Wealthsimple - Word of CAUTION! | Page 3 | Wealthsimple | Discussion forum

Norman1 said
None of the Wealthsimple companies are a bank.

That account that they now call a Chequing Account is with Wealthsimple Payments Inc. which is neither a bank, an investment dealer, nor a CDIC member.

Wealthsimple Payments has CDIC coverage on any of the funds (that were yours) that they deposit in the partner banks, by disclosing the beneficial owners to multiply the $100,000 coverage. But, you don't because a $1 million balance in the Chequing Account is owed to you by Wealthsimple Payments Inc. and not by any of their partner banks.

This is one of the best explanations I've read of how WS "banking" services operate. WS is not a bank - full stop.
WS takes your money and deposits it somewhere but has consistently refused to reveal where/which bank(s). WS gets CDIC coverage – depositor does not. Depositor has only a promise from WS to return one's money when asked or used to pay a bill, etc.
With PowerCorp as a lead investor, I wouldn't worry about WS for month to month cash management but would be cautious about uninsured large-sum deposits.
Also worth noting, WS is charging $240 years for its Visa debit/ATM/credit card unless one has half a million on the brokerage side of the house. Along with interchange fees charged to merchants that should go a long way to covering the costs of operating the chequing accounts.

UkrainianDude said

Also worth noting, WS is charging $240 years for its Visa debit/ATM/credit card unless one has half a million on the brokerage side of the house.

This is BS. If one has a direct deposit or $100k with WS there’s no charge.  

That’s right. $4K in monthly payroll deposits or $100K in assets. And it's not just the brokerage; could be in their chequing account.

mordko said

WS gets CDIC coverage – depositor does not. Depositor has only a promise from WS to return one's money when asked or used to pay a bill, etc.

Also not accurate. The funds you deposit are “held in trust”. Read up on it. In CDIC’s eyes, the insured deposits are at the partner banks, and you are the insured depositor (as trust beneficiary). …

It is accurate. The insured depositor is the trustee not the beneficiaries. Beneficiaries of a trust deposit have a claim against their trustee, not CDIC or the CDIC member.

According to their FAQ, CDIC sends any payout to the trustee, the legal owner, not the beneficiary:

I am a beneficiary with a general trustee. Will I get reimbursed by CDIC or by the trustee?

If you have deposits held in trust at the failed member, CDIC will reimburse the trustee directly.

I am a general trustee who has placed deposits at a failed member. Will CDIC contact me regarding my deposits?

No. If you provided the required beneficiary information to the member prior to its failure, CDIC will have the necessary information to automatically calculate and reimburse you for eligible deposits up to $100,000 per beneficiary.

CDIC will issue any deposit insurance payments directly to you as the trustee of record, on behalf of the beneficiaries named on the account.

The beneficiary information is used to calculate how much of the deposit is insured. The info is not used to determine legal ownership by CDIC or the CDIC member.

Norman1 said

mordko said

WS gets CDIC coverage – depositor does not. Depositor has only a promise from WS to return one's money when asked or used to pay a bill, etc.

Also not accurate. The funds you deposit are “held in trust”. Read up on it. In CDIC’s eyes, the insured deposits are at the partner banks, and you are the insured depositor (as trust beneficiary). …

It is accurate. The insured depositor is the trustee not the beneficiaries. Beneficiaries of a trust deposit have a claim against their trustee, not CDIC or the CDIC member.

According to their FAQ, CDIC sends any payout to the trustee, the legal owner, not the beneficiary:

I am a beneficiary with a general trustee. Will I get reimbursed by CDIC or by the trustee?

If you have deposits held in trust at the failed member, CDIC will reimburse the trustee directly.

I am a general trustee who has placed deposits at a failed member. Will CDIC contact me regarding my deposits?

No. If you provided the required beneficiary information to the member prior to its failure, CDIC will have the necessary information to automatically calculate and reimburse you for eligible deposits up to $100,000 per beneficiary.

CDIC will issue any deposit insurance payments directly to you as the trustee of record, on behalf of the beneficiaries named on the account.

The beneficiary information is used to calculate how much of the deposit is insured. The info is not used to determine legal ownership by CDIC or the CDIC member.  

You are using some right words and then spinning them to misinform.

Look at CDIC’s own “deposits held in trust” page:

“CDIC’s protection for deposits held in trust applies to the trustee… but the protection can extend to each beneficiary of the trust deposit if the trustee discloses the beneficiary information. Deposits are “protected up to $100,000 per deposit insurance category,” and for trusts “up to $100,000 per beneficiary.”

https://www.cdic.ca/depositors/whats-covered/deposits-held-in-trust/

National Bank: “Eligible deposits held in trust are covered by CDIC up to $100,000 per beneficiary. They are also covered separately from eligible deposits held by the trustee.”

So, if Wealthsimple commits fraud and does not do what it says it does with deposits, eg by stealing or not disclosing beneficiaries as per terms then you have a problem. But that's very different from “You don’t have CDIC coverage at all because the insured depositor is Wealthsimple” which is completely false. Its you who is covered as beneficiary as per terms.

And if Wealthsimple fails then you simply claim against the trust property Wealthsimple deposited with you as beneficiary. That has nothing to do with CDIC, your money is still sitting in a bank’s account in your name.

everhopeful said
I never trusted a large balance to this scheme because the only way it will be proven to work or not is in a failure situation. Not a risk I am willing to take.

It is all a moot point anyways, because their rates are currently uncompetitive with other FIs, even with the tiers and DD bonuses included. The removal of the 1% cashback on the debit mastercard essentially stripped this account of the perks that attracted me to it initially.

So now it sits at $0 and just acts as a transfer account for my small portfolio in the trading account. I may put some funds into it and take the debit card with me next time I head overseas for the fee reimbursement.  

I don’t tend to have a lot in cash either but WS chequing account pays me 2.25% more than my RBC chequing account, so I’d argue it's competitive. With the new VIP credit card I now hold larger balances in WS chequing account than in similar accounts in any FI ever. I also appreciate that everything is much faster and more user friendly than with the other FIs. I would also argue that it's competitive because it is literally outcompeting the other FIs judging by the rate of growth.

mordko said
I would also argue that it's competitive because it is literally outcompeting the other FIs judging by the rate of growth.  

well that's because of all the promotions they have been throwing at new and existing customers past couple of years.
If anything, I am glad they are scaling back on their aggressiveness, as seen by the latest iphone promo. To me, there should be a finite amount of marketing cost.
But they are still depending on existing customers signing up for the new promos, as that means all the existing assets deposited + new ones are staying with WS for at least another 2 years in this case.

savemoresaveoften said

well that's because of all the promotions they have been throwing at new and existing customers past couple of years.

savemoresaveoften said

well that's because of all the promotions they have been throwing at new and existing customers past couple of years.   

TD has been throwing much larger promotions at me but I still have 95% with WS. The overall offering is far more attractive.

seh said
So to clarify the WS claims on CDIC coverage, does this mean there is additional/extra CDIC coverage irrespective of whether the individual WS account holder already has other, over the CDIC limit direct accounts with the underlying banks?  

Yes.

Norman1 said

mordko said

You are using some right words and then spinning them to misinform.

Look at CDIC’s own “deposits held in trust” page:

“CDIC’s protection for deposits held in trust applies to the trustee… but the protection can extend to each beneficiary of the trust deposit if the trustee discloses the beneficiary information. Deposits are “protected up to $100,000 per deposit insurance category,” and for trusts “up to $100,000 per beneficiary.”

https://www.cdic.ca/depositors/whats-covered/deposits-held-in-trust/

National Bank: “Eligible deposits held in trust are covered by CDIC up to $100,000 per beneficiary. They are also covered separately from eligible deposits held by the trustee.”

No, I'm not. It is actually you who is repeatedly posting false information.

The beneficiaries do not have a deposit with a CDIC member. So, they cannot have an insured deposit and cannot have any deposit inisurance on their non-existent deposit.

Read the rest of what you cited to see what CDIC is actually trying to say. This is an example from the CDIC page you cited:

Example 2: Fully Insured for $230,000

Joe has deposits with a CDIC member institution. These include:

• Deposit #1 (a trust deposit): a $180,000, three-year GIC in trust for his two children (Sam and Sue). Joe is the trustee and has met CDIC’s disclosure requirements. Joe has assigned Sam and Sue $90,000, of the deposit, each.
• Deposit #2 (deposit in Joe’s name): $50,000 in a chequing account in Joe’s own name.

Protected by CDIC
$230,000

Because Joe met the disclosure requirements for Deposit #1, CDIC can extend coverage to each beneficiary of the deposit ($90,000 (Sam) + $90,000 (Sue) = $180,000).

Because Deposit #2 falls into a different deposit insurance category, Joe will receive $50,000 in protection for the deposit in his own name.

The trustee Joe is the only one who has deposits. Beneficiaries Sam and Sue do not. Both deposits are in Joe's name.

Joe has declared one of his deposits, Deposit #1, as in trust for Sam ($90,000) and Sue ($90,000). Joe is still the depositor for Deposit #1, not Sam and not Sue. Extending coverage on the deposit for Sam and Sue being declared beneficiaries doesn't make the beneficiaries also depositors.

By definition, a trust deposit is not in the beneficiary's name. If the deposit actually was in the beneficiary's name, then it isn't a trust deposit.

No, you cannot go to their banks and claim against Wealthsimple Payment's trust accounts should Wealthsimple fail. The trust accounts are in Wealthsimple's name and not yours. The banks will tell you to file a claim with Wealthsimple's bankruptcy trustee and not get involved in sorting out how much of those trust deposits you actually have a valid claim for.  

You are mixing two different scenarios to make wrong claims:

1. Bank fails.

In this case CDIC applies, money is paid to WS with you as beneficiary.

So your statement “the insured depositor is the trustee, not the beneficiaries” is only half-true: the trustee is the depositor of record, but the insurance belongs to the beneficiaries, and CDIC explicitly looks through to them.

CDIC couldn’t possibly be clearer when talking about cash deposited in trust accounts:

. CDIC’s protection for deposits held in trust applies to the trustee holding the deposit (i.e. the depositor) but the protection can extend to each beneficiary of the trust deposit if key information is disclosed by the trustee to the CDIC member institution.

https://www.cdic.ca/depositors/whats-covered/deposits-held-in-trust

Examples you quoted reiterate the exact same point.

2. WS fails.

In this scenario CDIC is irrelevant. Money is yours, safe, held in your name as beneficiary. Properly structured trust assets are not part of Wealthsimple’s own property and should not be available to Wealthsimple’s general creditors in a bankruptcy. The bankruptcy trustee steps into Wealthsimple’s shoes as trustee and has to distribute trust property to the beneficiaries (clients), not share it pro-rata with unsecured creditors.

So, I am not literally walking into TD local branch asking for this cash. Thats true. But the cash is still beneficiary’s. Clients don’t line up as ordinary unsecured creditors for that money even though they wouldn’t physically claim it at the bank branch.

This is just denying whats there in black and white on CDIC’s own site and then denying basic laws. CDIC’s pages are clear for anyone who can read and does not have an obvious conflict of interest.

Also, under the Bankruptcy and Insolvency Act, s. 67(1)(a), “property held by the bankrupt in trust for any other person” is not part of the bankrupt’s estate divided among creditors. https://laws-lois.justice.gc.ca/eng/acts/B-3/section-67.html. Again, black and white for anyone who does not work for a competitor.

In bankruptcy the trustee identifies the actual trust assets, aka cash in the trust accounts at the partner banks. Those assets are set aside for the beneficiaries, not for Wealthsimple’s own creditors. The terms are crystal clear: those assets are held in partner banks with you as beneficiary. This isn’t Wealthsimple’s money and not part of unsecured borrowing, you are making it up and its obvious why.

For there to be a shortfall in trust funds Wealthsimple would have had to break the terms and steal (aka breach trust). Which is theoretically possible. Then trustee would trace these assets and distribute. And if there was theft by Wealthsimple and after tracing assets there still is a shortfall, only then it becomes “just a claim”. Under all other scenarios the money is yours as per terms and Canadian laws, all very clear.

Could Wealthsimple commit fraud/misuse trust funds? Sure, its possible. However its heavily regulated. Among large, regulated Canadian intermediaries, actual cases of deliberate misappropriation of segregated client assets are extremely rare, and usually involve:
• Much smaller or lightly supervised shops,
• Or individual advisors doing fraud on a subset of clients.

Of course in the case of FI’s covered by CDIC, fraud/misappropriation aren’t covered either.

In summary, ordinary bankruptcy of either partner bank or WS which does not involve misuse of trust funds is not a risk at all and implying that one is competing with unsecured creditors is either ignorant or a deliberate attempt to mislead.