A reader emailed in the following question and I thought I would share my answer with everyone:
My question is specific to my situation obviously, but could apply to anyone in their 30s who’s changed jobs a few times and now has multiple RRSPs.
The first RRSP is a mutual fund group plan left over from my previous employer, that I still contribute to monthly, and that I borrowed 20,000 from to buy a house with 2 years ago. It’s managed by a private investing firm here in Ottawa. The second RRSP is a mutual fund group plan with my current employer that I also contribute to monthly (it also has a Deferred Profit Sharing Plan portion that also has a matching employer contribution). This one is managed by Manulife but I can make changes to it online if I want.
For a few years, I was transferring all the money from my current employer RRSP to my previous employer RRSP because I thought it was better to keep one larger account growing steadily rather than having 2 separate RRSPs each of lower value. This way I also had access to an advisor whenever I called them up, but I didn’t trust their advice since it would likely have me put all my investments with them anyway.
I hope that’s clear as mud! What’s your take on something like this?
First a clarification – this could apply to pretty much anyone, not just people in their 30’s.
Many people will contribute to their current Group RRSP to enjoy the free company matching benefit, and once the employer contributions have vested (usually a two year period, but it can be longer or shorter) they will transfer the assets out annually to a different financial advisor/firm to enjoy greater investment options or cheaper investment options in some cases.
The rationale provided by the reader is actually a little different though – he postulated it was better to have one larger account as opposed to two. Mathematically, there won’t be any difference – all things being equal. Again, the main reason someone would annually transfer out vested contributions is to take advantage of lower costs and/or greater investment options. You will also want to keep an eye on annual account fees – not all firms have RRSP annual account fees, but some can be more than $100/year. If you have multiple accounts, each with annual fees – it can really add up.
The last statement is a bit confusing though as the reader indicates that by doing it this way he would have access to an advisor, but didn’t trust him anyways. Group RRSPs *can* offer less personalized advice, sometimes only a call centre with an occasional on-site workshop, but sometimes they are administered by “regular” advisors just like any other account. But the bigger question is the lack of trust in the advisor. Perhaps he should consider finding a more transparent advisor, or a fee-for-service advisor who works by the hour – their compensation would not be derived from product recommendations.
Hope that helps. I know there are some knowledgeable readers on this site – feel free to chime in with other suggestions or experiences.