Continuing Education for Financial Service Professionals
Be the Better RRSP/TFSA Advisor
Copyright 2016 CLIFE Inc. All rights reserved. Any reproduction of parts or all of this book and its contents by any means electronic or mechanical is prohibited.
Be the Better RRSP and TFSA Advisor is relevant to all those who work in the financial services industry or in association with life insurers. The information in the course is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business.
We welcome all feedback and suggestions for additions to the course. Please send your comments to info@clifece.ca.
CLIFE INC. 1595 Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 www.clifece.ca
Be the Better RRSP and TFSA Advisor provides continuing education credits upon satisfactory completion of an online test. Please see the website for details or email info@clifece.ca.
2
Table of Contents
Your Reasons to Take This Course
4
You’re the Better Advisor: Now Prove It
7
The Basics
18
Learn from this Real-life RRSP Story
19
RRSP Benefits
21
Inner Workings of the RRSP
37
Disadvantages of RRSPs
58
TFSA Benefits
60
Inner Workings of the TFSA
64
Disadvantages of TFSAs
70
The Real Deal: Which One is Best?
71
The Final Analysis
77
3
Your Reasons to Take This Course
There’s lots of free RRSP and TFSA advice available for consumers. Hard to believe, but RRSPs have been available since 1957. Financial institutions have had more than 58 years to develop their RRSP marketing materials and develop a cohesive and compelling reason to buy!
RRSPs were available before the Canada Pension Plan/Quebec Pension Plan; CPP/QPP was introduced in 1966.
TFSAs are the newcomers: they came on to the market in 2008.
Equally hard to believe about RRSPs is that they have been around as long as they have and so many consumers are still so uncertain and confused about them.
RRSPs may seem “old hat” to you and your financial service colleagues and TFSAs still have some of their shine but, together, there is an assumption of knowledge about these products and who buys them by those who sell them.
One basic, false, assumption is that RRSPs and TFSAs on the whole are well understood.
We think it is fair to challenge that thinking.
Many people do not understand RRSPs or TFSAs, and in failing to understand what they are, they do not use them, or begin and quit from a sense of frustration.
4
Even highly educated professionals make serious and expensive mistakes when it comes to RRSPs and maturity options.
The RRSP/TFSA market is not saturated. Many sales opportunities exist and arise on an ongoing basis. They include: o Those who have never established plans; o Those who have plans that are languishing without making further contributions or because they are not managing investment performance; o Those whose economic circumstances improve and find themselves in a position to contribute; o Those whose employment circumstances change and find themselves no longer contributing to a company pension; o Those whose personal circumstances change and find they have extra income available for saving because, for instance, child care costs decrease; o New Canadian citizens.
Further, the Insurance & Investment Journal reported on October 2015 (http://insurance-journal.ca) that fewer than one in four Canadian contribute to RRSPs. o Just 61% of those who earn $80,000 or more were contributors --a decrease of 7% in ten years; o Only 16% of those who earn between $20,000 and $40,000 were contributors --- a decrease of 25% in ten years!
TFSA contributions are growing but even so: o Only 30% of those earning $80,000 or more contributed to their TFSA; o 26% of those with income between $20,000 and $40,000 contributed.
5
The Office of the Chief Actuary, a unit of the Office of the Superintendent of Financial Institutions, found that the percentage of employees covered by a registered pension plan has declined from 39% in 2003 to 38% in 2013. Therefore, pension coverage at work is in decline.
A study by BlackRock called the Global Investor Pulse Survey found that 40% of Canadians age 55-64 have no retirement savings.
Where do you come in? Perhaps by starting with some basic information, since 58% of those in the BlackRock survey admitted they do not fully understand how much they need to save for retirement.
Let’s repeat: there’s lots of room in the market for these plans.
The objective of this course is to lay out all the details of RRSPs and TFSAa and provide points of comparison between them. Careful reading of how to use plan features and benefits will make you the better RRSP/TFSA adviser.
To some, this course may be financial advisory back-to-basics, yet it is important to bear in mind that it is basics on which success is built. “ Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.”
Jim Rohn
6
You’re the Better Advisor: Now Prove It
We’ve pointed out that financial institutions have had decades to get their RRSP information kits prepared. Undoubtedly, they are highly valuable in the information they provide.
What they don’t provide is the benefit of interpersonal interaction such as that which is created when you sit in front of your prospects or clients (P&Cs). You impart information but, more importantly, you can read their facial expressions and body language to decipher if your message is hitting home.
You do this not just when RRSP season comes around but also every time you meet with your P&Cs. This gives you unique abilities to provide assurance, answer questions, and understand motivations.
In short, you have the advantage of knowing your client.
You can better know your client by meeting on a regular basis and asking questions like: o Do you contribute to a company pension plan? o Is the company you are working for growing, flat, or shrinking? o Is the industry in which the company works growing, flat, or shrinking? o Is there job security at work? o Do you receive an annual bonus or on-going commission?
But, here’s an alarming fact from the Canadian Life and Health Insurance Association (CLHIA): In a survey conducted within the last three years, 75% of those surveyed said they look to their advisor for financial advice
7
and on average it had been five years since they were approached about their needs and coverages.
Question: How do you know what’s happening in a client’s life if you are not in regular contact?
An initial meeting or series of meetings when your relationship is beginning sets a benchmark. But without a regular review and knowledge about whether client circumstances have changed --- improved or deteriorated --- you don’t know if the ground has shifted. There may be entire earthquakes of which you are unaware!
An annual review satisfies your need for knowledge.
You can set yourself apart from your competitors by establishing the need for review; demonstrate that you are consultative. In return, you will develop a client base who appreciates your advice and consultation. This will be especially true for products like RRSPs and TFSAs, which are so widely available.
The annual review gives you the opportunity to be proactive and engage in a relationship instead of employing transactional selling. o Transactional selling is a sales strategy that produces quick sales without developing a long-term customer relationship. o Relationship, or consultative selling, is a continuum that maps out plans and focusses on progress towards goals
8
9