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The plight of the underused RDSP

This article was originally published November 11th, 2013 at WealthProfessional.ca  To see the article online click HERE.

by  Sophie Nicholls |  11 Nov 2013 | Wealthprofessional.ca

Financial advisors not hip to Registered Disability Savings Plans (RDSPs) may be hesitant to hand over the reins to the banks.

According to Natalie Jamison, a wealth advisor with Scotia McLeod in Oakville, coordination efforts get skewed if you have to outsource a key aspect of a family’s holistic wealth-management plan. Setting up an RDSP requires just this – a bank’s direct involvement – as wealth-management firms don’t offer these plans.

“A small inconvenience is that once an RDSP is set up at the bank, I don't have access to the account information for the purpose of our financial reviews with clients, so we always have to ask them to bring in copies of their statements,” Jamison explains.

“For many parents, this is an emotional topic, which they find hard to discuss with strangers. For that reason, I would prefer not to outsource the RDSP, but rather manage it in-house as a part of the client's overall wealth plan."

Kevin Cahill, certified financial planner with Canadian Legacy Builder in Guelph, isn’t surprised by this obstacle, adding that banks don't priortize products that don’t make money.

“Most of the people that qualify for an RDSP are not the customers the banks are going to be selling insurance or mutual funds to,” says Kevin Cahill. “All you have to do is follow the numbers. The banks control a lot of money in the country and they’re trying to sell the products that have the ability to drive revenue.”

RDSPs – introduced in Canada in 2008 – are the first savings plans in the world designed to provide financial security specifically to the people with disabilities. Similar to Registered Education Savings Plans (RESPs), contributions are not tax deductible, but any income generated is tax-sheltered until the funds are withdrawn.

Once an RDSP is set up, any individual can contribute money as long as consent is provided by the account holder. Beneficiaries – who must be under 60 years of age, Canadian with a social insurance number and eligible for the disability tax credit – are also entitled to income-dependent, federal grants and savings bonds. These provide up to $4,500 annually in direct assistance, to a  lifetime limit of $90,000.

Though all may sound tried and true, RDSPs are greatly underused with only about 11 per cent of the approximate 550,000 eligible Canadians taking advantage of them as of June 2012, as reported by the CBC in February. This represents a total of 59,207 RDSP accounts – a 27 per cent increase from 2010 – according to Planned Lifetime Advocacy Network (PLAN), a non-profit group out of Vancouver, which lobbied for the creation of RDSPs.

“I don't feel that there is enough information out there for the public to be aware of RDSPs …,” says Jamison. “…yet we see more and more families who could use this type of account.”

Cahill agrees, blaming this on a lack of promotion and education by the government, who created the plans, and financial institutions offering them.

“Does the government really want to randomly give away money? If so, they would have promoted it (RDSPs) the same way they promoted the tax-free savings accounts,” he says. “The governments are genius. They introduce these plans and if no one uptakes them, they can say ‘well, we tried and no one took advantage of them.’ It’s a lot of smoke and mirrors.”