96-02 : Use of a Financial Intermediary When Investing Client Trust Funds

It has come to the Society’s attention that some lawyers have been utilizing the services of a Financial Intermediary when investing client trust funds. In these instances, the trust cheque that is prepared to establish the investment is made payable to the Financial Intermediary. The Financial Intermediary then invests the monies on behalf of the lawyer at an eligible savings institution. Members should be advised that this practice violates Law Society Rule 5-46(1) which requires that:

A member or law firm may, after first depositing trust money into a pooled trust account, subsequently withdraw the trust money or a portion of it and deposit it into a specific trust investment account, provided:

(a) the specific trust investment account is opened in the name of the member or law firm in trust for the person to whom the money belongs; and

(b) full details of the specific trust investments are recorded in the member’s or law firm’s trust records.

Law Society Rule 5-41 defines a “specific trust investment account” as follows:

“specific trust investment account means a separate interest-bearing account opened by a member or law firm in trust for a specific client at a savings institution, and is limited to a daily interest savings account, a term deposit or a guaranteed investment certificate.”

Rule 5-41 further defines a “savings institution” as a Manitoba branch of:

(a) a chartered bank or a trust company that is authorized by law to receive money on deposit and is insured by the Canada Deposit Insurance Corporation; or

(b) a credit union or caisse populaire incorporated under The Credit Unions and Caisses Populaires Act.

When a Financial Intermediary is used, the concern arises that from the time the funds leave the control of the lawyer, until such time as the funds are placed at an eligible savings institution, the trust funds are not insured by CDIC or the Deposit Guarantee Corporation of Manitoba. Therefore, the use of a Financial Intermediary is not permitted under the Law Society Rules.