The Canadian finan-cial services industry is getting ready to help its clients take advantage of the tax-free savings account — one of the most significant developments in financial planning in decades.

In recent months, financial services companies have been busy setting up the infrastructure to administer TFSAs — training advisors on how they work and how the accounts can fit into clients’ financial plans, and developing products that make it easy for customers to open a TFSA.

And as the industry approaches its traditional RRSP investment season, these companies are rolling out marketing campaigns to educate investors and prepare them to open TFSAs when they become available on Jan. 1, 2009.

“The TFSA is unlike anything Canadians have ever seen before,” says David Birkbeck, head of registered product strategy with Royal Bank of Canada in Toronto. “[Once the after-tax money is inside a TFSA], it is never subject to Canadian taxes — it’s not just tax-deferred, it’s never [subsequently] taxed in Canada.”

The Canadian financial services industry has been studying the experience of other countries — specifically, the U.S., Britain and Australia — that have introduced tax prepaid savings programs themselves. A CIBC World Markets Inc. report released in September notes that 37% of adult citizens in Britain use a tax prepaid account similar to the TFSA, up from 22% just eight years ago.

“[Account holdings] do become much bigger over time,” says Gillian Riley, managing director and head of retail deposits with Bank of Nova Scotia in Toronto. “TFSAs are absolutely a way to make relationships with clients more sticky.”

In the competition to land TFSA assets, financial services companies appear to be relying primarily on their advisor base to reach out to their clients, and are working to provide their distribution networks with training and support.

ANOTHER OPPORTUNITY

“The introduction of the TFSA creates natural conversations and opportunities to communicate with clients,” says John Wiltshire, senior vice president of product and financial planning with Investors Group Inc. in Winnipeg.

Most distribution firms are approaching the challenge of marketing the TFSA as an extension of the ongoing relationship-building they do with clients already.

“It’s always a good thing to talk to your customers, especially in the current economic environment,” says Kevin Strain, senior vice president of individual insurance and investments at Sun Life Financial Inc. in Waterloo, Ont. “If clients currently have non-registered money, that’s really an easy discussion, and another touch point in which you can bring very quick ‘value added’ to them.”

Many companies have already established TFSA information centres on their Web sites for clients looking for details about TFSA rules and regulations and how and when to open an account. Some Web sites include instructional video clips and calculators to determine future TFSA tax savings based on a variety of factors, including the contributor’s income level and investment time horizon.

Client awareness of the TFSA program, however, appears to be slow in building. A poll conducted in late August by Toronto-basedING Direct Canada, found that more than 75% of Canadians had little or no knowledge of what a TFSA is.

Financial services industry executives say they believe the key to getting the word out about the TFSA, and in educating clients about how it works, will be to keep the message simple and show the potential tax-saving power of a TFSA.

“This is a new investment option for Canadians,” says Colette Delaney, senior vice president of GICs, deposits and payments with CIBC in Toronto. “With an increased choice comes an increased need for advice. Having that conversation with clients around a financial health check, a financial plan, is the key to all of this.”

Many financial services companies are looking for ways to help clients start thinking about a TFSA now, even before they are allowed to offer them.

Sun Life, for example, is offering clients short-term GICs at “advanced” rates to bridge the gap until the clients can officially open a TFSA and transfer money into it.

“Given the size of the contribution limit in the short term, you want to make it as easy as possible for customers to roll funds into it,” Strain says. “Advisors are looking at the TFSA and thinking: ‘This is a pretty small dollar value. Please make this easy for me to work with my clients.’ You don’t want it to take a lot of time. But the TFSA has the potential to accumulate assets; it has the potential to grow over time.”

@page_break@ABILITY TO PRE-REGISTER

Scotiabank announced in late September that it would give its clients the opportunity to pre-register for a TFSA, allowing them to beat the rush in January. Other banks and financial services companies are expected to follow suit.

Major insurers, including Sun Life and Toronto-based Desjardins Financial Security, will be offering TFSA programs to employers as part of group plans. Since opening a TFSA will be a good idea for almost any Canadian, group plans are considered to be a strong benefit for employers to offer, and a major business opportunity for the insurers.

A survey commissioned by Toronto-based Hewitt Associates LLP conducted in June found that 43% of 250 employers surveyed said they are either “likely” or “highly likely” to offer a TFSA through their benefits programs.

Most financial services companies say they are not experiencing any problems in setting up the infrastructure for administering TFSAs, saying there has been good communication between government and the industry regarding the rules for issuers, although some firms admit it has been a challenge to set things up so quickly. It is expected that most companies will not charge an administrative fee for clients to open or maintain a TFSA, or to make withdrawals.

Industry executives believe that as TFSA balances grow, and as the industry gains experience in administering and marketing the product, new investment products will be designed to take better advantage of the TFSA program.

“The solutions will get more sophisticated,” says Sun Life’s Strain.

For now, financial services firms are trying to keep TFSA programs simple, for both clients and advisors, putting the emphasis instead on deepening the client/advisor relationship.

“It’s important for advisors to get out there and talk to their clients about the TFSA before someone else does,” Strain says. “I don’t think it’s too early.” IE