Are Tfsas And Rrsps The Right Spot For Gics And Do Transfer Fees Make It Prohibitive To Consolidate Accounts?

Q. In reading articles about wealth management for retired people, I’m finding it difficult to find information about fees for converting and consolidating accounts. Financial institutions generally charge $169 for registered retirement savings plan (RRSP) transfers and probably the same for registered retirement income fund (RRIF) transfers. From my experience, tax-free savings account (TFSA) transfers are the same price. So, consolidating may not make sense at all, considering the fees. Am I right about this, or am I missing something?

Also, regarding TFSAs and RRSPs, am I right in thinking they are better storage for guaranteed investment certificates (GICs) because interest is 100 per cent taxable while stock gains are only 50 per cent taxable (and only when realized)? Or, again, am I missing something? —Cheers, Stephen

FP Answers: Stephen, it seems many articles fail to go into specifics for folks like you, perhaps because the questions you raise are seen as “dirty” because companies need to acknowledge that account transfers act as a profit centre for the industry. Pretty much every company charges a fee on assets for leaving. This allows them to get every last nickel out of the client before the client leaves.

While most companies charge $125 to $150 plus taxes to transfer a single registered account, most also charge only $50 on all additional accounts with the same social insurance number. Every company has the right to set its own rate and rates change, so check before acting.

Meanwhile, most companies (and advisers, if you work with someone who is reputable) will reimburse the transfer fees incurred by new clients. I’ve been reimbursing clients for more than 20 years. The logic is simple: If an investor has confidence in a new adviser, that adviser should reciprocate by paying the transfer fees. Anyone who wants new business should be only too happy to pay the fee — which can keep people like you stuck to their former institution — on your behalf to make your switch as painless as possible.

It helps to consolidate because if you have accounts at multiple institutions, you’re also paying fees at multiple institutions. Furthermore, many advisers offer reduced fees once an account passes a certain asset threshold. Consolidating makes meeting the thresholds easier, which can save real money over time. It also prevents advisers from working at cross purposes. Imagine having one adviser sell a bank stock while the other buys it. Consolidating helps with planning, overall asset management (asset allocation), reporting and cost minimization.

Last, your logic is widely accepted regarding tax optimization and account location, but it misses an important consideration. I agree that many people advise investors to put bonds in registered accounts while keeping stocks in taxable accounts. However, while you are correct about inclusion rates, you should also consider the expected rates of return. For instance, if you expect stocks to earn eight per cent and bonds to earn three per cent, then there would be less year over year tax due on the growth of a portfolio with stocks in the registered accounts (50 per cent of eight per cent is greater than 100 per cent of three per cent). Of course, the flip side of the bargain is not only one of tax relief, but also one of tax deferral. You may pay less year over year with the stocks in the registered accounts but be careful. If those accounts are TFSAs, you’re likely better off with the stocks in the registered plan. If they’re in an RRSP or RRIF, they will be taxed at your top rate when you withdraw the money. That means more deferral while working, but more tax when retired. Pick your poison.

John De Goey is a portfolio manager with Designed Securities Ltd., regulated by the Canadian Investment Regulatory Organization and a member of the Canadian Investor Protection Fund.

Do you have a question for FP Answers? Email wealth@postmedia.com.

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