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Eliminating Risk versus Unleashing the Power of the Financial Services Sector

How public policy affects the behavior of financial planners and investment advisors.

The Canada Disability Savings Regulations (4)(f) stipulate that financial institutions cannot charge fees related to the RDSP against the assistance holdback amount of the RDSP.

The intent of this provision is to protect the government assistance (grants and bonds) provided to Registered Disability Savings Plans; to ensure that the assistance holdback amount cannot be used as a source of funds to pay fees (like management expenses) or commissions.  The risk is that fees are paid from the holdback amount, the RDSP is collapsed and the financial institution is not in a position to return the full holdback amount to the federal government.

As a result of this provision is that any fees or commissions must be paid out of contributions, earnings or grants and bonds older than 10 years in a plan.  The concrete and significant result is that financial planners and investment advisors are often not compensated for activities that promote the RDSP.

The usual incentive systems which makes a large part of the financial services industry work – compensation for new funds or compensation for assets under management – is lacking.  People who work in the financial services industry are often only compensated for private contributions.  This means in an RDSP where the personal contribution is $1,500 and the federal government contribution is $4,500, the financial planner is compensated only on 25% of the funds in the plan.  Where the RDSP is bond only, the financial planner may not receive any compensation.  We have heard stories of people with bond only plans being turned away from financial planners, who claim not to know how to set up an RDSP in their circumstance so use a good one like which can help you with just about all your needs.

The consequence is that the powerful incentive which drives marketing activities for RRSPs, RESPs and TFSAs is substantially lacking from RDSPs.

From a public policy perspective, taxpayers should applaud a policy which protects the public interest.  On the other hand, however, the federal government is spending taxpayer dollars to promote what we think is a great plan, a great piece of public policy that will make a great difference in the lives of people with disabilities.

It’s hard to imagine that the risk that this provision is eliminating is anywhere near as great as the marketing power that would be unleashed if it were removed and financial planners and investment advisors received the same incentive to sell an RDSP as they do to sell an RRSP.