# Diversification between investment accounts necessary?



## Banalanal (Mar 28, 2011)

Do you think it is necessary to have more than one investment account? Suppose you own 100% equities and they are all held in one investment account, like RBC direct investing. Is there any risk in that? The account doesn't hold your money it just manages/posts your holdings. Even if the bank were to shut down you would still have the certificates of ownership in the companies, therefore spreading holdings between two accounts is not necessary, correct?

Thank you.


----------



## blin10 (Jun 27, 2011)

I believe if top banks shuts down you only covered for 100k...


----------



## Quotealex (Aug 1, 2010)

@Banalanal. Technically, I believe you are right. The real question is if the company shut down, will its trustee recognize your ownership claims to your stocks!


----------



## wendi1 (Oct 2, 2013)

That 100K is the amount covered in bank accounts and GICs by the CDIC, and does not apply to stocks, bonds or mutual funds. Note that credit unions are not part of this arrangement, they are covered by another method.

Up to 1 million in funds is covered by the CIPF in case your broker "becomes insolvent" and cannot return your property to you.

http://www.cipf.ca/Public/CIPFCoverage/WhatCoverageDoesCIPFProvide.aspx


----------



## SkyFall (Jun 19, 2012)

wendi1 said:


> That 100K is the amount covered in bank accounts and GICs by the CDIC, and does not apply to stocks, bonds or mutual funds. Note that credit unions are not part of this arrangement, they are covered by another method.
> 
> Up to 1 million in funds is covered by the CIPF in case your broker "becomes insolvent" and cannot return your property to you.
> 
> http://www.cipf.ca/Public/CIPFCoverage/WhatCoverageDoesCIPFProvide.aspx


exactly it doesn't cover you for bonds, stocks, mutual funds and for GICs it's only those with a maturity under 3 or 5 years I'm not sure

and by the way if RBC goes to ****, I don't really think other big banks in Canada will last long they will drop like dominos!


----------



## MoreMiles (Apr 20, 2011)

SkyFall said:


> exactly it doesn't cover you for bonds, stocks, mutual funds and for GICs it's only those with a maturity under 3 or 5 years I'm not sure
> 
> and by the way if RBC goes to ****, I don't really think other big banks in Canada will last long they will drop like dominos!


Not necessarily. If it is a system wide problem, yes. But if it is an isolated stupid RBC thing like a rogue trader betting 100 billion dollars on currency futures and lost, then it's RBC alone that will shut down. Sounds familiar? It has already happened at other well known banks so don't say it's impossible.


----------



## MoreMiles (Apr 20, 2011)

Same idea... Would you put all your life savings and nest eggs in ONE company product like Vangaurd ETF, Templeton mutual funds, etc? They are very solid and good companies... but all eggs in one basket? Would you do it? That is an interesting question.


----------



## james4beach (Nov 15, 2012)

Yes I think it's good to diversify between brokerages or investment firms. Losses from investment accounts can occur and CIPF is not a government insurance program... it's private.

Just last year, the large US broker *MF Global* collapsed and lost close to $1 billion of client funds. Those client assets were supposed to be segregated (but obviously they weren't). Instead the money disappeared, and the CEO still walks around a free man. So don't count on the legal system protecting your assets either, nor should you count on accountability.

This is a no-brainer to me. You didn't already forget how all those giant American banks collapsed, did you? Spread your assets around


----------



## wendi1 (Oct 2, 2013)

Skyfall: GICs are covered by the CDIC only if they are five years or less in duration.

James: My broker (and probably yours) is supposed to keep my holdings segregated from their assets. However, during the collapse of all those American banks, MF Global did grab some of those supposedly segregated assets and sent them off shore. This was not legal in the States, and is not legal here. 

About 93% of those assets have been recovered according to Wikipedia http://en.wikipedia.org/wiki/MF_Global. Whether that is a risk for Canadian brokers is for you to decide (but I think the bigger brokers are at less risk that these hedge fund guys).

I keep all my assets at the same broker (but I am well under one million).


----------



## Banalanal (Mar 28, 2011)

Thanks for the replies. However, if you have your stock ownership receipts printed, are you not on the books of the company that has sold you the equity? RBC does not hold the equity they just record it for you. If RBC were to shut down, would I not still have legal proof of equity ownership and the company that sold me the equity has records of my ownership as well? 

This is really just a technical question.

Thanks.


----------



## Guban (Jul 5, 2011)

^I understand what you are saying, and it makes sense, except technically ...

The shares that you "own" are actually held in "street" name, so that it is easy for the brokerage to buy and sell. You do not have the paper share certificate.


----------



## james4beach (Nov 15, 2012)

wendi1 said:


> James: My broker (and probably yours) is supposed to keep my holdings segregated from their assets. However, during the collapse of all those American banks, MF Global did grab some of those supposedly segregated assets and sent them off shore. This was not legal in the States, and is not legal here.


What MF Global did, as I understand it, was mix up segregated client assets with the firm's own play money while they were making margin calls to JP Morgan.

You're right, what they did doesn't seem legal... then again, nobody was convicted and nobody went to jail. That's the problem.

What makes you think all the brokers wouldn't do the same? Tell me why they wouldn't... If there are no penalties, no dangers of jail time, why should any broker care?

This is really optimistic concept you have about what's "illegal"... the question is, what HARD penalty exists for breaking these laws? In the USA, it's "nothing". Does Canada have a stronger regulatory environment than the USA?


----------



## alingva (Aug 17, 2013)

Banalanal said:


> Even if the bank were to shut down you would still have the certificates of ownership in the companies,


 ARE YOU SURE YOU HOLD CERTIFICATES? If you do not own physical papers/certificates - the broker owns the shares however shares are registered under your name. People did not care about ownership before MF Global collapse. Only if you own physical certificates - you are the owner

BWT - the same is applicable when you have a bank account. The bank owes you the money you deposited, you are NOT the owner of the money you put into your account. That's why we need CDIC


----------



## Banalanal (Mar 28, 2011)

Interesting comments. Thanks. I have printed receipts from whenever I purchase stocks, but they are not the official equity documents you would receive directly from a company. I suppose for the paranoid out there, splitting up stocks between two main discount brokerages, is a reasonable approach.


----------



## Eclectic12 (Oct 20, 2010)

alingva said:


> ARE YOU SURE YOU HOLD CERTIFICATES?
> 
> If you do not own physical papers/certificates - the broker owns the shares however shares are registered under your name ...


As far as the company that issued the shares - they'll have on record that broker ABC owns the shares. I believe it's the broker that's reporting the beneficiary interest in the part that the individual owner has. So I'm not sure "registered" is really the right wording.



Cheers


----------



## GoldStone (Mar 6, 2011)

Eclectic12 said:


> So I'm not sure "registered" is really the right wording.


The right word is "segregated".

Canadian Investor Protection Fund:



> Segregation
> 
> 1. My account statement shows that my securities are segregated. What does that mean?
> 
> Segregated securities are held apart from the assets of the Member and cannot be used by the Member. CIPF Members are required to segregate all fully paid securities. Conversely, if any of your securities are not fully paid, the Member is lending you money to purchase those securities and is entitled to use them as collateral. (i.e. they do not have to be held in segregation.)


The Member = The Broker

http://www.cipf.ca/public/FAQ/Coverage/Segregation.aspx


----------



## Quotealex (Aug 1, 2010)

I Think you'll find part of the answer to your question on http://canadianmoneyforum.com/showt...da-(IB-Canada)?p=196679&viewfull=1#post196679


----------



## alingva (Aug 17, 2013)

GoldStone said:


> The right word is "segregated".


 I am pretty sure you are right and I was wrong calling it registered (English is my 3d language). Does not matter how you call it, if you do not own physical certificates you are not the owner of the company. Unfortunately MF Global proved it (and it was not the only one).


----------



## alingva (Aug 17, 2013)

Quotealex said:


> I Think you'll find part of the answer to your question on http://canadianmoneyforum.com/showt...da-(IB-Canada)?p=196679&viewfull=1#post196679


 By reading james4beach's description I recalled a funny thing that is still going on. Americans took mortgages and banks immediately bundled them (mortgages), divided them into shares and sold to investors. After 2008/9 many people could not afford to pay their mortgages (or just did not want because they are/were underwater). 

So investors tried to sue banks for selling garbage to them (they did not receive promised cash flow), banks tried to sue mortgagees and in many cases they (banks) lost. The reason was they could not prove that they were mortgage owners, there ware no titles or titles were registered incorrectly. So now we have a situation where many people do not pay their mortgages and nobody can foreclose upon them. 

Why I recalled that - because the situation with brokers/shares is very complex, what happens if we have 2008 again and many brokers go out of business? Who owns the shares then? The answer will surprise many: Depository Trust & Clearing Corporation. Read this article if you want to know who really owns your US shares (I do not know about Canadian)
http://www.ifii.com/articles/498930687/who-really-owns-your


----------



## Eclectic12 (Oct 20, 2010)

alingva said:


> I am pretty sure you are right and I was wrong calling it registered (English is my 3d language).
> 
> Does not matter how you call it, if you do not own physical certificates you are not the owner of the company...


 .... trouble is that by using "registered" - the likely interpretation for those reading is that the ownership would be traceable. My point is that you are correct in that there isn't direct, registered ownership. In that sense, I believe the word chosen will matter.


Cheers


----------

