For over 15 years I was happily running my practice almost 100% off book, direct with fund companies. A little over a year ago, I made the switch from the MFDA to IIROC. Under the IIROC platform, it’s not really an option.
After spending over a year on the nominee system – the clear winner is nominee. Here is a summary of how it has changed the way we do business.
Paperwork – The freedom
Under the off book system, if I wanted to invest a client’s RSP portfolio in 5 funds, but each fund was offered by a different fund company, we would manually complete 5 RSP application forms and 5 different transfer forms. As you can imagine the stack of paperwork upon set up was pretty onerous.
Now, imagine that 2 years forward, the fund managers change at one of the fund companies and I decide the client should move to a different fund at a different fund company. This requires a new application form, new transfer form and the transfer may take up to 2-3 weeks to occur.
Wow, that sounds so prehistoric!
Under the nominee format, I open one RSP plan. Once the monies arrive I can invest in the 5 different funds with the client’s verbal authorization. Fast forward 2 years and the fund manager changes, I call the client and say we should switch from fund XYZ to fund ABC;, once they agree, I can put the sale and purchase through immediately.
Tax reporting – Consolidation finally
It’s wonderful to now have all capital gains and losses tracked through our nominee systems. In the past, clients would have to remember to keep copies of the fund company year-end statement and look to the last page to see what, if any, gains or losses occurred during the last year.
Under the nominee system we can simply create a gain/loss report for all transactions that triggered a gain or loss. It’s a beautiful thing and clients love the summary and simplicity.
Transfers – ATON, where have you been all my life?
When I switched to nominee I had never heard of ATON. What is it you ask? It’s an electronic system that most institutions use to facilitate transfers.
Why would we care as advisors? Speed. I have had transfers occur within 2 days. The client signed the transfer form on a Monday and the money arrived on Wednesday, it is unbelievable. Not all transfers are as fast, most take about 5-10 days. No more lost transfer cheques. I remember having transfer cheques being lost in transit somewhere before they arrived at the receiving institution. It was rare but when it happened it was a nightmare getting stop payments put on. It can make the transfer take 6 weeks or more. In most cases, there are no cheques being issued under the ATON system, it’s all electronic!
NON RSP account switches
In 2008, when I was still under the off book system, I remember one fund company that had several managers leave over a short period of time. These were the folks I had trusted my clients’ monies with so it no longer made sense to keep the assets at this fund company.
Well, when you deal off book and you want to move monies from one fund company to another, guess what, you have to do a sale, which means clients will receive a cheque in the mail or a deposit via EFT. Then, they have to complete a new application form and write you a new cheque payable to that fund company. Easily a 2 week process and torturous to many trees and admin assistants. Under nominee plans, once you receive client approval, you simply transact the switch, what a beautiful thing!
If you are not going fee-based, there is the RSP annual admin fee that clients will not be thrilled with, but f you explain the long term benefits and simplicity you may find them more understanding of the annual admin fee.
The only other negative I have seen with nominee plans is that you have to ensure you manage the cash component correctly to ensure there is cash available for RRIF payments and other transactions that require liquidity. Other than that, it gets 2 very big thumbs up.
The administration that is saved and the client benefits are outstanding. Had I known the amount of administration and time this would save me, I would have switched many years ago to nominee plans.
There are several non dealer nominee providers in the MFDA world that still allow you to maintain independence and flexibility in case you ever choose to change dealerships in the future. Do your due diligence, consider the time and admin spent on off book transactions and then make a decision.
Best of luck with your practice.