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rob carrick

A lingering after-effect of the global financial crisis is the skepticism that people are showing about the investment firms they deal with. Good on you, skeptics. There's no downside to asking hard questions about what happens to your assets if an investment firm fails.

The latest query about the risk of an investment firm failing came recently from a reader who has a seven-figure account with an online brokerage at one of the big banks. He rightly notes that the Canadian Investor Protection Fund protects assets of up to $1-million from the insolvency of a member firm. The property itself is covered, not the value of the investments. If you had 100 shares of XYZ Corp. and they disappeared from your account, the shares would be restored to you by CIPF.

He also holds two other types of investments at the brokerage worth $1-million each, for a total of $3-million.

This reader is worried that he's not totally protected by CIPF currently. "Do you think there's any possibility of [my] brokerage getting in trouble?" he asked in an e-mail. "Should I split the investments into three brokerage firms holding a million each?"

First off, it's worth noting that CIPF covers $1-million for cash accounts, margin accounts and TFSAs combined, $1-million for registered retirement accounts combined and $1-million for all registered education savings plans (RESPs). If this reader's assets were spread across a few different account types, it's possible he might have full coverage or close to it for all his money.

But the larger question is whether this reader's broker could go under. Yes, there's an infinitesimal chance of this happening. If it did, the cause could only be a financial cataclysm that outdid the financial crisis in severity, at least here in Canada.

This reader seems to be a cautious sort. For him, it does make sense to have three accounts at three firms, each with its own CIPF protection. The down side is administrative – three times the work of maintaining the accounts, keeping track of documents and gathering tax slips every spring. In return, this investor gets the comfort of knowing he's protected if the unthinkable happened and a big bank collapsed without any other firm to buy it or any government support.

Rob Carrick has a warning about average yearly prince inflation for Canadians.

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