What is the difference between a nominee account and a client-name account? by Glenn Szlagowski - Financial Advisor

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 have 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 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, 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 one. That gives you the most choice but it is a lot of paperwork and bookkeeping. Some firms will do that work for you. Deposit brokers for instance, can handle all the paperwork for you and they have agency agreements with 30+ banks, trust companies and credit unions. They can open up an individual client name account at each bank for you and the paperwork is their 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: Signature requirements. As you are the owner of the account, applications, transfer documents, etc. often requires your original signature. 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

[Editor’s note: I have seen some nominee registrations where the client’s name (John Smith) was omitted and only the reference account number was used.]

Client name registration: (i.e. John lives in Kitchener on Belmont Ave.)

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.]

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 on the phone, or on an email, fax, etc. Signatures are generally not required for most transactions.

For an estate situation, nominee accounts 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?). Therefore, only one set of estate documents needs to be submitted.

Disadvantages: Cost. Typical fees for nominee accounts are $125 per year plus tax. There might be fees for additional plans (LIRA, LIF, etc) and fees for unscheduled withdrawals (typically, $50 per withdrawal + tax) in 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. Check with your adviser about these and other costs.

Which account is best?

That’s a hard question. It depends on the client. 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 the convenience of dealing with your investments by phone or email rather than in person, then the nominee account can be much more convenient.

If you have a RRIF account, LIRA or LIF, a nominee account ( free for GIC accounts) at Assante, would likely be the best choice.

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

For out-of-town clients, the choice is much easier – you want a nominee account where you can relay investment instructions to your adviser over the phone or by email. Signatures are usually not required.

Got a question about how nominee accounts work? Contact me at gszlagowski at assante.com.