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Now is the perfect time to de-risk your finances.

Ask questions about everything you own: What happens if my bank or investment firm goes bust? What protection do I have for my money? Where does it come from? What are the dollar limits on the coverage? Which accounts are covered?

While three U.S. banks failed this month and a Swiss bank with a global presence had to be rescued with an emergency buyout, there’s nothing to cause alarm in Canada right now. This means you can address future risks in a theoretical, non-emotional way. If you need to make changes, you can do so in an orderly fashion.

A column last week looked at how deposits are covered to a maximum of $100,000 in combined principal and interest per eligible account at banks that are members of Canada Deposit Insurance Corp. Quite a few readers e-mailed to ask a follow-up question: What about my investments?

Get answers to this question by checking if the investment firms you deal with are members of the Canadian Investor Protection Fund. CIPF offers coverage of up to $1-million if cash or securities in your account go missing as a result of the failure of your investment company.

“CIPF is designed to protect client assets when an investment firm becomes insolvent and there are client assets that are missing,” said Ilana Singer, the fund’s vice-president and corporate secretary. “What we do is step in to make sure that clients get their assets back.”

What CIPF does not do: Protect against losses related to market declines and unsuitable investments.

CIPF recently merged with the Mutual Fund Dealers Association of Canada Investor Protection Corp., giving it broad coverage across the investment business. A random sampling of member companies includes the brokerage divisions of the big banks, plus independents such as Edward Jones, PWL Capital and Raymond James and digital brokers such as Questrade and Wealthsimple Investments.

Understanding the CIPF coverage limit is a bit trickier than with CDIC. For example, one reader asked if having more than $1-million in assets in an account meant she should move part of her account to another company.

With bank savings accounts and guaranteed investment certificates, staying below the $100,000 coverage limit ensures you have full protection from CDIC. Ms. Singer said that whatever the balance at a CIPF-member firm, you’re covered for losses of up to $1-million in missing cash or securities that result from insolvency.

Note that it would be unusual for all client assets to disappear in the insolvency of an investment company. Ms. Singer said CIPF’s job is typically to cover the shortfall between what is actually left in client accounts and what should have been there right before the firm became insolvent.

One way CIPF is like CDIC is in potentially extending coverage to multiple accounts at the same company. CIPF offers up to $1-million in coverage to combined assets in what it refers to as “general accounts,” including cash accounts, margin accounts and tax-free savings accounts, and an additional $1-million for assets in what are known as “separate accounts.”

For example, you could have $1-million in total combined coverage for your TFSA and non-registered cash account, another $1-million in total combined coverage for your registered retirement savings plan and registered retirement income fund accounts, and an additional $1-million in coverage for a registered education savings plan.

Specific assets covered by CIPF include cash, securities such as stocks, bonds and exchange-traded funds and mutual funds, futures contracts and segregated funds. Crypto assets are not covered.

There have been 21 broker insolvencies since CIPF was formed in 1969, the most recent being the 2015 demise of Octagon Capital. According to its most recent annual report, the fund had $1.1-billion available to deploy in an insolvency through the combination of a general fund invested in government bonds, lines of credit and insurance policies. Just as CDIC is funded by banks, CIPF is funded by its members – investment firms and mutual fund dealers.

A basic way to de-risk your investments is to ensure you’re diversified in stocks, bonds and cash, without big bets on risky sectors, securities or assets. Dealing with an investment company that participates in CIPF adds another layer of protection.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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