Inefficient technology could derail TFSA business

The tax-free savings account (TFSA) is arguably the most important value-added service to come along for advisors in years. Like all value-added services, it needs to be offered efficiently, and not all dealers may be up to the task.

Capped at a $5,000 annual contribution limit, the TFSA is not going to pad an advisor’s bottom line much next year, but studies have shown it’s going to be imperative to offer it to solidify and expand client relationships.

A dealer or product provider doesn’t just turn on a switch and — voila — it offers a TFSA. It requires some reorientation, including new compliance forms and supervision processes, as well as a need to integrate it on the product platform of the dealer. A sloppy execution of offering a TFSA is not going to add value for an advisor’s business — it may very well detract from it.

Univeris, one of the country’s leading enterprise wealth management solution (EWMS) providers, is emphasizing that advisors should take a good look at the back-office capabilities of their TFSA provider to ensure they’re ready to offer the products efficiently, when they become available on January 1, 2009.

Richard Binnendyk, executive vice-president of Univeris, notes there are a whole number of operational processes that have to be changed to accommodate the TFSA.

“[You have to consider] how does a TFSA fit into an overall operation. Even if you think about it as regular processes, like opening an account and replacing a trade, the TFSA has to be incorporated in that,” he says. “There’s the reporting aspect of it, such as how to order a report with a TFSA on a client statement. There’s also the compliance aspect of it, which means that an advisor has to make sure the TFSA is part of that overall review activity and to ensure the investments meet the needs of the client’s KYC, etc.”

Binnendyk says there is a distinct possibility that companies that have a hard-coded back-office platform are going to have to invest serious money into offering a TFSA. He suspects some might have to forego the offering all together, if they can’t adapt their back-office system in an efficient manner.

The back-office system for the TFSA will have to track and manage all contributions, withdrawals and account gains, so advisors can work with their clients to ensure they effectively maximize contribution limits.

“Everyone is going to say they are offering a TFSA, but they might not be letting you know that it’s going to be a totally different process than what you’re used to,” says Binnendyk. “You could be dealing with a legacy platform that cannot accommodate TFSAs in a cost-effective manner. There are two options: one, you don’t offer it or two, you have to build relations with a separate system — which means you’re introducing a whole different set of separate processes.”

For Univeris, which offers an EWMS platform used by more than 16,000 advisors, the transition has been relatively painless. The company says its back-office platform is fluid enough that it was easy to integrate a number of new TFSA-specific features. The company is offering a TFSA module for its EWMS that includes all required forms and documentation, as the reporting requirements differ from those of an RRSP.

“We are able to integrate TFSAs into our platform at virtually no cost to our customer; it’s part of an overall release of an upgrade in November, where we are able to create a TFSA product into our platform that is actually fully and automatically integrated into all those processes,” Binnendyk says. “There is no need to change an account opening process because of a TFSA. There is no need to change the look or feel of a portfolio summary or customer statement because of a TFSA. There is no need to change the current process around compliance and supervision because the TFSA has been introduced. It’s been fully integrated into those processes.”

When advisors are looking at the support capabilities a dealer or TFSA provider is offering, he suggests there is some flexibility for firms to use a phase-in approach. While their full TFSA support capabilities might not yet be in place, some companies may be able to introduce an effective TFSA in phases, since the tax recording aspect of the TFSA will not be a factor until 2010.

“I think there are a lot of firms out there that are looking at TFSAs as a phased approach. On the one hand, it’s trying to accommodate its current business process,” he says. “On the other hand, they have to incorporate a lot of the business rules that are unique to the TFSA.”

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(11/21/08)