If you have investments with a Canadian firm, you may qualify for automatic, no-fee CIPF coverage of up to $1 million per category. But there are several caveats to this coverage you may want to be aware of.
We’ll go over everything you need to know about the CIPF – so you know what kind of investment insurance you can bank on.
What is the Canadian Investor Protection Fund (CIPF)?
First thing’s first – what is the CIPF exactly?
The Canadian Investor Protection Fund is an insurance program that’s automatically applied to your investments with member firms. They’ll cover your shortfalls up to a certain amount if the firm becomes insolvent. (Psst, insolvent means they can’t pay their debts – it’s necessary for declaring bankruptcy.)
The best part is they’re a not-for-profit organization and the insurance costs nothing out of your pocket. As long as you qualify for coverage, it’s automatically applied to your investments.
Note: CIPF does not cover value drops in your investments
Even if you meet all the above qualifications, the only scenario the CIPF protects you from is when the firm becomes insolvent.
This means that you ARE NOT covered for any losses you suffer for any other reason.
If the stock market isn’t doing well and you lose money in your investments, the CIPF won’t cover you. If you received poor investment advice, you’re not covered. Nothing except insolvency is insured.
Who’s covered by the CIPF?
The CIPF lists 4 eligibility criteria:
- You have an investment account with a member firm
- The member firm becomes insolvent
- The firm was unable to return your investments because they’re insolvent
- You aren’t otherwise ineligible
The most important part on your end is making sure your investments are with a CIPF member. Otherwise, you won’t be eligible for coverage even if your firm becomes insolvent.
An important thing to note is there’s no mention of needing to be a Canadian citizen – you don’t even need to live in Canada. As long as your investment account is with a CIPF member, you’re eligible for coverage.
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Who doesn’t qualify for CIPF protection?
Wondering what’s meant by that 4th point? There are 5 main clients that are considered ineligible:
- Someone who has contributed to the insolvency of the firm
- Someone who has the power to control the firm
- Directors and general partners of the firm
- Some shareholders and limited partners (5% or more) of the firm
- Other firms, either IIROC members or those registered with a securities regulator
The bottom line is if you’re just a casual investor, you likely aren’t disqualified from coverage.
You can read more information about the qualifications here.
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What investments are covered by the CIPF?
CIPF will cover your investments with a member firm that aren’t returned to you in the event that the firm becomes insolvent.
But which investments are included?
Here’s a list of the types of property CIPF covers:
- Securities (including bonds, GICs, shares or stock of a company, mutual funds, ETFs, and units of limited partnerships)
- Cash balances
- Commodities
- Future contracts
- Segregated insurance funds
Something to note about securities – if they’re held directly by you, they don’t qualify. Your investments must be held by the firm itself in order to be covered by CIPF.
Note: CIPF doesn’t cover the value of your investment
The biggest thing to keep in mind is the value of your investment isn’t covered by the CIPF. Instead, it’s the property itself that’s covered.
For example, if you bought 100 shares from a company, the CIPF will cover those 100 shares based on the value on the day of the firm’s insolvency.
So if you bought 100 shares for $50 a couple years ago, but they drop to $30 each when the company becomes insolvent – the CIPF will return your shares at the $30/share price.
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CIPF coverage limits for individuals
Individuals have pretty hefty coverage limits of $1 million for each of the combined categories:
- General accounts: cash accounts, margin accounts, and TFSA
- Registered retirement accounts: RRSPs, RRIFs, and LIFs
- Registered education savings plans: RESPs
That means you get up to $3 million of coverage. There are some exceptions when it comes to things like holding an estate for the deceased, but in general – this is what your limits will be.
Calculating loss
But just because you have all this space for losses doesn’t mean you’ll be covered for 100% of your investments as long as they don’t exceed a million dollars.
The CIPF also considers how much you owe to the company, plus the value of your property is determined on the day the company becomes insolvent – which means you may still face some losses if you bought the shares for more than they’re worth on the day of insolvency.
You can read more about how they calculate loss here.
CIPF members
The CIPF currently lists 174 members on its website. Investment dealers that are members of the IIROC are also members of CIPF automatically.
Just keep in mind that the members are listed by their legal entity name, which may differ from what they use in marketing. You may be able to find the legal entity name on your statements, or you can call your account representative for more information.
You can see the full directory here.
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What to do if your firm fails
So your investment firm went insolvent…now what?
The CIPF has a helpful 12-point checklist you can find here.
The most important points are:
- Make sure your investment firm was a CIPF member.
- Make sure your most recent account statement is up-to-date and find backup documents for anything that’s missing.
- Find out who the insolvency officer is by contacting IIROC or checking the CIPF website for information.
- Transfer your account to a new firm.
- If you had property that hasn’t been returned to you, consider filing a claim with CIPF. Keep in mind all the above qualifications and coverage limits.
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What is the CIPF?
The CIPF stands for the Canadian Investor Protection Fund. It’s a not-for-profit corporation that insures clients of a member investment firm if that firm becomes insolvent. The protection is automatic and completely free for you – as long as you meet the qualifications specified.
Are investments secured?
Your investments are secured automatically by the CIPF as long as they’re with member investment firms. Keep in mind that you’ll only be protected for losses that occurred when the firm becomes insolvent, not for anything like losses in the stock market. Read more about what’s covered here.
How do I get CIPF coverage?
If you invest with a CIPF member, you automatically have CIPF coverage. Keep in mind this coverage is only paid out if the firm becomes insolvent and can’t return your property.
What investments are covered by the CIPF?
The following investments are covered by the CIPF: Securities, cash balances, commodities, future contracts, and segregated insurance funds. Keep in mind your property is covered, but not the value of your property. You can read more about what’s covered here.
Is my investment firm covered?
There are currently 174 CIPF members listed on the website. Click here to see if your investment firm is included. One thing to note: names listed are the legal entities, which may not line up with their marketing name.
What does insolvent mean?
In general, insolvent is when you’re unable to pay your debts. According to the CDIC website, a firm is considered insolvent on the day they’re appointed a bankruptcy trustee or other type of insolvency official by a court. If they’re never appointed an official, the firm is instead considered insolvent on the day its clients no longer have access to their accounts. You can read more about what happens once your firm is insolvent here.
What should I do if my investment firm becomes insolvent?
The main things you should do if your investment firm becomes insolvent is to gather all the necessary documents, including your most recent statement and any documents that back up changes to your account that occurred after your last statement. In most cases, you’re then assigned an official who will contact you. You’ll then need to move your account to a new investment firm. Read more about the first steps you should take here.
CIPF vs CDIC
In a general sense, the CDIC (Canada Deposit Insurance Corporation) is for deposits made into bank accounts, whereas the CIPF is for investments. They both provide automatic coverage for financial services from Canadian banks – but the coverages, qualifications, and type of financial services are completely different. You can read more about the CDIC here.
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