Wealthsimple launches Smart Savings Account | Page 2 | Wealthsimple | Discussion forum

Norman1 said

Briguy said

Do you feel confident, Norman, that if you had 1 million deposited in your SimpleWealth Cash account, and the Schedule 1 bank holding the money, eg. Bridgewater bank, went bankrupt, that you would be fully protected by CIPF?

If, as I suspect, the $1 million is recorded as $1 million of cash in a Canadian ShareOwner Investments Inc. client brokerage account, then yes. That's because the broker owes me $1 million of cash.

However, if the $1 million becomes a $1 million Bridgewater Bank deposit receipt held in a Canadian ShareOwner Investments Inc. client brokerage account, then no. That's because the broker owes me a $1 million deposit receipt and not $1 million in cash. At most, CIPF would cover getting a replacement $1 million Bridgewater Bank deposit receipt.  

Thanks for the answer ! It does seem like it would be covered, but it's a definitely odd approach for Wealthsimple to take, considering their old Smart Savings account was parked at various banks including EQ Bank and did have CDIC protection. I'm not sure if I feel comfortable putting a lot of money with WealthSimple not knowing for sure what would happen if their bank they deposited in went bankrupt. If Wealthsimple went bankrupt, it would be simple, you would have 1 million dollar protection, no questions asked.

Norman1 said

Doug said

As far as where the deposits are held, I suspect it varies, but is predominently held in Equitable Bank, possibly Equitable Trust, National Bank, and Scotiabank, which is consistent with Wealthsimple's Save program. If anyone has an account with them, they should be able to see who holds their deposits. By law, they have to tell us.

…

I don't think the broker needs to disclose that. As far as the Wealthsimple Cash account holders are concerned, they have a cash balance in an account with investment broker Canadian ShareOwner Investments Inc. and the balance is eligible for coverage by CIPF.

In many cases, the brokerage account agreements will say that such cash balances are properly recorded, but are not segregated and may be used by the broker in the conduct of its business. 

They do, actually, per the CDIC regulations. In fact, there's some enhancements to broker disclosure rules with respect to CDIC. The deposits themselves are still insured by CDIC; the brokerage account is protected by CIPF in the event of Wealthsimple Inc.'s insolvency.

Cheers,
Doug

Briguy said
@Norman1 , another strange thing about this new WealthSimple Cash account is the WealthSimple Cash card. It's a hybrid of a debit card and a prepaid Visa card, so they simply call it a "prepaid card". When used to withdraw money from an ATM it can withdraw within daily limits as much cash as you have in your account, and Wealthsimple will reimburse you ATM fees within Canada, up to about 20 times a month. When used to purchase items, it functions as a Visa card, charging merchants the full Visa fee, but not giving you any cash back.

I would only use this card once it's available, for ATM withdrawals within Canada, as I have a Stack and Revolut card for foreign ATM withdrawals, and cash back credit cards within Canada.  

I thought that the funds would be allocated, appropriately, to one or more broker-held Investment Savings Accounts, eligible for CDIC insurance. I assumed that the prepaid credit card was, technically, a separate account and there was some behind the scenes action nightly to automatically sweep one's balance into the ISA(s) and thus earn interest. It's complicated, but if they're claiming CDIC insurance is applicable (they certainly used to), then they need to disclose the issuers, and properly show how many units of each ISA one holds. Otherwise, full stop, they're off-side and breaking federal law.

Cheers,
Doug

Doug said

They do, actually, per the CDIC regulations. In fact, there's some enhancements to broker disclosure rules with respect to CDIC. The deposits themselves are still insured by CDIC; the brokerage account is protected by CIPF in the event of Wealthsimple Inc.'s insolvency.

The CDIC regulations don't apply because the WealthSimple Cash account holders don't actually have a deposit with a federally-regulated bank, trust company, or credit union.

The account holders have a cash balance in a brokerage account with a provincially-regulated investment dealer, Canadian ShareOwner Investments Inc.

It is very similar to having a cash balance in a Scotia iTRADE Cash Optimizer account. However, the WealthSimple Cash account pays a better interest rate and the balance will eventually be spendable through a Visa credit card.

The WealthSimple Cash account is not set up the same way as the WealthSimple Save account was.

Norman1 said

Doug said

They do, actually, per the CDIC regulations. In fact, there's some enhancements to broker disclosure rules with respect to CDIC. The deposits themselves are still insured by CDIC; the brokerage account is protected by CIPF in the event of Wealthsimple Inc.'s insolvency.

The CDIC regulations don't apply because the WealthSimple Cash account holders don't actually have a deposit with a federally-regulated bank, trust company, or credit union.

See my subsequent posts and thread. I've since clarified my initial position. Indeed, Wealthsimple Cash is a prepaid credit card/payment card that happens to pay one interest on their credit balance. It is not, crucially, a deposit instrument.

The account holders have a cash balance in a brokerage account with a provincially-regulated investment dealer, Canadian ShareOwner Investments Inc.

Not quite. It's not separately segregated in the customer's name. Rather, it is a payment card that is in the customer's name and the customer credits funds to their payment card (like a credit balance on a credit card). Any time you have a credit balance on your credit card, there is no separate account in your own name for CDIC purposes; the financial institution still deposits those funds in a trust account in their own name and keeps the interest. This is no different except Wealthsimple is paying you 2.4% interest on your credit balance.

It is very similar to having a cash balance in a Scotia iTRADE Cash Optimizer account. However, the WealthSimple Cash account pays a better interest rate and the balance will eventually be spendable through a Visa credit card.

Interestingly, Scotia iTRADE still advertises this account, but makes no mention how to open a Cash Optimizer account. It's bizarre. Nevertheless, it's the not the same in that your Cash Optimizer account is still recognized as being in your own name even if only beneficially on Scotia iTRADE's books.

The WealthSimple Cash account is not set up the same way as the WealthSimple Save account was.  

The Wealthsimple Cash (for some reason, they don't prefer camel case here, by the way; I used to capitalize the 'S' like you) account is definitely not set up the same way. As best I can describe it, it is set up in exactly the same fashion as Mogo, Koho, Revolut, Stack, and the forthcoming PC Financial prepaid payment card wherein the card is in your name and they notionally credit you your loaded funds to your card, but as CDIC-insured deposits, the funds are held in Wealthsimple Payments, Inc.'s trust account (for the benefit of their customers). That is, it is not a CDIC trust account whereby the brokerage firm is required to transmit beneficial holders annually to CDIC.

Cheers,
Doug

Yatti420 said

If they reimburse all ATM fees on either side that is phenomenal.. Not sure how this product is different from the other old wealthsimple savings product.. . As others have pointed out.. Wealthsimple Cash is the the new non-registered Savings/Chequing account.. Atleast that is what it is looking like..  

@Yatti420, it's entirely different from Wealthsimple Save. Wealthsimple Save was a broker-held, in nominee-form, high interest savings account(s) that allowed the depositor to save up to $100,000 with each of ten (10) CDIC member institutions. In turn, their deposits were insured by CDIC.

Wealthsimple Cash is a prepaid card/prepaid credit card, with a payment card attached to it, that happens to pay you interest (note I didn't say deposit interest as it's not a deposit account) on your credit balance. Your funds are held in a trust account of Wealthsimple Payments, Inc., but not in a manner that is separately segregated and to which CDIC insurance is applicable. This is no different than a bank depositing your credit balance into their bank account, and earning interest on the credit balance of your credit card.

I agree the ATM surcharge rebates are advantageous, for sure, but I'd like to know if you have to manually message them in-app (like Koho), which is a pain in the butt, or automatic (like HSBC). If the latter, then I would open an account and close my Koho account.

Crucially, though, CDIC insurance does not apply; do not add more funds than you prepared to potentially lose in a bank failure, as you will lose those funds. CIPF only protects you if Canadian ShareOwner Investments, Inc., as carrying broker, fails, and doesn't have the funds in its accounts to settle the transaction. My recommendation is no more than $5,000 ever.

Edit: Please re-read all of my analysis above, as I've detailed it already.

Cheers,
Doug

Doug said

Not quite. It's not separately segregated in the customer's name. Rather, it is a payment card that is in the customer's name and the customer credits funds to their payment card (like a credit balance on a credit card). Any time you have a credit balance on your credit card, there is no separate account in your own name for CDIC purposes; the financial institution still deposits those funds in a trust account in their own name and keeps the interest. This is no different except Wealthsimple is paying you 2.4% interest on your credit balance.

Cash in a brokerage account does not have to be segregated.

Wealthsimple is quite clear on the product page that the money sent to a Wealthsimple Cash account becomes a cash balance in an account of their brokerage Canadian ShareOwner Investments:

How do you keep my money safe?

Balances in your Wealthsimple Cash account are held in an account with Wealthsimple’s affiliated custodial broker, Canadian ShareOwner Investments Inc. (ShareOwner). ShareOwner is a member of the Investment Industry Regulatory Organization of Canada. As a result, your accounts are protected by the Canadian Investor Protection Fund within specified limits in the event that ShareOwner becomes insolvent. …

That's how Wealtsimple cleverly gets the balance insured up to $1 million, without going through a bank, a trust company, or credit union.

Money sent does not become a balance on a Visa card. It can't be because the Visa card, the Wealthsimple Cash Card, is one of the spending features and the spending features are not fully rolled out yet:

Which Wealthsimple Cash features are available right now?

Currently all the saving features of Wealthsimple Cash are available. If you open an account today, you’ll earn 2.4% interest, with no monthly account fees, or fees for transfers or withdrawals. And, you can get started with just $1. Plus, by opening an account now, you’ll be first in line for spending features (including the Wealthsimple Cash Card!) when they’re available.

The underlying bank doesn't matter if it is ShareOwner who owes the cash balance to the holder of the Wealthsimple Cash account.

That's why it is quite important what the account statement will say about the balance owed. Will the statement say

• "Cash....C$1 million" or
• "Bank deposit....C$1 million"?

People are so paranoid. Sometimes life involves taking risks.

Norman1 said

Doug said
…

A way to think of it is the Wealthsimple Cash 'account' is a prepaid card in your brokerage account, in your own name, with a physical payment card attached to it. It pays you interest, but, crucially, not deposit interest.
…

I didn't see anything on their web site that suggests that the money would be loaded onto a prepaid card.

The Visa card issuer, Peoples Trust Company, certainly won't be providing a $1 million prepaid credit card without receiving the $1 million. Peoples Trust Company isn't a Schedule I bank. So, none of the money will be parked with them by brokerage Canadian ShareOwner Investments.

It also makes no sense to set it up that way. CIPF won't be of any help if the brokerage account were to hold a prepaid Visa card loaded with $1 million and the card issuer goes bankrupt. The broker would owe the account holder the prepaid Visa card and not $1 million.

CIPF wouldn't even be involved. Broker would just deliver a receipt confirming the amount that was loaded on the Visa card before bankruptcy. The account holder would then join the other creditors of the card issuer with the receipt in bankruptcy proceedings.  

Norman, with all due respect, you are thinking too umm, how should I characterize this, linearly, I guess? You are trying to equate your knowledge of broker-held HISAs, as well as traditional investments like mutual funds, stocks, bonds, and the like, but this is not that.

You have to think of the brokerage account as being like a wrapper, which itself is protected by CIPF. CIPF does not cover the contents within that wrapper, which include any stocks, ETFs, mutual funds, bonds, HISAs, and so forth. Normally, as you know I'm sure, the investments, deposits, and so forth are registered in the name of The Canadian Depository for Securities, Limited ("CDS") in trust for your brokerage firm and its clients, who, in turn, maintain internal records allocating each portion to each of their respective clients. When it's a HISA, or a GIC, they are required, by law, to report, on an annual basis, to both OSFI and CDIC the names, addresses, primary telephone numbers, and internal brokerage account numbers of all individuals who hold each CDIC eligible deposits in the event of the failure of a CDIC member institution.

In this case, though, it's somewhat confusing because what appears in your brokerage account is, say, a "Wealthsimple Cash" product that's held in your name and which is linked to a payment card (there is a payment card of the same name, issued by Peoples Trust Company as back-end card issuer and service provider of certain functions). The Wealthsimple Cash product pays you a current annualized return, as interest income from Wealthsimple Inc. (or one of its related entities, an amount comparable to the return that Wealthsimple Payments, Inc., receives from its two or three partner banks at which it deposits funds received from its clients in its own name. The amount Wealthsimple receives may be higher or lower than the amount the end customers receive. The answer is...the marketing speak and product literature information is confusing because they keep referencing underlying Big 5 Canadian banks, but you are not, in any way, depositing your funds with those banks or have any sort of affiliation (even indirect) with those banks (or credit unions, potentially) that you might with other broker-held ISAs.

It's very confusing, and I appreciate how you might've gotten some of the details mixed up, but indeed, this is very different from Wealthsimple Save (a discontinued/grandfathered product) that was like a product wrapper that individually held up to 10 HISAs, per Wealthsimple Save account, from various Canadian financial institutions. Wealthsimple had to report to CDIC and to the FIs the names and information of each of its clients; here it does not have to do that because the funds are in a single Wealthsimple Cash account with no correlation whatsoever to the Canadian banks other than that's where Wealthsimple deals.

It's also confusing because this is (quasi-)innovative in the sense that it's never really been done in a brokerage account before. All have been traditional ISAs, beneficially owned by the end customer, managed through the FundSERV platform.

Does that make more sense, and clarify things for you?

Cheers,
Doug