Comments on: What happens when a broker goes bankrupt?

By: Change of Heart

Change of Heart — Sat, 16 Oct 2010 19:56:32 +0000

Another option for residents of Ontario is Ontario Savings Bonds. Rates tend to be more competitive: http://www.ontariosavingsbonds.com/en/series2010.html. Other provinces have similar programs. Credit risk is higher than holding a CDIC-backed GIC or CSB, but it’s another option for those interested in direct ownership.

By: 2010 Canada Savings Bonds on Sale Now | MoneySense

2010 Canada Savings Bonds on Sale Now | MoneySense — Wed, 13 Oct 2010 13:37:56 +0000

[...] redemption rate of 0.5%. Also, these bonds are available for only two months of the year. Still, some investors prefer to invest in CSBs because as a certified and direct owner, one is not exposed … that comes with owning even Government bonds in brokerage [...]

By: 2010 Canada Savings Bonds on Sale Now | Canadian Capitalist

2010 Canada Savings Bonds on Sale Now | Canadian Capitalist — Wed, 13 Oct 2010 03:02:14 +0000

By: Change of Heart

Change of Heart — Tue, 05 Oct 2010 16:23:12 +0000

I pointed CC to the Marlow case. Not sure if anyone will read this, but, fwiw, other client name options exist: anything held directly through a bank (such as a GIC), including online banks (such as Ally, ING, etc.). Mutual funds purchased directly through banks are often held in client name. However, mutual funds and ETFs practice securities lending (Google this if you’re not aware of it) — so “your” holdings may be exposed to some counterparty risk. The problem here is not dissimiliar to the one of brokerage failure: intermediary risk. Also, RRSPs are, by definition, “in trust,” so you’ll never completely get away from an intermediary with an RRSP. As a test, I put a small amount of money in a CSB RRSP. Sure enough, when I received the legal paperwork in the mail, I was informed that CSB RRSP funds are held in trust by TD.

My strategy is to continue to hold equities (all types) in my discount brokerage. I also have no choice but to hold RRBs and long bonds through the brokerage. These instruments cannot be purchased directly in Canada. However, short and mid-term bonds can be easily replaced by client name GICs — often at better rates and including a CDIC guarantee. (But if you have more than $100K, you need to be careful of the CDIC limits, which can be confusing. Limits are based on issuer, but the GIC issuer may overlap with a bank account. For example, my TD Savings Account is actually TD Mortgage, while TD Chequing is actually TD Bank.)

Eliminating risk is not possible, so I just try to mitigate it where possible. For example, a very few exceptions exist to the securities lending practice I mentioned above: four early ETFs, such as SPY, are actually Unit Investment Trusts. Understanding the inner-workings of any ETF is a difficult task; however, there may be somewhat less counterparty risk due to securities lending restrictions on UITs. Of course, they could restructure at any time. Caveat emptor.

By: M K

M K — Fri, 05 Feb 2010 22:41:26 +0000

sorry for the confusion….my personal experience on this was only with my non-RSP brokerage acct. Perhaps CC would know about the RSP-based brokerage acct. And, I suppose a tax lawyer would know about how assets would be treated, for non-rsp vs. rsp brokerage accounts.
mk

By: Weekly Round Up-Stock Myths, Valentines, Con Artist and More

Weekly Round Up-Stock Myths, Valentines, Con Artist and More — Fri, 05 Feb 2010 11:02:01 +0000

[...] What happens when a broker goes bankrupt? Canadian Capitalist [...]

By: Mark

Mark — Thu, 04 Feb 2010 19:45:08 +0000

MK, I’m a little confused by your comments.

Are you saying that assets held in an RSP are treated differently than those held in taxable accounts in the event that one’s broker goes bankrupt?

By: uberVU - social comments

uberVU - social comments — Thu, 04 Feb 2010 07:12:50 +0000

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By: Financial Cents

Financial Cents — Wed, 03 Feb 2010 23:10:23 +0000

How does this work if you have $100,000+ with a transfer agent?
I’m assuming since the stocks/securities are held in your name, and not in-trust with the bank, you’re OK??

Certainly a mix of both (securities registered in your own name) and some held with a CIPF member bank should do the trick.

Heck, what did Derek Foster do with all his DRIPs? Does somebody have a line on him to email him that question?

By: M K

M K — Wed, 03 Feb 2010 17:05:14 +0000

Hi
I remember owning some securities in my own name (it was BNS – common). The certificate was stored in my safety deposit box. Purchasing more was easy; you were able to purchase directly from the transfer agent, though the shares were then held in the transfer agent’s hands. And, it also made taking part in the dividend reinvestment plan easier. Selling, of course, meant transferring the certificate(s) to your brokerage acct. But, all of this seems to depend on the company that you are investing in. (ie, do they have a DRIP? do they allow additional purchases through the transfer agent?)
CC raises a good point, though…I have thought about this as well. At this time, I don’t have enough (non-rsp) investments to warrant worrying too much about my non-rsp brokerage acct, which I use as a place to park only a portion of my emergency funds, and as a place to sell shares that I buy at a discount from an employee share purchase plan at work. But, in the future, I can indeed forsee a situation where I may need to worry about this. Indeed, if I do accumulate a large enough amount to worry about this, I may indeed pay the $50/certificate to get the certificates registered in my name, for my long-term “buy-and-hold”-type investments.
Intersting post, CC. thanks!