Are TFSAs and RRSPs the right place for guaranteed investment certificates (GICs)? Do transfer fees make it too expensive to consolidate accounts? FP Answers explores these questions, including tax optimization and an often-overlooked factor.
Reader Question
Stephen, a retired reader, asks about fees for converting and consolidating accounts. He notes that financial institutions typically charge $169 for RRSP transfers and similar amounts for RRIF and TFSA transfers. He wonders if consolidation makes sense given these costs. He also asks whether TFSAs and RRSPs are better for GICs because interest is fully taxable, while stock gains are only 50% taxable (and only when realized).
FP Answers: Transfer Fees and Consolidation
John De Goey, a portfolio manager, responds that many articles avoid these specifics because account transfers are a profit centre for the industry. Most companies charge $125 to $150 plus tax for a single registered account transfer, but only $50 for additional accounts under the same social insurance number. Rates vary, so check before acting.
Importantly, many companies and reputable advisers will reimburse transfer fees for new clients. De Goey has done this for over 20 years. The logic: if an investor trusts a new adviser, the adviser should reciprocate by covering the fees. Consolidating helps because having accounts at multiple institutions means paying fees at each. Also, many advisers offer reduced fees once an account reaches a certain asset threshold, making consolidation financially beneficial over time. It also prevents advisers from working at cross purposes, such as one selling a bank stock while another buys it. Consolidation improves planning, asset allocation, reporting, and cost minimization.
Tax Optimization for GICs vs. Stocks
Stephen’s logic about tax optimization is widely accepted but misses an important consideration. While many advise putting bonds in registered accounts and stocks in taxable accounts, expected rates of return matter. If stocks earn 8% and bonds earn 3%, the tax due on growth may be less with stocks in registered accounts (50% of 8% vs. 100% of 3%). However, consider tax deferral: with stocks in a TFSA, you’re likely better off. In an RRSP or RRIF, withdrawals are taxed at your top rate, meaning more deferral while working but more tax in retirement.
John De Goey is a portfolio manager with Designed Securities Ltd., regulated by the Canadian Investment Regulatory Organization and a member of the Canadian Investor Protection Fund.
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