Despite common availability, many Canadians are not taking advantage of employer-sponsored group RRSP plans, according to a report from Sun Life Financial.
The insurance giant says that 1.8 million Canadians currently have access to a group RRSP plan, with an accumulated asset base of $39 billion. Sun Life claims the largest share of the group RRSP market, with client firms representing 500,000 potential members. But the company reports only 230,000 members take advantage of the group RRSP available to them. Sun Life believes that since many of these plans include company matching of employee contributions, Canadians are leaving money on the table.
Mary De Paoli, senior vice-president of Sun Life’s group retirement services, says Canadians are missing a key opportunity to maximize their retirement savings, especially since not only do group RRSPs often include matching employer contributions, but also employees can contribute pre-tax through payroll deduction. On top of that, they may have access to funds with MERs that are virtually impossible for individual investors to negotiate on their own.
“The most powerful thing that most people overlook is that the money managers in these programs manage at rates that are about 50% less than retail rates,” De Paoli says. “For example, the average MER on an active Canadian balanced fund, in our world, is about 90 basis points; in retail, it’s probably about 250.”
De Paoli stresses that while investors’ ignoring their group RRSPs may put dollars in the pockets of advisors who can invest that money themselves, there is definitely money to be made by advisors who can obtain the trust of employers and their workers.
“We have about $6 billion in group money that has an advisor as an intermediary. In fact, it’s our single-largest growing business. Plan advisors are really seeing the benefit of making that connection with the small- to mid-size employer so that they can become the advisor of choice for the plan members of that employer,” she says.
“What we’re seeing are many advisors bringing plans to us that they have been able to establish a relationship on where, again, the investments in the plan are at the lower retail [price],” she adds. “The advisor receives a very good commission because of the fact they are doing all of the education, communication, providing full financial planning — not just on [the client’s] plan but on their personal finances.”
Filed by Mark Noble, Advisor.ca, email@example.com