Switching your RRSP

The reasons for making a change are many and varied. It may simply be that you’ve moved to a new location and want to switch your RRSP to a financial institution that’s more conveniently located. Or it may be something more serious – investments that are underperforming, escalating fees, or a personality clash with your account representative. Whatever the reason, our advice is to think it through carefully before you act.

While the procedure for moving RRSP assets from one company to another is fairly straightforward, the actual execution of the move can sometimes be immensely frustrating. We constantly hear complaints from RRSP investors who have been forced to wait weeks and even months for a requested transfer of funds to take place. Some unhappy RRSP holders have actually brought suit in small claims court for lost revenue resulting from lengthy delays-and won.

Financial institutions have an annoying habit of burying the paperwork involved in these transfers. After all, if the account is being transferred to someone else, why break your back to service the customer? We’ll get around to it-when everything else has been done.

All major finaial institutions now charge fees to transfer your money among accounts or to other institutions. These are generally around $25 per transfer. So not only will they take their time moving your money, they’ll penalize you as well.

This attitude is, unfortunately, very common in the industry. And it’s not only frustrating for RRSP holders, it can cost them money on top of the fees. That’s because the transferring company will “freeze” your account once it receives the transfer instructions. That means you won’t be able to conduct any transactions until the switch is completed. A transfer of funds that is delayed for several months could mean missed investment opportunities and lost income.

As a result, several independent organizations are promoting new guidelines to be adopted by the entire industry. Hopefully, these good intentions, along with a new transfer form that makes it easier to specify what’s being moved, will help.

In terms of policy, virtually all members of the financial services community recognise that lengthy transfers are problematic – for the industry and the consumer alike – and have set standards for dealing with this problem.

The Investment Dealers Association of Canada has a policy requiring that RRSP transfers to another company be completed within 25 days of receipt of notification. There’s no reason why this cannot be observed; it’s not a complicated procedure.

Mutual fund companies and insurance companies have set 15 business days as the upper limit for completing cash transfers, although brokerages plan to cut this to as short as 10 days.

The Canadian Bankers’ Association is even more demanding. It wants the cheque sent out within seven business days of a request being received, except during RRSP season when the limit rises to 12 days.

The Canadian Association of Financial Planners (CAFP) says that RRSP investors lose millions of dollars a year because of slow transfers. It would like to see a series of its guidelines adopted as the industry standard, but progress is very slow.

Next page: The CAPF wants institutions to process

The CAFP wants institutions to process all transfers within 10 business days of receiving the government’s T2033 transfer form. If you get the form in early, that is, 10 or more days before the maturity date in the case of GICs, the CAFP recommends that financial institutions issue postdated cheques that include interest to the maturity date of the certificate.

For transfers taking place on or after the maturity of a GIC, the CAFP wants institutions to pay interest until the issue date of the cheque, regardless of the maturity date. That means that if you apply for a transfer on, say, March 10 for a GIC account that matures that same day, the financial institution should calculate and pay you interest up to the day the transfer is completed.

That would be a nice touch. However, we’d be very surprised if the financial community went along with the idea.

The CAFP guidelines also extend to the receiving institution. As a gesture of goodwill, says the CAFP, the new plan administrator should begin interest calculations from the date shown on the cheque it has received, even if it takes them several days to process the transaction.

All these ideas are well and good, and the sooner they’re implemented throughout the industry, the better. As things stand right now, however, lengthy delays can still take place, occasionally as a result of corporate takeovers and mergers, but usually because of clerical error or inattention. You have to protect yourself. Here’s how:

1. Find out what guidelines your financial institution has adopted for transfers to another organization. No standardized guidelines have been adopted to cover the whole industry. Most industry associations have policies in place, but usually these are voluntary guidelines with no teeth.

2. Make sure the transfer is really necessary. If it’s not, leave the funds where they are. You can always open a new RRSP with the company to which you intended to transfer your money.

3. Keep close track of the maturity dates of all GICs and term deposits in your plan. If you want to transfer assets from any of these sources, have the appropriate paperwork ready well in advance. This will ease the pressure on yourself and your financial institution.

4. To speed up the procedure, don’t initiate the transfer during January or February-the peak RRSP season. Wait for a quieter time (say, mid-summer) when your request is less likely to be put on hold.

5. Review all paperwork for accuracy before signing. If you’ve obtained a time-limited rate guarantee from another institution, make sure that you inform your broker, bank, or trust company both verbally and in writing. Attach a copy of the written notification to your paperwork.

6. Keep checking on the status of the transfer. If no action has been taken within a reasonable time, speak to the manager of the RRSP department of the transferring firm. If you do business with the company in other ways (deposit accounts, mortgages, etc.) and intend to keep doing so, mention the fact-presumably, they’d like to hold on to you.

7. Consider a self-directed RRSP within the same company as an alternative to transferring your assets to another organization. You’ll find the staff much more accommodating and the whole operation should be done quickly.

If you have trouble, make a pest of yourself until the job gets done. We don’t like having to give that kind of advice, but the workings of some financial institutions in this situation make it necessary.

Adapted from Gordon Pape’s 2001 Buyer’s Guide to RRSPs by Gordon Pape and David Tafler, published by Prentice Hall Canada.