What is the difference between a nominee account and a client-name account? 

In a nominee account (sometimes referred to as a self-directed account), the investment dealer or mutual fund dealer holds all of your securities in one account. In a client-name account, your investment resides at a financial institution like a bank or mutual fund company.

Sounds confusing doesn’t it?

I like to use the following as an example to help explain the difference between the two types of accounts:

In my office, I had a candy dish (for my clients) with individually wrapped mints. Think of a nominee account as being the candy dish or container. Think of each mint being an individual investment. You may have many investments (mints) in the container but there is only one container and therefore one account. No matter how many investments (mints) you may have – you still have just the one container. In other words, the investment dealer keeps all the investments in safekeeping in one account/container. We can call the container holding all the various investments a 'nominee account'.

To continue with my candy dish analogy I would start removing several mints from the candy dish and line them up. Pointing at each separate mint, I would say that this first mint is located at ABC Bank and the second mint is located at XYZ Credit Union and so on and so forth...

In a 'client name' account, the individually wrapped mint (investment) does not reside at the investment dealer, or brokerage account. It is outside the candy dish. This type of account resides directly at the financial institution itself. For instance, your bank chequing account is likely to be a client name account because the account physically resides at your bank and is not in a brokerage account with your adviser.

Or put another way; you can buy a GIC directly through your bank or buy it through a stockbroker. If you by it through your bank, the GIC resides at the bank. It is registered in your name (client name) at the bank. If you buy it through a stockbroker, it will likely be registered in the investment firm’s name (nominee name) held in trust for you.

What are the advantages/disadvantages of a client name account?

There are a lot of financial institutions in Canada and theoretically, you could open an account at each bank, trust company or credit union in the country. That gives you the most choice but it is a lot of paperwork and bookkeeping dealing with dozens of financial institutions. However, some firms will do that work for you. Deposit brokers for instance, can handle all the paperwork for you as they have agency agreements with many banks, trust companies and credit unions. They can open up an individual client name account at each bank for you and the account opening and on-going paperwork is the deposit broker's responsibility.

Advantages:
A client name account gives you the maximum choice but also generates the most paperwork. Some clients like the maximum control it affords over their investments. Everything is registered in the client’s name at all times. Costs are generally free for these types of accounts.

Disadvantages:
f the account, applications, transfer documents, etc. all require your original signature for most transactions. If you live across town or are out of town, getting to your adviser to sign lots of forms might be a non-starter for some investors.

Estate workload is heavier. A large client name account holding a dozen investments or more at a dozen different financial institutions means that your Executor will have to settle the estate at each of those financial institutions.

Example of nominee registration versus client name registration:

Nominee account registration:

ABC Investment Firm Ltd
In Trust For: John Smith, Account# 123456
ABC Head Office Operations,
999 Anywhere St.
Toronto, ON M1H 1H1

Client name registration:

John Smith
729 Belmont Ave. W.
Kitchener, ON N2M 1P3

[Note: the above client name registration indicates the client has direct ownership i.e. It is in his name and the address is the clients address.]

What are the advantages/disadvantages of a nominee account?

Advantages: The main advantage is convenience. Nominee accounts are registered as an “In Trust For” account (see above example). You can relay your instructions to a broker who can buy and sell investments based on your verbal instructions or on a digital communication. Signatures are generally not required for most transactions.

For an estate situation, nominee accounts can have a real advantage over client name accounts. Although you may have dozens of investments in a nominee account, you still have just one account (remember the candy dish?). There is only one dish - one container, one account! Therefore, only one set of estate documents needs to be submitted.

Disadvantages: Cost. Typical fees for nominee accounts are $125 or higher per year plus tax. There might be fees for additional plans (LIRA, LIF, etc) and fees for unscheduled withdrawals from registered accounts. However, some nominee accounts holding just GICs may be fee free. If you wish to transfer your nominee account(s) to another firm, transfer-out fees can be quite expensive – generally equivalent to 2 years worth of annual fees. Account fees can vary widely from firm-to-firm, check with your adviser about these and other costs.

What type of account is best - nominee or client name?

That’s a difficult question. If we are talking about GICs and you want the best rates then a client name account will provide the highest rates because in a client name account you have the most choice. If however, you like to save reams of paper and like the convenience of dealing with your investments by phone or email rather than in person, then the nominee account can be more appealing.

Because of the extra paperwork involved, if you have a large RRIF account, LIRA or LIF, a nominee account would be the best choice.

For RRSP’s it’s too close to call. If you use a deposit broker, you have plenty of choice. Account size, the number of GICs and how frequently they turn over are all things to consider. For larger RRSP accounts with frequent amounts of transactions, I would give the nominee RRSP the nod.

For out-of-town clients, that can't get to their advisor's office.you want a nominee account where you can relay investment instructions to your adviser over the phone or by email. Whatever digital communication you choose, it is wise to keep a permanent copy of investment instructions. Email is still the language of business transactions. Although this might change as technology evolves, it is still the equivalent of having a "paper trail".