The majority of Canadians are still unclear about how the tax-free savings account works, despite the efforts of the federal government and financial services firms to get the word out on the plan and its savings potential, according to the results of a recent survey.
As a result, helping clients bridge this TFSA knowledge gap — and to navigate the rules of the relatively new program — represents an opportunity for you to establish relationships with new clients or cement them with existing ones.
“Like all government plans, TFSAs are only beneficial if you follow the rules,” says Jeff Burchill, a financial advisor with Waterloo, Ont.-based Sun Life Financial (Canada) Inc. in Sarnia, Ont. “It’s another good reason why Canadians should seek out [the help of] advisors.”
The survey, released in October by Toronto-based ING Direct Canada, found that 37% of Canadians have a vague idea of how TFSAs work; 14% said they didn’t understand them; and 13% said they didn’t know what a TFSA was.
One of the reasons for this knowledge gap is the relative newness of the TFSA, which was introduced less than three years ago. By comparison, the RRSP has been around for more than 50 years.
For its part, the Canada Rev-enue Agency has acknowledged that it could be doing more to help Canadians understand TFSAs. It is launching several initiatives to improve education regarding the program.
However, according to a study commissioned by the CRA, most Canadians rely on banks, other financial services firms and advi-sors, not government websites or educational material, when seeking information about TFSAs. That would seem to put the focus on the industry to step up its efforts.
Last year, most banks and non-bank financial services firms reviewed their TFSA sales, marketing and communications processes to make sure they were doing all they could to get the word out about the program and its rules, particularly in the context of some TFSA holders incurring taxes due to inadvertent overcontributions. (See story on page B5).
“It’s been quiet this year compared with last year,” says David Birkbeck, head of registered product strategy with Royal Bank of Canada in Toronto, regarding clients having issues with overcontributions. “Our staff is pretty prepared and understands what the issue is.”
Among other TFSA communication initiatives, RBC has added video clips explaining the account to its online advice centre, located on the bank’s website.
A lingering issue with the TFSA appears to be its name, which leaves some Canadians believing it’s actually a type of bank account instead of a government savings program — or that only interest-bearing investments can be held in a TFSA.
“They couldn’t have thought of a worse name,” says Andrew Pyle, an advisor with Toronto-based ScotiaMcLeod Inc. in Peterborough, Ont. “We continue to run into individuals who believe that this is an account you can only have at a bank. And the universe of investments you can put into a TFSA is no different than that which you can put into an RRSP.” IE