Fund reps need to brush up on RRSP knowledge, survey suggests

(February 24, 2005) A significant number of mutual fund company representatives are providing incorrect information on RRSP contribution limits, according to a survey soon to be released by Dalbar.

The research firm placed 123 calls to customer service representatives at 19 Canadian mutual fund companies. Only 60 were able to provide the basic RRSP contribution limit formula for the 2004 tax year (18% of income to a maximum of $15,500).

“Considering there’s so much attention on attracting RSP dollars, we were surprised that when we looked for more guidance on how much we could give to a fund company, we often weren’t given the right answer,” says Dalbar’s Mark McDonald. “We thought that would have been a detail that companies would have been 100% clear on.”

Seventeen percent of customer service reps contacted by Dalbar refused to provide any information on the formula at all, instead referring callers to the CRA. And nearly half omitted the 18% limit, implying that all Canadians can contribute the maximum $15,500.

“Had investors followed the instructions given to them in some of these calls, they would have had some explaining to do come tax time,” McDonald notes.

“This seems to be an industry-wide trend. There were firms that had no problem at all answering the questions. However, when you expand to all 19 companies, more often than not, we got bad information.”

Only 15 of the reps contacted by Dalbar went beyond the bare bones formula, says McDonald, providing information on things like unused contribution room from past years and the effect of pension adjustments.

The study suggests that companies are focusing on product-driven training, and neglecting the basics, Dalbar says. “Companies may need to revisit where their training is focused,” McDonald adds. “It’s such a straightforward formula that maybe companies assume their representatives know it off the top of their head but this study shows that clearly isn’t the case.”

And the calculation for RRSP contribution limits isn’t going to get any simpler. For the 2005 tax year, the limit will be $16,500, rising to $18,000 in 2006. In Wednesday’s budget, the federal government went further, proposing further increases starting in 2007, topping out at $22,000 in 2010, after which the limit will be indexed to average wage growth.

For advisors, the message is to maximize communication with clients, says McDonald, because “the advisor is going to bear the brunt of any misinformation a client might get from other sources.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com