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 The
Money Management Newsletter: General
Interest
CDIC insurance may not always apply
By Rob Whipp
Money Management Newsletter - December 1992
We received an inquiry recently from one of our clients
asking if the GICs
that they had purchased from us were covered by CDIC. What prompted the
inquiry was an article in the Globe & Mail entitled "Don't assume
deposit insured".
While we assured the client that GIC and RRSP
investments purchased through us were indeed covered by CDIC
as long as they were within the $100,000 limits, there are circumstances
where CDIC insurance may not apply even though an individual's records
indicate they are within the insurable limits.
This situation arises when GICs or RRSPs are purchased
from a bulk issue by an institution. When would this happen? One situation
where this could happen with GICs is for the purchase made through an
investment
dealer. Investment dealers may purchase a large block of a particular
term of GIC from one issuer and the cost savings for the institution are
passed through to the dealer by way of a preferred rate.
This block is sold off by the dealer to its clients.
However, since the original block was not covered by CDIC insurance because
of the large amount, the individual investments of the dealer's clients
will not be insured either. The reason for this is because the institution
only has one purchaser on its records - the investment dealer. The individual
client record of ownership is kept with the dealer, not the institution.
In the case of RRSPs, investments held in a company
group RRSP or Money Purchase Pension Plan are examples where CDIC coverage
could be lost. Conservative members of these types of plans may have directed
the trustees to purchase GIC type RRSPs rather than higher risk stocks,
bonds
or mutual
funds.
These type of plans, which are frequently held with
a trust company or insurance company, purchase investments with that particular
institution. If, however, only one name of record is on file - that of
the group RRSP or Pension Plan - then insured coverage will cease at $100,000
even though the portfolio
value may be well into the millions.
In order to protect themselves, individuals in these
types of plans should ensure that their company's trust agreement with
the institution specifies that a separate trust is established for each
plan account and appropriate CDIC premiums are paid.
 The
caveat here is not to assume that all investments are covered by CDIC
simply because your records indicate that you are within the insurable
limits. You have to know if your investment is part of a bulk purchase
with a particular institution and what ownership records the institution
has on file.
* * *
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