Safeguarding your investments

Even with government and industry controls, there’s still a chance the brokerage firm holding your investments could fail. Can the Canadian Investor Protection Fund protect you?

Most investors know there’s no guarantee their investments will make money in financial markets. But a less obvious risk to your assets is the possibility of your broker or dealer going bankrupt or become otherwise insolvent.

The Canadian Investor Protection Fund (CIPF) — known as the National Contingency Fund until 1990 — was established in 1969 to protect customers in case of financial failure of its member firms. Since Sept. 1, 1999, CIPF has provided up to $1 million in insurance coverage on securities and cash for losses that result from the insolvency of a member brokerage firm. (The previous level was $500,000, including the maximum of $60,000 for cash balances.)

CIPF does not cover losses from changes in the market value of your securities-even if it turns out that the investment was unsuited to your personal investment objectives in the first place. Similarly, if your stock or bond becomes worthless because of the failure of the company that issued it, your ss would not qualify for CIPF coverage.

Who qualifies?

Investment dealers and brokers who are members of one of CIPF’s sponsoring self regulatory organizations. Often one and the same, these firms serve as intermediaries between the companies that issue the securities and individual investors. They pay into the CIPF according to their revenues and when you become a client of a member firm, your accounts are covered automatically. The Toronto Stock Exchange, the Canadian Venture Exchange, Montreal Exchange, The Toronto Futures Exchange, The Winnipeg Stock Exchange and the Investment Dealers Association are the current sponsoring self-regulatory organizations of CIPF and also contribute to the fund.

At present, mutual fund companies are not members of the CIPF, although the firms that distribute their products may be members. As well, although some CIPF member companies offer financial planning services, firms that call themselves financial planners may not qualify for CIPF coverage. This is because financial planning is not a defined term and is not a category of registration, according to the CIPF.

Next page: How it works

Member firms must display the CIPF official symbol at their business premises, as well as on trade confirmation slips and account statements sent to customers. You’ll also see the symbol on any advertising materials for a CIPF member firm.

If you’re not sure whether the firm you’re dealing with is a member of CIPF, make a point of asking, contact CIPF at (416) 866-8366, or check the CIPF website ( for a list of members.

How it works

If your broker goes bankrupt or becomes insolvent, you must file a claim within 180 days. Your claim would be valued at the date of the firm’s insolvency and you could receive settlement either in cash or in the form of the securities that you held. Any cash claims would be reduced by the amount that’s covered by deposit insurance, which provides up to $60,000 of coverage on eligible deposits. As well, for CIPF purposes, your loss would be calculated after any assets you receive from the bankruptcy or insolvency proceedings.

It’s important to remember that it is the total of your general accounts — including what’s held in securities and cash — that’s covered by the $1,000,000 maximum. If you hold a joint account, your proportionate interest in the account will be combined with your own individual accounts in calculating the $1,000,000.

Registered retirement plans — such as RRSPs, RRIFs and LIFs, but excluding spousal plans — are combined, no matter where you hold them, and treated as a single account for purposes of CIPF coverage. Registered education savings, in-trust accounts and partnerships are each treated as separate accounts.