AIM Funds Management Inc. of Toronto has proposed creating a single, industry-wide vehicle for investors who want to take advantage of the federal government’s new registered disability savings plan.

Under the proposal, recently floated by AIM vice president of taxation and estate planning Jamie Golombek, mutual fund firms would offer products through a jointly run plan, which would be administered by a third party such as a trust company. Under the new legislation, expected to be in force at year’s end, mutual funds are likely to be at a disadvantage because investors are restricted to one plan for each beneficiary.

Golombek’s proposal is aimed at helping independent advisors who would not be able to offer clients self-directed, brokerage-style plans to accommodate holdings with multiple fund companies.

“If someone wants to open up an RDSP with one fund company, he or she is limited to that fund company’s products,” he says. His proposal would offer an “alternative” self-directed plan to clients who want to deal directly with different fund companies when they purchase funds for their RDSP.

So far, Golombek says, several industry players have agreed to explore the idea. He has received positive feedback from some members of the Investment Funds Institute of Canada.

The RDSP is a new way to build a nest egg for disabled children. Like RRSPs and RESPs, amounts in an RDSP are allowed to grow tax-free until they are withdrawn. Significant contributions in the form of grants and bonds will be made by the federal government, and will be tied to income.

But don’t expect the creation of this common plan to be co-ordinated by IFIC. It has no plans to set up a vehicle that would compete for clients against some of its own members, such as brokerages that already offer self-directed plans, says Pat Dunwoody, IFIC’s vice president of member services and communications: “It’s just not in our mandate to do something like that.”

Firms such as MRS Trust Co., a subsidiary of Mackenzie Financial Corp. , or B2B Trust, a subsidiary of Laurentian Bank of Canada, would be in a better position to administer such a common plan, as they already administer RRSPs for some mutual funds, Dunwoody says: “It would fit into their business model.”

Finding a provider to administer such a plan would probably not be difficult. “I’ve certainly had a lot of interest by the providers, by a couple of back offices,” Golombek says. “They have phoned me directly. Some of the service providers to the industry are interested, and would love to work with us.

“And I’ve had interest from a couple of other mutual fund companies,” he adds. “The question is: will it ever see the light of day?”

Even if it doesn’t, Golombek says, the fund companies should still consider working together to pool their resources — at least, in the creation of administrative tools such as software — to deal with RDSPs. “It would be beneficial,” he says, “since it’s so new, so different and so complex.”

The RDSP is not expected to be available from financial services institutions until early 2009.

RDSPs can be established on behalf of those who are eligible for the federal disability tax credit. More than 514,000 people claimed the credit in 2005, the most recent data available from Statistics Canada. Either the beneficiary, his or her parents or legal representative can establish an RDSP. Contributions will be limited to a lifetime maximum of $200,000 and will be permitted up until the end of the year in which the beneficiary turns 59.

The federal Department of Finance has estimated that as many as 180,000 individuals would qualify for Canada disability savings grants at matching rates of 100%, 200% or 300% — depending on family income and the amount contributed — up to a maximum lifetime grant limit of $70,000.

Finance also estimates as many as 105,000 people would qualify for Canada disability savings bonds of up to $1,000 a year. These would go to RDSPs established by low- and modest-income families, up to a maximum lifetime bond limit of $20,000. The bonds will not be contingent on contributions. The maximum annual $1,000 bond will be paid to an RDSP for which family net income does not exceed $20,883, and the value of such a bond will decline gradually for those with higher family net income.

@page_break@Unlike for RRSPs, contributions to an RDSP will not be deductible, but withdrawals will not be included in income. However, the grants, bonds and investment income earned on a tax-free basis in the plan will be included in the beneficiary’s income for tax purposes when paid out. IE