Author Topic: Canadian advice needed: company RRSP/DPSP fund choices?  (Read 3048 times)

SpinGeek

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Canadian advice needed: company RRSP/DPSP fund choices?
« on: April 20, 2015, 08:08:44 AM »
I'm the state-side accountant for a company with Canadian employees. We offer a company RRSP plan with DPSP match. Recently one of our Canadian employees has complained about the conservative mix of funds available in our plan. Our Canadian benefits agent isn't giving us any straight answers, other than "no one else has complained about the funds I've picked in ten years" (imagine that). But there are more than 1,600 plan choices available from this provider. We should be able to put together a plan mix that is reasonable and fair.

My question: What would you consider a good mix of investment types for a company RRSP/DPSP to offer? I know what I'd like to see on the U.S. side (our U.S. plan isn't spectacular, but isn't completely horrible). But it looks like there are additional requirements for Canadian registered accounts. So far I have the following "wish list":

Canadian Stock Market Index
Canadian Bond Market Index
Balanced fund (50/50 stock and bond, or something similar)
Small, Mid and Large Cap Canadian
International Index
Global Index
Money Market/GIC
Target Date funds

It looks like there is another option of "segregated funds", but I have no idea what those are.

Is this a fair range of choices? Did I miss anything? I want to do the right thing for our guys.

swick

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #1 on: April 20, 2015, 09:11:01 AM »
Could you share which fund provider you are with?

I think selecting plans with the lowest active management fees are one of the best things you could focus on. My Hubby's previous employer went through Industrial Alliance and they only had front loaded funds with active management fees. So every single contribution   2x month we were losing about 20.00 in "fees" right off the top. It really adds up.

Currently Hubby's company offers a defined contribution plan with Manulife which is a targeted date fund (basically index focused) with a 0.925% IMF.

There are other options and we can choose to build our own portfolio out of the following:
ML Cdn Money Market (MAM) 0.525%
ML Fixed Income Plus (AB) 0.825%
ML Greystone Balanced 0.875%
ML Greystone Cdn Equity 0.875%
ML JP Morgan Gbl Intrepid 1.275%

For simplicity sake ( so we can spend more time focusing on our other accounts) we decided to stay with it for now - we don't contribute extra to it though.

RichMoose

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #2 on: April 20, 2015, 09:56:22 AM »
I'm the state-side accountant for a company with Canadian employees. We offer a company RRSP plan with DPSP match. Recently one of our Canadian employees has complained about the conservative mix of funds available in our plan. Our Canadian benefits agent isn't giving us any straight answers, other than "no one else has complained about the funds I've picked in ten years" (imagine that). But there are more than 1,600 plan choices available from this provider. We should be able to put together a plan mix that is reasonable and fair.

My question: What would you consider a good mix of investment types for a company RRSP/DPSP to offer? I know what I'd like to see on the U.S. side (our U.S. plan isn't spectacular, but isn't completely horrible). But it looks like there are additional requirements for Canadian registered accounts. So far I have the following "wish list":

Canadian Stock Market Index
Canadian Bond Market Index
Balanced fund (50/50 stock and bond, or something similar)
Small, Mid and Large Cap Canadian
International Index
Global Index
Money Market/GIC
Target Date funds

It looks like there is another option of "segregated funds", but I have no idea what those are.

Is this a fair range of choices? Did I miss anything? I want to do the right thing for our guys.

You're definitely on the right track here, but I think you may be going too in depth for what the average Canadian is used to. Our market for employee benefits and RRSPs is dominated by our life insurance companies which are Great West, Sun Life, Manulife, Empire Life, or an affiliate of these companies. They tend to sell funds with very high fees and heavily promote safety funds like segregated funds.

I would recommend the following:

- Canadian Stock (tracks TSX Composite Index or FTSE Canada Index)
- US Stock (tracks S&P 500)
- Canadian Bond (tracks FTSE TMX Canada Universe Bond or similar)
- Canadian Small Cap (tracks TSX Venture Index)
- Developed / EAFE Stock (tracks MSCI EAFE Index or similar)
- Balanced Canadian (50/50 Canadian Stock and Canadian Bond)
- GIC fund

Segregated funds are a crafty product created by our life insurance companies. Essentially its a type of blended fund that guarantees your principal and a death benefit. You are required to lock in for a 10 year period (or thereabouts) and they charge exorbitantly high fees. Uneducated people like them because of the principal guarantee to you or your estate at the end of the holding period, not realizing that the total return market almost never loses money over a 10 year period and the fees (often higher than 2.5%) eat away a good chunk of the gains.

Lastly, good luck trying to get what you are looking for. I've found the Canadian insurance companies to be horrible to deal with as a whole and they know you are kind of stuck because all the companies do business the same way.

Heckler

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #3 on: April 20, 2015, 12:41:02 PM »
http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/mutual-funds-and-segregated-funds/Pages/Segregated-funds-explained.aspx


Our work went through several mutual fund providers (big insurance, big bank), all with ridiculous fees on top of MERs.  We finally ended up with Sunlife Segregated funds, but they do allow us to transfer out of the account once per year for free, $25 per transfer after that.  I didn't get told anything about how (seg) funds work differently than regular mutual funds, but I have noticed that my Sunlife EAFE index fund doesn't quite track the Ishares EAFE index (XEF) I now have transferred to, when they both own Blackrock EAFE index.  The MER fees are definitely higher in the Sunlife version than the Ishares, but they're reasonable (<1%), compared to the 2.8%+ I was paying.

My biggest request to Spingeek is to allow your employees to contribute funds to whatever you end up with, but give them an annual free option to pull out funds so the smart ones can lower their costs with a self directed account.  Make sure you provide a low cost index fund for each of the major asset classes (Bonds, Canadian Equity, US Equity and International Equity).    My plan has only three of the four, thus I set up my self directed Vanguard version.

SpinGeek

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #4 on: April 20, 2015, 02:16:06 PM »
Thanks for all the responses. I'm dealing with Manulife. I assume that our agent (supposedly independent and not a Manulife employee) gets paid by commission, so going all low-MER index funds is going to be a tough sell. I have limited empathy for him after two months of asking point-blank for a list of funds that we offer, and getting the run-around from him. So I gave up and emailed our Project Manager in Canada to let me know what he sees when he logs in to the investment website. Hopefully I'll hear from him tomorrow.

I agree that we don't want to offer too many choices and risk confusing the heck out of our guys. A mix like Tuxedo recommended looks pretty comprehensive. I have no idea if they are investing in RRSPs outside our plan, so I want to make sure our plan can meet their needs.

Your segregated plans sound like the old Universal Life policies here in the States. Invest $$$, get a term life insurance component of $, get $ invested in a mutual fund with minimal guaranteed growth and high front-and-back loads (aka where the other $ went). Much better to "buy term, invest the rest" yourself.

Heckler, we did have one guy pull his funds a few years ago and give up two years of contributions (?). He ended up moving his money back. So they can do it.

Heckler

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #5 on: April 20, 2015, 03:06:26 PM »
Heckler, we did have one guy pull his funds a few years ago and give up two years of contributions (?). He ended up moving his money back. So they can do it.


I guess that's where I'm really lucky right now - my employer RRSP match is permitted to be moved out of the plan any time.  No vesting period, which is awesome for me, and as I understand from our Sunlife guy, not very common.  If you truly want to support your mustached employees, give them to option to pull out.  I like it because I can invest low hundreds off my paycheques without incurring trading fees ($9.95 for me to buy 1 or 1,000,000 Vanguard units in my self directed RRSP), and then lump sum thousands at the end of the year into a Vanguard index fund.

My work plan offers a mix of low cost index and higher cost mutual funds, as well as target date balanced or growth funds.  The "free" Sunlife financial planner of course advocated for a mix of the index and mutual funds.  I tracked them voraciously for 8 months and decided the Vanguard index funds were the long term plan. 

Keep in mind, most employees nowadays are not lifers.  They will take their savings with them to the next job, and the next mutual fund.  That's where I fucked up most on my returns - I've gone through 5 different mutual fund brokers since 1996 now, randomly selling out whenever my job changes, or the HR department decided to change brokers.   

Most people aren't savers either - my HR department was floored when they saw I'm putting away 30%.  I'm the only one in the company at that savings level.  I'd be surprised if half our staff even uses the RRSP plan, even with a 5% employer match.


Heckler

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #6 on: April 20, 2015, 03:27:41 PM »
Thanks for all the responses. I'm dealing with Manulife. I assume that our agent (supposedly independent and not a Manulife employee) gets paid by commission, so going all low-MER index funds is going to be a tough sell.

I hear you - when my Sunlife FP recommended a mix of the available funds, 30% was the only bond index fund available, another 20% of US/international index, and 50% of the more expensive Canadian Equity and balanced funds with the higher fees.

I think that's how you sell it to Manulife - provide both low cost index and higher cost managed options and let the employee decide.  The biggest key for me is that HR sold the new plan as "our old plan had too many fees, and we are doing something about it".  HR and Sunlife clearly laid out the fees for the options they put on our list, which was great, because it got me thinking about the costs of investing.

I'm done paying 2.8% MER and BMO "Architect" fees to have a rep visit once a year to tell me the stock market crashing, so I should sell.

SpinGeek

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #7 on: April 21, 2015, 07:21:42 AM »

Keep in mind, most employees nowadays are not lifers.  They will take their savings with them to the next job, and the next mutual fund.  That's where I fucked up most on my returns - I've gone through 5 different mutual fund brokers since 1996 now, randomly selling out whenever my job changes, or the HR department decided to change brokers.   

Most people aren't savers either - my HR department was floored when they saw I'm putting away 30%.  I'm the only one in the company at that savings level.  I'd be surprised if half our staff even uses the RRSP plan, even with a 5% employer match.

We're fortunate that most of our employees tend to stick around. I've been with this company for almost 17 years now, and almost all the guys we hired back in 2004 when we opened the Canadian branch are still with us. In fact, I recently learned that after a certain age, Canadians don't have to pay the CPP on earned income. One of our guys recently hit the CPP limit; I'm hoping since he is one of the few with a good savings rate that he just likes the work and doesn't want to retire.

I hear you on the savings aspect; of the 72% of employees who do contribute, they average contributions of 4% per month before our match. I really hope they all contribute to an RRSP outside our plan, because that is depressing.

You mentioned Sunlife. Our "squeaky wheel" that started all this recommended getting a quote from them next plan year. Is there any benefit to switching from Manulife, or is it pretty much SSDP (Same Shit, Different Provider)?

Heckler

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #8 on: April 21, 2015, 08:06:03 AM »
SSDP-DF.

Different fees. 

Sunlife has been my lowest cost option so far, among BMO Nesbitt Burns (highest), Manulife, Raymond James, Manulife, BMO Investments, Invesco, Dejardins and Sunlife ( did I mention job mobility?).  I honestly believe that's only because our HR and finance department negotiated the fees and terms rather than accepting what was quoted.  Until I was getting raped by BMONB monthly architect fees on top of MERs, I had no idea about the costs and just accepted it.

The SL adviser was shocked that my company's plan allows full transfer out of company match once a year for free.  If he's shocked, that tells me it's my companies idea, not theirs.  You have the key to negotiate your employees investment costs.

MERs of 1-2.5% are common here in mutual funds, but it's changing with index funds becoming widely available.  I wouldn't accept anything higher than 0.4-0.5 MER on an index fund.  That probably seem ridiculously high to most people on this forum...  that's why I'm happy to be able to pull out for free once a year to my self directed to reduce the 0.5's to the 0.05's of Vanguard.

The managed SL funds are running between 0.7% and 1.0%, but I suspect this is negotiated depending on the size of your companies funds. 
« Last Edit: April 21, 2015, 08:30:27 AM by Heckler »

Heckler

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Re: Canadian advice needed: company RRSP/DPSP fund choices?
« Reply #9 on: April 21, 2015, 08:26:24 AM »
and I must credit Sunlife - they have by far the best educational tools available.  Maybe a little over simplified, but it was enough to perk my interests to learn more.   The others were just happy to take my money.