Dear Nancy Woods,
Recently I have taken over my father's financial affairs because he has not been able to look after them himself. He is very organized but I have found that he has many GICs and accounts in many banks and brokerage firms all over the city. It seems like every week another one is maturing that I didn't know about. Should I keep up the practice of having investments all over, or are there any reasons I shouldn't consolidate them into one financial institution?
Signed Darlene
Dear Darlene,
It depends on the total amount of your father's investments. It may be easier for you to consolidate the holdings into one investment firm. I have experienced that people of the older generations tend to use multiple banks for fear that if one bank goes "under" the rest of their money is safe. There is the Canada Deposit Insurance Corporation that covers depositor's funds to a total of $100,000. That was increased from $20,000 to $60,000 in 1983 and then changed to $100,000 in 2005. The coverage of $100,000 is only from eligible members of the CDIC and is per eligible deposit account per depositor. What that means is the CDIC insurance covers deposits separately (for a total up to $100,000 including principal and interest) for accounts such as a savings account, RRSP, RIF, and TFSA. It may be that, at the time, your father was nearing the $20,000 limit and he felt he needed to be below the coverage maximum, so he went to another bank.
- How the CDIC calculates insurance is listed here.
- There is a good video explanation provided by the CDIC here.
Investment firms have coverage by the Canadian Investor Protection Fund (CIPF). If there was the occurrence of insolvency by an investment dealer, the fund covers its customers up to $1-million of what the investment dealer cannot return of your holdings back to you. Losses are shared among customers in proportion to their net assets at the member, so unless your account is very large in relation to the member's other clients, your share of the loss will likely be below the coverage limit. There are two classifications of accounts: a General account that includes regular cash accounts and TFSAs and a Separate account that includes RRSPs and RIFs. The balances in these accounts are totalled to determine the amounts for coverage.
Click here to get more information on coverage limits.
Consolidating would simplify not only your life, make it easier to track maturities, calculate and check the asset mix, but also provide a simplified tax reporting for claiming income and capital gains. Small points for some, but if you are finding yourself overwhelmed, it may be the answer.
Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can send your questions to asknancy@rbc.com as well.
Nancy Woods