CIPF Coverage: What Happens If Your Broker Goes Under

What CIPF is and who it covers

CIPF is a fund that protects clients of its member firms. According to CIPF, its members are firms regulated by the Canadian Investment Regulatory Organization (CIRO) that are investment dealers and/or mutual fund dealers. That includes most Canadian discount brokerages, full-service brokerages and many firms behind investing apps and robo-advisors.

Protection is automatic: you don't apply for it or pay a separate premium. If your account is with a member firm, you're eligible for coverage within the limits described below. CIPF publishes a member directory so you can confirm a firm's status, and member firms typically display the CIPF logo or mention membership on their website and account documents.

With app-based platforms in particular, check which legal entity actually holds your account. The brand you see may be different from the dealer that carries the account, and it's the dealer's CIPF membership that counts.

What CIPF actually protects

CIPF covers missing property: property a member firm held for you that isn't returned after the firm becomes insolvent. CIPF says this can include cash, securities, futures contracts and segregated insurance funds.

In most dealer insolvencies, client property is segregated from the firm's own assets, and much or all of it can be transferred to another dealer. CIPF's role is to make up for property that turns out to be missing after that process. Compensation is based on the value of the missing property on the date of insolvency, not on what you originally paid or what it might be worth later. CIPF's own example: if 100 shares worth $30 each on the insolvency date are missing, they're valued at $30 per share.

Claims have a deadline. CIPF states that claims must be filed within 180 days of the date of the member firm's insolvency, so if you ever receive notice that your dealer has failed, act promptly.

What the process looks like if a dealer fails

If a member firm becomes insolvent, you usually won't need to do anything dramatic on day one. Clients are typically notified about what's happening to their accounts, and in many cases accounts are moved to another dealer, after which you can trade again. Your job is to keep your own records handy, read every notice carefully and watch for deadlines.

Compare the holdings and cash shown after any transfer against your last statements from the failed firm. If something is missing, that's the property CIPF may compensate, within the limits and exclusions described in this guide. Remember the 180-day window for claims, counted from the date of insolvency, not from when you first noticed a problem.

Be wary of unsolicited calls or emails during this period offering to 'recover' your investments for a fee. Legitimate information will come through the official channels named in the notices you receive, and CIPF publishes information about insolvencies it's involved in on its own website.

What CIPF does not cover

This is the part many investors misunderstand. According to CIPF, it does not cover:

• Losses from a drop in the value of your investments, no matter how steep.
• Losses from unsuitable investments, misrepresentation, misleading information, undisclosed information or poor advice.
• The default of the issuer of a security you own. If a company you invested in goes bankrupt, CIPF doesn't compensate you.
• Securities you hold directly, such as share certificates in your own name.
• Mutual funds registered in your name and held directly with the mutual fund company rather than through a dealer.
• Crypto assets, which are excluded from eligible property.

Certain people are also excluded, such as those who materially contributed to the firm's insolvency, and the firm's directors. If you have a complaint about advice or suitability, that's handled through your firm's complaint process, CIRO and the Ombudsman for Banking Services and Investments (OBSI), not through CIPF.

The coverage limits for individuals

For an individual, CIPF applies a separate $1 million limit to each of three account categories at a member firm:

• General accounts: $1 million for all general accounts combined, such as cash accounts, margin accounts, TFSAs and FHSAs.
• Registered retirement accounts: $1 million for all registered retirement accounts combined, such as RRSPs, RRIFs and LIFs.
• Registered education savings plans: $1 million for all RESPs combined where you are the subscriber.

Accounts within the same category share one limit. A TFSA and a non-registered margin account at the same firm both fall under the general accounts limit, so together they're covered to $1 million, not $1 million each. Accounts in different categories, such as a non-registered account and an RRSP, have separate limits.

Because limits apply per member firm, someone with accounts at two different dealers generally has separate coverage at each. For most people the limits are far above what they hold, but if your accounts approach or exceed them, that's worth knowing.

Joint, corporate and trust accounts

Joint accounts are treated proportionately. CIPF states that, unless otherwise evidenced in writing, each owner's interest in a joint account is presumed to be equal, and each person is protected for their share within their own general accounts limit.

Other account holders have different rules. According to CIPF, corporations, partnerships and unincorporated organizations generally receive $1 million for all accounts combined, with some exceptions for certain personal holding entities. Estates and testamentary trusts get $1 million for all accounts held for the same deceased person, and inter vivos trusts are treated as separate from the accounts of the trustee, settlor or beneficiaries.

If you hold assets through a holding company, a trust or an estate, read CIPF's coverage policy or ask your dealer how your accounts are categorized.

CIPF vs CDIC: two different safety nets

CIPF and the Canada Deposit Insurance Corporation (CDIC) are often mentioned together, but they protect different things in different situations.

• What's protected: CDIC insures eligible deposits, such as savings and chequing balances, GICs and other term deposits, at member banks and other institutions. CIPF protects property held at an investment dealer, including securities and cash.
• When it applies: CDIC pays out if a member financial institution fails. CIPF applies if a member investment dealer becomes insolvent and client property is missing.
• Limits: CDIC insures up to $100,000, including principal and interest, in each insurance category per member institution, with separate categories for deposits in one name, joint deposits, trust deposits, RRSPs, RRIFs, TFSAs, RDSPs, RESPs and FHSAs. CIPF's limits are $1 million per account category, as described above.
• What neither covers: CDIC states that mutual funds, stocks, bonds, ETFs and cryptocurrencies are not eligible for deposit insurance. CIPF covers missing securities at a failed dealer, but neither one protects against a fall in market value.

A common situation is a GIC bought through a brokerage account. The GIC itself is a deposit with the issuing institution, so CDIC coverage depends on that issuer being a CDIC member, while the brokerage account holding it falls under CIPF. Our guide to CDIC coverage covers the deposit side in detail.

How to make sure you're protected

• Confirm the dealer is a CIPF member by checking CIPF's member directory, not just the app's marketing.
• Know which category each account falls into, and add up your balances per category at each firm.
• Keep your statements and trade confirmations. They make any claim much easier to document.
• Remember that crypto is excluded. If you hold crypto through an investing platform, CIPF won't cover it, even if the same firm's securities accounts are covered.
• If you're choosing a new platform, add CIPF membership to your checklist alongside fees and features. Our guide on how to choose a broker covers the full comparison, and how robo-advisors work explains how those accounts are typically held.

Keeping the risk in perspective

Dealer insolvencies are uncommon, and in most cases client property is segregated and transferred to another firm. CIPF exists for the rarer situations where property turns out to be missing. The far bigger risks to most portfolios are the ones CIPF doesn't cover: market declines, concentration in a few holdings, high fees and decisions made in a panic.

That's why the most useful protection you control is good portfolio design: diversification, an asset mix you can stick with, and an emergency fund held somewhere separate from your investments. CIPF is a backstop for the plumbing of the financial system, not a guarantee on the value of what you own.

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