September 2018

How are your assets protected beyond $100,000?
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How are your assets protected beyond $100,000?

How are your assets protected beyond $100,000?

Deposit insurance is familiar to many, yet it is often misunderstood. Here is a brief review of the kind of coverage available to protect your assets as they grow.

Anyone who invests in the market soon learns about risk, from either a mutual fund representative or a financial security advisor.

But there are different kinds of risk. Some are covered by government programs or self-regulatory bodies, while others are not.

Protecting your assets at a glance

As we can see, while risk is inherent to investing, governments and the industry itself have created means to protect investors against the unlikely failure of their financial institutions.

Canada deposit insurance

Deposit insurance is the first of these means. It is managed by the Canada Deposit Insurance Corporation and, for institutions under Quebec jurisdiction, by the Autorité des marchés financiers. People commonly associate this with $100,000 of coverage, but deposit insurance could cover a household for much more than that, since the $100,000 limit applies to each deposit category, per person and per institution.

Indeed, some types of accounts, such as RRSPs, TFSAs, RRIFs and joint accounts each have their own $100,000 coverage. The following example shows how a couple’s deposits could be covered for several hundred thousand dollars.

Beyond $100,000

For deposits only

However, there is an important distinction to be made: as the name indicates, this type of insurance applies only to deposits. Furthermore, such deposits must be in Canadian dollars and have original maturity terms of five years or less. That excludes many financial instruments, such as:

  • stocks
  • bonds
  • treasury bills and bankers’ acceptances
  • mutual funds
  • segregated funds
  • exchange-traded funds (ETFs)
  • life insurance policies

Ask your representative or advisor

For these other financial instruments, various protection funds have been established by self-regulatory bodies in the industry. However, it could be a good idea to speak to your mutual fund representative or financial security advisor, as such funds may not apply to your type of investment, your financial institution, or the province in which the institution is registered.

The following are some of the protection funds we’re talking about:

  • Canadian Investor Protection Fund (CIPF)
    Established by the Investment Industry Regulatory Organization of Canada (IIROC); coverage could be up to $1 million
  • Investor Protection Corporation
    Established by the Mutual Fund Dealers Association of Canada (MFDA); coverage could be up to $1 million
  • Assuris
    A not-for-profit organization that protects Canadian policyholders if their life insurance company should fail; coverage could be up to $100,000
  • Canadian Securities Administrators
    The various securities regulators in Canada may offer compensation in cases where insolvency is not the problem, but there has been fraud on the part of an investment firm or representative.

It can be reassuring for depositors and investors to know that these mechanisms are in place. Even more reassuring is that the likelihood of having to use them is extremely low: Canada’s financial system is considered one of the most reliable in the world, and its main banks and cooperative institutions all rank among the 50 most solid financial enterprises on the planet, and among the 10 safest in North America.

Should you have any questions on the subject, don’t hesitate to ask your mutual fund representative or financial security advisor.

 

The following sources were used in preparing this article.
Assuris, “Are You Protected by Assuris?
Autorité des marchés financiers, “Deposit Insurance,” “Your deposits are protected. That’s a guarantee!”.
Canada Deposit Insurance Corporation, “About us,” “What’s Covered?”.
Canadian Consumer Protection for Financial Institution Failures, “You are protected!
Canadian Investor Protection Fund, “What does CIPF cover?
Canadian Securities Administrators, “Understanding mutual funds,” “Getting Your Money Back”.
Get Smarter About Money, “Risks of mutual funds”, February 22, 2018.
Global Finance, “World’s Safest Banks 2016: Global Top 50
MFDA, “Investor Protection Corporation