Self Directed Investing | Financial Crooks

Recently, Tangerine sent me a big package in the mail offering me a cash incentive if I transferred my RRSP savings to them. My first reaction was “Why could they afford to send me this ad, but not afford to send me a letter advising me of their new $45 fee to transfer a RRSP or TFSA out from Tangerine to another bank?” After feeling miffed for a while, I read through the package to see whether their RRSP transfer offer was a good deal or not: here’s what I decided.

Most Places Charge You a Fee to Transfer Out Your RRSP

The first thing you should be wary of if you are considering transferring some or all of your RRSP to Tangerine is that most banks, credit unions and brokerages charge you a fee if you transfer out your RRSP assets. (When this was written, People’s Trust did not charge a fee: so there are some good guys out there.)

PC Financial, for example, charges $50 to transfer out some or all of your RRSP savings. (See: http://www.banking.pcfinancial.ca/mkt/bankaccounts/nofeebankaccount-en.html and click on Charges Apply to get the list of various fees.)

CIBC charges $100.

You’d want to check what your bank, brokerage or other institution will charge you to move your RRSP money *before* you make a decision. It may cost you more than you get as the “bonus” to move your RRSP!

How Much Is Tangerine Offering as a Cash Bonus for a RRSP Transfer?

Tangerine is offering $100 for a RRSP transfer BUT it requires a transfer of at least $10 000.

The transfer must be started before March 31 2015 by submitting a completed form to Tangerine. Tangerine will then complete the form and send it to the place your RRSP is at right now. That company must send Tangerine the cash within 60 days or you won’t get your bonus.

You can see that $100 is just enough to cover the transfer out fee from some places like CIBC so it isn’t a really sweet offer.

You could try phoning Tangerine and ask if they will pay the transfer out fee in addition to the $100 bonus. I’d be a bit surprised if they will but it never hurts to ask. (If it works, please leave a comment to let us know!)

The $10 000 minimum to earn the bonus is a large amount. Many people would be considering opening an online discount brokerage account for their RRSP when they have $15 000 – $25 000. If you have $10 000 to transfer in to Tangerine and if you are planning to contribute $5000 or more to your RRSP this year, you might want to slow down and consider brokerages first. RBC Direct Investing, for example, has no RRSP annual fee if you agree to pre-authorized RRSP contributions.

How Do I Move my RRSP Money?

In the package Tangerine sent me in the mail, they included the form needed to move a RRSP from another bank to Tangerine. You can also download the form easily from the Tangerine website.

Why Would I Consider Moving my RRSP Money to Tangerine?

For the past two years, Tangerine has not offered particularly good rates on its RRSP GICs or on its RRSP daily interest savings account. You can get better rates for both of those elsewhere as I mentioned in my article on RRSP GIC and Cash Deposit rates.
One good thing Tangerine does offer, though, is its Tangerine RSP Investment Funds. The Canadian Couch Potato website recommends these Balanced funds for investors who

don’t have a lot of RRSP savings so they would have to pay an annual fee to have a brokerage account and would find ETF purchase and sale fees are too high
don’t want to have to sell and buy different funds to keep their portfolio growth balanced each year
want to just buy one fund and add new contributions to it and not think about it too much
want to make small, steady new contributions with no fees

According to the Tangerine sales pitch I received, their three balanced funds have done acceptably in the past, earning between 6-8.59% over the past 5 years or 4.70-4.79% since they were created, depending on the fund. You should read the fund details on the Tangerine website before deciding if one of the funds is right for you. (If these returns seem a bit low, remember these Balanced Funds include bonds as well as stocks so they are less risky but also less likely to generate a huge gain or a huge loss.)

Would I Recommend Someone Else Move $10 000 in RRSP Funds to Tangerine?

Maybe.

If they are only interested in investing in GICs and cash accounts, no. I’d suggest they look at some credit unions, online trust companies and Oaken Financial first.

If they are currently investing in their RRSP at a Big Bank and are paying a high fee (MER) for a mutual fund that is not performing any better than the Tangerine low-fee (MER) funds, then I might.

If they have a small amount in their RRSP and are ok with selling some mutual funds and buying others to keep their portfolio balanced, and if they don’t mind a few hassles getting the account first set up, I’d suggest they consider TD Waterhouse e-funds account. The details are on the Canadian Couch Potato website.

If they can make regular monthly RRSP contributions and have $10 000 already, I’d suggest they look at the RBC Direct Investing brokerage account to see if it interests them.

If they have $25 000 or more and only put money into their RRSP once or twice a year, I’d suggest they look at BMO InvestorLine or CIBC Investor’s Edge. Investor’s Edge is offering free purchases and sales of ETFs until March 31, 2015 in its RRSP accounts although there’s no way to know if they will offer the same deal again next year.

Would I Move $10 000 in RRSP Funds to Tangerine?

No because I have over $50 000 in my RRSP so I prefer to use an online discount brokerage account where I can choose more types of investments.

So sorry, Tangerine, but you just wasted a bit of postage and paper by sending me this offer.

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Do you keep your RRSP at Tangerine? Are you using the Balanced Funds or just GICs and cash? Please share your views with a comment.

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I’ve heard the term “ethical investing” used to describe limiting what companies one puts ones money in to avoid supporting policies and products you don’t believe in. However, I recently read of another investing strategy that made me wonder if it would lead to an ethical dilemma: Is it a good idea to pay for a life insurance policy on one of your parents in order to save money for your own retirement?

Where Did I First Read About Buying Life Insurance on Your Parent?

Frank Wiginton wrote an interesting book called How to Eat an Elephant: Achieving Financial Success One Bite at a Time. In it, he describes (twice) a different way to invest for your retirement.

He says the strategy is aimed at people who have reached their 40s or 50s and who have realized they don’t have much saved for retirement. It is based on the assumption that some time around when they are 65 to 70 and ready to retire, their parents will likely pass away.

(So if you’re younger than that and have already lost your parents, this strategy is a non-starter.)

Anyway, when a parent is in his or her 60s or 70s, the child takes out an insurance policy on the parent with the child named as the beneficiary. There is no cost to the parent: The child pays all of the insurance premiums. When the parent sadly dies, the child will receive the payout as a lump-sum tax-free amount. Unless someone invents a cure for dying in the near term, the child is guaranteed to get this lump sum although the time of receipt will not be known. It’s also a tax-free payout which can make it a desirable way to get a large sum of money.

Aside from the fact your parent has to be living for this to work, your parent also has to be in good health or you will not find an insurance company willing to offer a policy at a reasonable monthly fee. You also have to have a parent who is willing to undergo the medicals and fill out the forms to allow you to insure them.

How Much Benefit Is There to This Type of “Insurance as an Investment” Plan?

An example in the book proposes that you might buy a $500 000 policy when you are 45, pay the premiums for 17 years, and then receive the payout at about 62. The cost would be about $292 400 for the payout of $500 000. In that example, he says the rate of return is about 5.7% a year AFTER tax. That’s the same as a 7.5% rate of return on an investment made in a non-registered account if you are in a 40% tax bracket. (NOTE: These are the numbers from the book and they are approximate. I have not attempted to run any numbers myself.)

The return does not depend on the performance of the stock market during those 17 years.

The insurance policy can be setup to be exempt from any attempt by your creditors to get at it, if necessary. (Although how you’d keep up with the premium payments if you are short of cash is beyond me.)

When Won’t This Insurance Investment Plan Work?

If your parents and other eligible older relatives are already dead.
If they are in poor health and cannot be insured for a reasonable fee.
If you die before your parent does. (It happens.)
If you need the payout to survive and to keep paying the premiums *before* your parent dies.

Why I Question the Ethics of This Practical Business Case

From a purely numerical point of view, this method of investing by using life insurance is worth considering. I’m not sure if I agree with the math or not, but it’s certainly an option to look into for some investors.

My concern is with the ethics of this scenario.

Imagine insuring your parent with the vague idea that they will die around 85 years of age. Perhaps you will be 58 then. After all, your grandparents had all passed away long before 85. Your parent doesn’t take particularly good care of their health, so it seems reasonable to you at the time you begin the plan.

Now bad things start to happen: to you. You get divorced. You lose your job in a major corporate re-structuring. You cobble together a new career of short-term contracts and part-time retail work. The life insurance premiums for your parent are difficult to pay each month but you don’t have any company pension plan anymore, so you decide this will be where you put your “savings.”

And good things start to happen: in retirement, your parent starts taking better care of himself. He takes up Nordic walking. He stops eating out, due to budget concerns, and develops a new love of homemade highly nutritious organic food. He never smoked and he now moderates his alcohol intake to the level recommended to improve his heart health while protecting his liver. He proudly announces his doctor has said he looks good for 100.

A sense of uneasiness grows.

Still, your parent ages. He weakens and can no longer go for his 5 mile walks. He falls unexpectedly and breaks a hip. He is moved into a long term care home because the joint just won’t mend properly.

And you are his Power of Attorney for Personal Care.

This is where the ethical stuff starts to worry me.

You are a person who will be making the decisions for your parent’s well being in old age. Even if you aren’t the POA for personal care, as a son or daughter you are likely going to be part of the small group of people who will make all the difficult decisions.

You will be working with your parent to choose a nursing home or long term care facility. Obviously, you want to choose the one with the highest standard of care where things like flu outbreaks are very rare and quickly controlled. Right? Where the food and medical care provided is the best. Right?

And when the doctor comes and asks whether you think your parent wants the medical team to take “extraordinary measures” to prolong his life or whether he would want them to “let him go peacefully” you won’t feel any twinges of regret when you say to take all possible measures to keep him going.

Even if he’s paying $5000 a month out of your possible inheritance to keep him in that vegetative state in the home.

Even if you would finally get to stop paying those $1700 a month insurance premiums.

Even if you would get $500 000 in cash if he slipped peacefully away.

Even if your new partner is urging you do “do what’s right; let him go; he can’t tell anyway; think of the money; think of our kids and those university bills…..”

I don’t think anyone should be voluntarily put in to that situation. While I’m sure you would make the correct ethical decision there may another person who might not. And who might burn themselves up with guilt for the rest of their own life wondering if they were, however unwittingly, influenced by the money.

Do I Say No One Should Use This Approach?

No. But I do think it would be worth spending quite a bit of time considering the real emotional and ethical risks that could arise from it.

Do you really want to have to bet on your parent’s timely death to fund your own retirement?

What Does Frank Wiginton Have Against My Dad?

In case you’re thinking Mr. Wiginton is cruel, he is quick to point out that “I do not want you to wish your parents ill; I only want you to look at the various options that may exist to help to generate the retirement savings you need.”

I don’t fault him for suggesting this possible method of raising retirement income. I do think the book, though, should have at least touched on the ethical side of the decision.

Would I Buy a Policy on My Parent?

No. And not just because I expect that at the rate they’re going they’ll survive me by at least 10 years!