What Losses are Possible if a Broker Files for Bankruptcy

Will Investors Face Losses if a Broker or Dealer Files Bankruptcy?

Planning is quite necessary if you are really interested in building your savings and create a healthy investment portfolio. But, it is possible that certain unexpected situations may arise and possibly derail your investment plans. As such, you need to be aware of things you will have to do to protect your interest in such situations. 
In the following sections let us look at a situation in which your investment broker/dealer has filed bankruptcy. How will such decision affect you? Is it possible that you will lose all your investments? Let us find the answers.

Broker/Dealer Filing Bankruptcy – Implications for Investors

certified financial plannerIf a situation arises where broker or dealer decides to file bankruptcy then CIPF (or Canadian Investor Protection Fund) takes required steps for transfer of your account (and all the associated assets) to some other solvent firm.
Here the main focus for CIPF is to ensure that assets are transferred successfully and all the associated expenses are paid off.
You also need to be aware of the fact that all investors are provided coverage of a minimum of $1,000,000 if a broker/dealer was holding the securities who is a member of the CIPF. In addition to it, all investors are able to avail this type of minimum coverage when they are opening an account with CIPF member dealer/broker.
In the next section let us go through details of losses that are covered or not covered by CIPF.

Coverage of Losses

Few of the losses that are covered by the CIPF include:
• Future contracts as well as commodities
• Cash balances and securities
• Insurance funds (such as the segregated ones) that are acquired or held by a CIPF member broker/dealer on your behalf.

Losses Not Covered by CIPF

You need to consult a certified financial planner to know about few of the losses that do not get coverage from CIPF. What are those losses? Let us find out.
• Losses investor faces due to the selection of wrong investments, default by the issuer or because of modification in value occurring in the securities market.
• As an investor, you are not able to file your claim with bankruptcy trustee or CIPF within the maximum allowed 180 days or from the actual date when insolvency occurred.
• Any type of securities or segregated funds which are not held by dealer or broker or if there is lack of recorded entries that states that dealer or broker was holding these securities or funds.

Two Types of Coverage

A certified financial planner can help you understand more about two basic coverage that is provided by CIPF. There are certain differences between these and our aim here will be to look at those differences.
• Consolidated Coverage: In this type of coverage the investment accounts are consolidated or combined for calculating the actual coverage you can get. Thus, if there are some investment accounts that are non-registered such as option, margin, and cash accounts then their values will be combined for calculation of coverage you can get.
• Separate Coverage: Separate coverage can be received when there are investment accounts like education savings plan, testamentary trusts or joint accounts.


Thus, right at the onset, you will have to consult a certified financial planner to be sure that you are working with a broker who is a member of CIPF and you will get needed protection from losses.