Wealthsimple HISA | Page 2 | Wealthsimple | Discussion forum

Norman1 said
The funds are ultimately deposited in the name of Wealthsimple Investments Inc. in trust. Any CDIC payouts would be sent to the trustee, Wealthsimple Investments.

So if WS vanished, would we have a process where we would have accounts set up at whoever WS chose to place our funds with, or would whomever was appointed to administrate WS assets disburse the funds to us directly?

I'd really like to understand this completely before entrusting a large amount of funds to this account, which is very enticing both for the interest rate, but also the debit card (which just arrived today ).

Wealthsimple is not actually placing the funds like a deposit broker would. Instead, Wealthsimple is accepting the funds and giving a Wealthsimple Cash account balance in return.

Any of the funds Wealthsimple may then deposit with a CDIC member are going to be in an account in Wealthsimple's name. One isn't going to have any access even if the funds are in Wealthsimple's name, in trust. The CDIC member owes the deposited funds from Wealthsimple to Wealthsimple.

Should Wealthsimple disappear, then one would be dealing with whoever is appointed to settle Wealthsimple's debts.

Does the Wealthsimple Cash account statements or online display say, for example, something like "Balance....$30,000 " or does it say "Deposit with (name of CDIC member)....$30,000"?

I agree with Loonie, but if it is kept, it should be asterisked with a disclaimer.

Looks like the risk is in fact in the Save account.
https://help.wealthsimple.com/hc/en-ca/articles/14905388487579-Understand-how-CDIC-coverage-works-in-your-Cash-account-

https://www.wealthsimple.com/en-ca/legal/legal-disclaimers

Wealthsimple Investments Inc. is a member of CIPF.

https://www.cipf.ca/cipf-coverage/about-cipf-coverage#coveragelimits
What Are the Coverage Limits?
If securities, cash or other property (excluding property not eligible for coverage such as crypto assets) in client accounts are missing, CIPF will provide compensation for the value of the missing property as at the date of the member firm’s insolvency, up to the limits prescribed in the CIPF Coverage Policy.

TINAisOver said
Besides, if one is going to place cash in a Brokerage, then might as well place it in a ISA fund. It's almost as liquid, it pays higher interest and its CDIC protected.  

Indeed! But then some folk do not like the T+1 settlement concept of ISAs or MMFs. They are so used to the basic bank account format that doing a T+1 trade/sell is either uncomfortable or a 'bridge too far'. I can understand that but they also need to recognize WS Cash is not really a bank account in true form either.

“ In liquidation , the administrators would not be required to adhere to another layer regulation, CDIC or CU insurance. This alters the Creditor order.”

If WS goes bankrupt CDIC would be completely irrelevant. Its there to protect against the failure of the third party which WS is using rather than WS itself.

Brokerages don’t tend to fail because of the nature of their business. And if they do, either another brokerage would buy/take over the failing firm or the administrator/trustee would transfer accounts to another brokerage. Insurance is there to cover the cost of transfer. And customers have priority over claims of other creditors, so as long as your funds are not being stolen, they are still yours.

In my mind its really safe, more so than provincially run CU insurance. At least thats what I concluded when I looked into the safety of my shares with a brokerage.

https://mnpdebt.ca/en/corporate/resources/blog/understanding-securities-firm-bankruptcy

NorthernRaven said
I don't see that "ultimately" as some sort of weasel word. An ISA with a broker is also "ultimately held securely in trust" at a bank, after the cash has routed it way through the broker and however it wends its way through the system to get to the bank as a nominee trust deposit. I think thats all WS means here as well. And if it was all just in Wealthsimple's own account, that wouldn't be "securely in trust".

More important, if it is just in their own account, and not in individual nominee deposits, there would be no $100,000 coverages to talk about. They are using the same wording from the nominee/trust process ("Under the trust framework, CDIC insures eligible cash balances up to $100,000 per beneficiary, per member institution, provided certain disclosure rules are met. Coverage is free and automatic. Learn more about how CDIC protection works"). WS isn't going to be making bald-faced lies about CDIC coverage, and I can't imagine these are anything other than nominee deposits.

I'm actually considering moving my brokerage portfolio from TDDI (although they've been a good home) to WS (platform now seems to have the basics of what I need), and I'll be talking with someone there this coming week - I'll ask for confirmation.  

You're more or less right, NorthernRaven, on the CDIC eligibility of Wealthsimple Cash. It's a bit complicated, as Koho Financial is the contracted issuer of the Wealthsimple Cash prepaid credit card, but Wealthsimple is the card sponsor and administrator. Prepaid credit card balances are now CDIC insured (as of 2022, I believe), which is an important aspect to keep in mind. Prepaid credit card balances aren't reported in the same manner on the public OSFI financial return databases, but are nonetheless subject to CDIC insurance. Wealthsimple essentially puts up a bond to Koho Financial, I think, to settle the transactions actually occurring on the prepaid credit cards at the end of each business day, and settles that internally by withdrawing the funds held in trust with a CDIC member issuer at custodian, Canadian Western Trust company.

The funds may not be traditional nominee accounts like the ISA accounts on the FundSERV platform, but essentially the funds are CDIC insured through them being prepaid credit card balances.

As for T5 slips being issued, that's not required for CDIC insurance to be valid. I can't see Wealthsimple Payments paying the taxes on the interest income, though, so likely they will issue T5s for 2023 in early 2024. But what I am saying is even if the T5 is issued by Wealthsimple Payments, that is not indicative of whether the funds are CDIC insured.

Cheers,
Doug

I believe I have things figured out with respect to Wealthsimple Cash. It's a pooled registered cash account at a nominee broker, not an in trust for nominee account at CDIC member at a nominee broker (as in the case of an ISA). See more at: https://www.cdic.ca/financial-community/for-brokers-and-other-financial-professionals/new-changes-to-deposit-insurance-affecting-nominee-brokers/industry-best-practices-brokered-deposit-advisory-group-bdag/

In this case, the nominee broker is Wealthsimple Payments, Inc., who, in turn, holds a pooled registered account at Canadian Western Trust Company that, in turn, holds the funds across three member institutions.

Wealthsimple Payments, Inc., transmits, or maintains a list of all end user beneficiaries that it can transmit to Canadian Western Trust Company, upon request, when CDIC asks for it within three business days, along which it assigns a Unique Client Identifier to each ultimate beneficiary in the list. Annually, Canadian Western Trust Company issues a T5 to Wealthsimple Payments, Inc., then Wealthsimple Payments, Inc., in turn, will issue T5s to every end beneficiary that shared in that one large pot if interest payments in 2023.

If Wealthsimple Payments, Inc., were to fail, creditors of Wealthsimple Payments, Inc., would have absolutely zero claim to these assets as they're not held on the balance sheet of Wealthsimple Payments; they are custodial assets held by Canadian Western Trust Company. A receiver would be appointed for Wealthsimple Payments, Inc., and would take over the assets and reporting requirements of Wealthsimple Payments.

If a CDIC member were to fail, CDIC would pay those funds to Wealthsimple Payments, or its receiver, if Wealthsimple Payments also failed, who, in turn, would pay its end beneficiaries.

You're welcome. 🙂

Cheers,
Doug

Postscript: Of note, in one of CWT Company's financial data returns in the preceding 12 months, they reported an increase in custodial deposits of approximately $3 billion, which closely correlated with the reported amounts held in Wealthsimple Cash and Save, which had previously been custodied by Equitable Bank as EQB's "partnership deposits."