Benefits of Group RRSPs

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It doesn’t always offer a revenue stream, but offering advice around your client’s group RRSP is often the right thing to do.

A growing number of advisory firms are finding opportunities in offering advice and planning around group plan retirement products. These group RRSPs have some clear-cut advantages over most individual registered accounts and advisors should ensure their clients are aware of them.

Rick Skehan, is a principal of Reuter Benefits, a group plan provider overseeing more than $400 million in group plan assets. He says it’s a constant challenge to inform investors about the benefits offered by their group products versus what’s available in the retail space, because few employers have relationships with firms that provide adequate education and advice to the end plan members.

Skehan, Reuters and its Toronto-area partner firm, Retirement Solutions by Design, focus heavily on plan-member education. The firms hold numerous group meetings and offer one-on-one investment counseling to group members if requested.

“In the past, group plan members didn’t have a good way of choosing their investments, or at least having a method they were really comfortable with. That’s where we started hosting an annual meeting about how plans were reacting to different economic factors. We really focus people on their investments, and their risk profile. That’s grown and that’s the way we do our business now, and it’s also why we’re successful.”

Often clients aren’t aware that many of the fund mandates offered in a group plan are much cheaper than what is offered by retail advisors.

“On a group basis, they are going to get the power of the group buying. The investment management fees are going to be significantly less for the exact same fund,” Skehan says.

Ralf Soeder, from Oakville Ontario-based WFC Insurance Group, has roughly 40 group clients mixed in with his retail clientele. He says in addition to the lower cost base on group funds, employer matching and immediate tax deferral are two other bonuses he feels clients need to be aware of.

“If you have an employer matching your mandated 3%; that’s a pretty big incentive to use the group product,” he says. “Tax deferral is immediate. If you contribute regularly off your paycheque, human resources can make adjustments so that the tax deduction is made right away; therefore you get the tax-free growth benefit right away. Keep in mind that may only be $35 a month – you don’t get the big tax refund at the end and the deferral.”

Soeder says the benefits are important enough that he’ll often suggest clients in external group plans maintain their group offering as their core RRSP account. He adds it’s important to enhance the utilization of group assets with a larger financial plan.

“With my retail clients, I review their portfolios, including their employee statements and group RRSP options and that’s where the benefit of having an advisor is important,” he says. “The client talks to somebody who really understands their overall financial picture. Sometimes we’ll still open an individual RRSP to counterbalance their group plan if the asset mix of the group plan is maybe not entirely appropriate for their needs.”

Soeder adds, “Often the group RRSP is the right thing for the client, especially if the company is matching contributions. In financial planning trust is huge, you must do what’s right for the client. For the same reason, I would advise group plan members, if the employee has a real financial advisor and their comfort zone is there I would advise they maintain that relationship.”

Drew Pritchard, managing principal of Retirement Solutions by Design, says unless you’re dealing with larger dollar amounts, it can be hard to motivate advisors to spend a lot of time offering one-on-one advice. That’s where a firm like his can add a lot of value to employers.

“Engaging plan members is one of the important elements of good governance for plans. Our experience is members want and need to have a better understanding of investment basics and asset allocation concepts associated with their group offerings,” he says. “There are no minimum deposit requirements on these funds compared to the individual space. The variety of tools and resources available to the group member are particularly more significant, not only in the things we do as a firm but also some of the things the carriers do as well.”

Pritchard points out that if an advisor does take a fiduciary role on advising group retirement assets, they need to be aware of the liabilities a plan provider is under.

“There is a move from the 401(k) market in the U.S. to reduce the number of fund offerings clients have, to make an investment selection process more efficient with members, and it also can control fiduciary liability,” he says. “One of the things we do to address that with clients is provide rigorous and regular reporting about how we’re doing things and how employees are reacting to the decisions being made, so that it can become part of the governance and capital accumulation plan documentation, and it validates the process.”

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• Mark Noble is a Toronto-based investments writer.

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