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.