Clarification regarding Wealthsimple Cash and Wealthsimple Save | General comparisons | Discussion forum

Briguy said
@Doug -
The Globe and Mail article on the new Cash account says the bank accounts will be covered up to 1 Million dollars:

CEO Michael Katchen would not reveal which banks are partners in the program, but confirmed that Wealthsimple does not have a banking licence. Rather, the two unnamed banks will hold client assets and client money will be protected up to the $1-million limit guaranteed by the Canadian Investor Protection Fund (CIPF).  

@Briguy, if the Globe is referring to it as a "bank[ing] account," that's factually inaccurate, and should be corrected. It is a prepaid credit card/prepaid card/payment card that pays you interest. Note that I didn't say deposit interest because it's not a deposit. It's protected by Canadian Investor Protection Fund in as much as it's part of your individual or joint account, as applicable, that you hold with Wealthsimple Invest (its robo-advisor) or Wealthsimple Trade (its no-fee discount brokerage platform). Note, too, this limit is per unique account holder, and is not $1 million per Wealthsimple Trade, Invest, and Cash account one holds.

The two unnamed banks hold Wealthsimple Payments, Inc., funds in a trust account similar to a real estate or property management's trust account that holds client assets. It is not a trust account that is separately segregated for CDIC insurance purposes. Note, too, that Wealthsimple Cash goes to great pains to avoid using the term "deposit" or "deposits." If they did, CDIC and OSFI would be on their back so fast it would make their head spin.

This is no different than one who loads funds onto their Stack, Koho, or Mogo prepaid credit card. The funds are not deposits.

CIPF protection does NOT protect your funds in the event of the bank's failure whatsoever. It only protects you, to the $1 million, in the event that Canadian ShareOwner Investments, Inc., were to abscond with your funds or become insolvent and not be able to pay its liabilities. This is useful protection, don't get me wrong, but it's not deposit insurance. Does that clarify it more?

Put another way, let's say you hold the Mawer Balanced Fund (MAW104) in a discount brokerage account. If MAW104 were to decline in value or go to zero (unlikely as it is a globally diversified, balanced mutual fund, as the name suggests), CIPF would not protect you because it doesn't protect against investment losses. It protects you only in the event your discount brokerage firm becomes insolvent or is otherwise able to pay its liabilities. If you'd held MAW104 directly through a mutual fund dealer (distributor), the Mutual Fund Dealers Association Investor Protection Corporation would protect your account to $1 million as well under terms similar to CIPF. This is no different: the only party protected by CDIC insurance in this case is Wealthsimple Payments, Inc., to $100,000 of their $500 million to $1 billion in client assets.

Cheers,
Doug

Briguy said
As you would say, I'll take a hard pass on this. I have Stack and Revolut for foreign ATM, Scotia Passport Visa for foreign purchases, Rogers and Presidents Choice and Triangle CCs for local purchases, RRSPs with Hubert and Saskatchewan Pension Fund, TFSA with Achieva, HISA with LBC and Motive, and ITrade for stock purchases. I now have 5 free Itrade trades a year with the Ultimate package chequing account plus unlimited free ETF purchases and sales of XGRO and XBAL, so I have no need of SimpleWealth.

With the SimpleWealth you may lose your money if the bank that's holding your money fails, you will lose on cash back if you use the debit card instead of a credit card, and you may get your account hacked if you accidentally swipe at a terminal with a skimmer attached.  

All true, though to be clear, your Revolut and Stack cards (not sure why you'd need both; I'd personally pick the better of the two—and, actually, my preference would be for Mogo or Koho due to better no-ATM owner surcharge cash access) are the same as Wealthsimple Cash. Keep your balance on your Revolut and Stack cards low; I'd recommend no more than $1,000 on each at any given time. It's completely unprotected funds.

As to the Scotia Ultimate Package Account, I'm disappointed in that in that you still have to hold a large balance in your chequing account to waive fees. I'm surprised you'd go with that. $4,000 @ 3% works out to $120/year, so you're implicitly paying $10/mo. to keep that package. It would've been better if they'd made it like the CIBC Smart Plus Account whereby you'd pay no monthly fee if you hold at least $100,000 in your iTRADE or other Scotia accounts.

Cheers,
Doug