Gordon Pape: RRSP Facts and Fallacies
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It’s the time of year when financial institutions publish their annual RRSP surveys. The purpose of the exercise is two-fold. First, they want to draw attention to themselves as a good place to invest. Second, they tend to focus on issues that put their own company in a good light.
Understanding these motives helps to put the results in perspective for readers. That doesn’t mean they aren’t useful, just that they need to be read in context. The recent survey from discount broker Questrade is an example.
Conducted by the Leger research, it concluded that 78 per cent of respondents would be willing to switch to lower-fee RRSP investments if those lower fees could ensure a superior rate of return. Well of course they would. Who wouldn’t? And (surprise) it just so happens that Questrade offers some of the lowest fees around. That conclusion does not invalidate the research. It just serves as a reminder as to where the company’s interests are.
There were actually a number of revelations in the study that deserve to be highlighted.
1. Just over half of us have an RRSP.
Survey results show that 54 per cent of Canadians have money invested in an RRSP. Those who have one (or more) tend to be older, better educated, and higher income. That makes sense since the more your income, the bigger the tax break from your contribution. In fact, low-income Canadians are probably better off using TFSAs.
People are uncertain about ease of transfer. Only 50 per cent of those surveyed believe RRSPs can be easily transferred between financial institutions. The other half worry about high transfer fees and the possibility of a tax hit. In fact, there is no legal impediment to making such a move – you just have to sign a few forms. The fees should be minimal (usually an account closing charge) and there are no tax consequences.
The problem may be intimidation (which 16 per cent of respondents worried about). No company wants to lose your business, so they may try to apply pressure if you tell them you’re switching. Resist – it’s your money.