, and is not prevented from attaching to assets that the bankrupt was holding in trust. One such case is the 2019 Supreme Court of Canada case involving Redwater Energy Corporation.

There is also the lien that trustees have against assets they hold in trust for their unpaid related expenses and their unpaid trustee fee. That lien comes from their right to indemnity for acting as a trustee, comes ahead of beneficiary claims, and is not subject to section 67.

For CDIC, for reasons known to you, you are going on and on about the legal title, but omitting beneficial ownership. A trustee holds legal title; the beneficiaries hold the beneficial interest. CDIC’s trust deposit regime exists to provide coverage on a per-beneficiary, not to multiply coverage for the trustee personally. Payment mechanics do not change who beneficially owns the trust property. And that's all I care about.

No. "Beneficial ownership" is not ownership. It is just a claim for certain benefits from ownership against the actual owner.

Beneficiaries of a trust have no legal claim against the bank for the balance in a trust account. Their claim is against the trustee only. The bank and CDIC owe beneficiaries nothing and are correct in paying the balance of bank trust accounts to the legal account owner, the trustee, and not to any beneficiaries.

You obviously don't know how bankruptcies, trusts, or trust accounts work.

mordko said
…

Saying “beneficial ownership is not ownership” is meaningless, it's sophistry. A trust separates legal ownership from beneficial ownership. The beneficiary’s interest is not merely an ordinary unsecured claim against the trustee personally. That's nonsense.
…

No, the separate ownership does not exist. Judges, lawyers, and others who actually study Waters' work know what Waters meant and that Waters didn't choose the best wording for the claims that beneficiaries have under their trust.

What Waters described is the structure of a trust. There's no new requirements for banks and other parties to deal with those beneficiaries. Banks and others owe the beneficiaries nothing.

A bank is discharged of its obligations for the balance of a trust's bank account once the bank hands the money over the trust's trustee. Period. A company is discharged of its liability for the dividend on the shares a trust holds once the company hands the dividend to the registered owner of the shares, the trustee. Period.

Not the bank's or the company's problem if trustee takes off with the account balance or dividend and doesn't hand them over to the trust beneficiaries.

You are just taking what Waters wrote out of context and obviously have no understanding of what Waters wrote about. You should take your own advice, get Waters' work, and learn from it instead of making things up!