According to a survey conducted by Leger360 “….only 50% [of Canadians] believe that their RRSPs can easily be transferred between institutions.” The same study found that many Canadians shared other misconceptions when it comes to transferring RRSPs (and other accounts) to a new Dealer, for example:
- They’re concerned that transfer fees are high.
- They believe there are potential tax implications.
- The break up conversation with their current Advisor would be too awkward.
It turns out, none of these concerns are valid. The truth is it’s easy to transfer any type of investment account between Financial Institutions. While the process is seamless, there are a few things you should be aware of to avoid what could be costly mistakes. In this post, I’m going to describe the transfer process, discuss some things you should keep an eye out for when transferring an account, and dispel the misconceptions revealed in the Leger360 study.
During my time in the financial services industry I was either involved in or saw the transfer in or out of hundreds of accounts at the different firms where I worked. At various times I found myself tracking transfers, answering client questions about their transfer, checking into the status of a transfer… it seems account transfers are a daily fact of life at any investment Dealer no matter what your role.
When we refer to Registered Accounts, we’re speaking specifically about accounts which are Registered with Canada Revenue Agency, which include;
- Registered Retirement Savings Plans (RRSPs)
- Registered Retirement Income Funds (RRIFs)
- Registered Education Savings Plans (RESPs)
- Locked-In Retirement Plans (LIFs, LRSPs, LRIFs)
- Registered Disability Savings Plans (RDSPs)
- Tax Free Savings Accounts (TFSAs)
First Step – Your new Advisor/Dealer
The first thing you should know is that your transfer is initiated by the Firm where your account is being delivered – generally referred to as the Receiving Institution. Your new Advisor will play the central role in moving your account. She will be initiating the process by providing you with the necessary transfer documentation and advise you appropriately until completion. The transfer forms will typically be completed when you open your new account(s). It’s also likely you’ll be asked to provide copies of your most recent account statements to accompany the transfer forms.
At no point in the process is it necessary for you to contact your old Firm or your Advisor. Depending on the Firm and the type of transfer, your former Advisor may not even be informed that you’re transferring out. Breaking up with an Advisor isn’t always easy – particularly if the relationship has been a long one. A courtesy email explaining why you are moving your account and the reason for your decision is good idea and any professional should be understanding and accommodating.
Step Two - Completing the Transfer Documents
To complete the transfer, you’ll need to provide some basic and some not so basic information. The most important things you’ll have to indicate are: (a) if it’s a full or partial transfer, and; (b) if the transfer is In Cash or if it’s In Kind.
Partial transfers are requests to move part of an account to the receiving institution. In this case you would indicate on the transfer form which positions you will be moving.
In-Kind transfers will result in everything in the account transferring to the receiving institution, as is and none of your exiting positions will be liquidated. If you hold investment products and a cash balance, everything will be transferred.
In-Cash transfers will result in the account being liquidated, sold, redeemed. It is important to understand that all the positions will be sold at their market price by the delivering institution after the transfer form is received. The Dealer will also charge the full commissions and in some cases, sales charges may apply on the redemption of certain mutual funds.
When possible, avoid In-Cash transfers – you will not have any input into any specific price or timing of the selling of positions and the cost to liquidate may come as a nasty surprise. If you’re transferring a non-registered account, you may inadvertently trigger capital gains taxes as well. If it’s necessary to transfer In-Cash – call your old Advisor and have them place the order while you are on the phone with them and be clear on any commissions or sales charges that may apply.
In some rare instances it may be necessary to liquidate some, if not all the positions in your account. This is because some investments cannot be held at the receiving institution – this might include proprietary mutual funds, private shares, mortgage investment corporations and certain exempt market securities.
If you’re moving your account from an IIROC licensed Advisor to an Advisor only licensed with the Mutual Fund Dealers Association (MFDA) you will not be able to hold either Exchange Traded Funds (ETFs) or Stocks in your new account. In this case your new Advisor will likely have you liquidate all stock and ETF positions before transferring – which will likely be serving their interests more than yours. Always be cautious when moving accounts to Advisors only registered to deal in either Mutual Funds or Insurance Products.
Step Three – Waiting for your transfer to be completed.
Depending on if the transfer is being completed manually or electronically, the time it will take to complete it will vary. Most transfers these days are completed electronically which, as one would expect, is much faster than one that is handled manually. Transfer times will also be impacted by the type of account being transferred and the type of investment products held in the account. Once the transfer documentation is received by the delivering institution electronic transfers shouldn’t take any more than 10 business days as mandated by the regulators. Delays can and do happen, and certain holdings can take much longer than others to transfer – Mutual Funds may take longer than stocks and GICs are generally not transferable In-Kind and must be transferred In-Cash on maturity unless they are redeemable before maturity.
RRIF Minimum Payments
If you’re transferring a RRIF account, the Delivering Institution is required to pay you your full Minimum Payment for the current year before releasing your account. For example, if your minimum RRIF payment for the current year is $15,000.00 and only $5000.00 has been withdrawn – the balance of $10,000.00 must be withdrawn before the account can be transferred.
All Dealers will charge you a transfer out fee – and the fee is always charged by the delivering institution. This fee can be as low as $50 or as much as $150 – per account. The good news is that this fee is usually reimbursed by your new Advisor - be sure to ask if they will cover this for you. The fee is taken directly from the account you’re transferring out – to avoid having your transfer rejected ensure there’s enough cash in the account to cover the fee.
There are no tax consequences when you transfer investment accounts between Financial Institutions. However, the correct transfer form must be used – a T2033 or “Transfer Authorization for Registered Investments” – is used for all types of registered plans including the RRSP, RRIF, LRSP, LIRA and TFSA. If you transfer a non-registered account In-Cash the liquidation of any investment will trigger either a capital loss or a capital gain.
Common Reasons for Rejected Transfers
Account transfers can be rejected for any number of reasons. Some of the most common reasons have already been mentioned – here’s a recap of what’s been mentioned and a few others;
- Incorrect client Social Insurance Number
- Insufficient Funds to cover transfer fee
- Insufficient funds to cover RRIF Minimum Payment
- Short positions in account (negative position in a stock)
- Under margined account (negative cash balance)
- Incorrect address for Receiving Institution
- Incorrect account type opened at Receiving Institution
Your New Advisors Role in Your Transfer
Some of the earliest practical advice a new Advisor will give you will have to do with the logistics of your account transfer. For an experienced Advisor, providing appropriate guidance is a responsibility they’ll take seriously. A good Advisor will ensure your transfer will go off without a hitch and with no impact on you financially. This means they’ll have a through understanding of your investments and your financial position before your transfer your account.
For anyone moving their account(s) to a Discount Broker or Robo Advisor – and not receiving professional guidance along the way – the process isn’t so complicated that you should be deterred. Combine some of the information provided here with a helpful ally at your new institution and the process should be a smooth one.
Danny MacKay is the founder of SeekAdvisor, a former Bay Street Executive and Industry Insider turned Investor Advocate. If you have any questions or comments about this article please feel free to reach out - firstname.lastname@example.org