# Should I move my RRSP?



## zidane (Jan 8, 2012)

Hello,

I have had a RRSP account with Franklin Templeton for approximately 4 years now. I made an initial contribution of $2000 when my uncle opened the account for me, but I haven't made a contribution since then. The book value is $2,440.73, probably due to my DRIPs ,and the market value is now $2,764.02 

With the little money that I have as a college student, I want to start contributing into my RRSP again. I'm concerned about the high MER's that I'm paying for a dividend income and global bond mutual funds. I'm paying 2.2-2.5% for MER's and who knows what other fees. 

I want to sell the mutual funds and to start investing that money into index funds. I'm particularly interested in the TD e-series mutual funds. 

Is this a good idea or should I just leave my money alone?


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## indexxx (Oct 31, 2011)

Definitely move it. Those levels of MERs will eat almost half your returns over the course of your investing period.

In general, I feel that index funds are the way to go; yes some mutual funds will outperform the market for a period, but if you ask an advisor today if they'd recommend the same mutual funds they recommended ten years ago, the answer would be no, because nobody (or very few people) can constantly beat the market. Mutual funds, being actively managed, are at the whim of fund managers. Index funds simply reflect the market minus a very small fee.

Here's a calculator showing how massive the cost of that extra MER fee is over time. Essentially, it will eat half your returns. So take two funds, say an index at 0.3% and a mutual at 2%. Assume the same rate of return, maybe 7%, the same initial investment, and the same yearly investment, and pick a timeframe of 30-40 years. You'll be blown away.

http://saviifinancial.com/seg-funds/m-e-r-fee-calculator/


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## AltaRed (Jun 8, 2009)

zidane said:


> Is this a good idea or should I just leave my money alone?


It is a good idea to get out of the high MER mutual funds though you could do worse than being with FT. The question is how to do it because it is preferable to avoid loss of RRSP contribution room by transferring your RRSP from FT to TD, rather than collapsing your existing RRSP (pay tax on the withdrawal) and then start again with a new contribution.

You will likely have to sell your mutual funds within the FT RRSP account and leave it as cash.... And then open an online TD RRSP account and at the same time as opening the account, fill out the transfer form to move the 'contents' of the FT RRSP to TD. Once the cash is in the TD RRSP account, buy the e-series mutual funds. 

You do not have enough money to open a TD Direct Investing (TDDI) discount brokerage account at this time. I suspect TDDI has a $10k, or $15k, or $25k minimum to avoid ongoing account administration fees. Others can advise on how to open an online TD mutual fund RRSP.


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## Davis (Nov 11, 2014)

Go talk to TD in person in a branch. They will be able to arrange things for. I doubt that you have to sell the FT funds in order to transfer them - TD will let you choose to transfer "in cash" or "in kind". But since you don't want to hold these funds anyway, in cash is probably the most convenient for you.


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## Eclectic12 (Oct 20, 2010)

^^^^

It may depend on the type of account opened. A TDDI RRSP allows a broader range of investments and may allow the FT funds to be transferred as is (i.e. "in-kind").

If a TD bank eSeries RRSP account is opened which only allows TD eSeries MFs, then it might need to be sold.

From what I've read, the advantage of the TDDI brokerage account is a broader range of investments but the down sides are commissions to buy/sell and where the account value is not over the threshold, in addition to higher buy/sell fees, there can be a yearly fee to pay.

The advantage of the TD bank eSeries RRSP is that there are lower minimums, ability to setup automatic buying, buying/selling can be done online as well as no fees. The disadvantages are that only one type of MF can be held, most bank reps are not familiar with it so they will setup a different account than what is wanted and some posts on CMF said one had to be persistent to get it all setup correctly.


For the size of account, I suspect the TD bank version is the most cost effective until there is enough value to make a brokerage account feasible.


http://www.tdcanadatrust.com/produc...ual-funds/td-eseries-funds.jsp?tab=what-is-it
http://www.theglobeandmail.com/glob...funds-easy-to-love-hard-to-buy/article624596/


Cheers


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## humble_pie (Jun 7, 2009)

what a kind & generous uncle! plus you've done a fine job understanding what's going on with the higher fees that mutual funds typically charge.

in practical terms, though, some fees probably await you unless you tread carefully & research your next steps before jumping out of franklin templeton.

first, does FT have a transfer-out fee? often these run $135 plus tax these days. Alas TD will not likely be willing to pay this fee on your behalf, as the account is still very small.

also, are there any remaining rear-end load fees for those FT funds if they are sold?

if the answers to the above are yes) or yes), it might be better to leave this small investment where it is for a few more years. After all, the dollar difference between MER on $2400 or $2700 compared to MER on the exact same amount in a TD e-fund is low, possibly something like $25 per annum (calculating here only an estimated difference between MERs for the 2 types of investments.)

the takeaway: don't contribute another penny to the FT account!

on a related issue, if you are a student i'm wondering why you don't open a TFSA instead of contributing to an RRSP, since TFSAs are 100% tax free & the probability is high that you won't need an RRSP for another few years yet.

you'd want want to make sure your RRSP *room* is being accurately carried forward if you do have income & you are filing tax returns at present. The idea behind the carry-forward is to claim the *room* in a future year when the salary will be higher, therefore the immediate tax benefit at that time will be more rewarding.

even with a TFSA, a new investor with a new small account has to be careful about possible fees that might apply, including transfer-out fees at some future date. Just upthread, Eclectic offers useful links to TD e-funds - mostly no fees - & he points out how a brokerage will often impose extra charges upon a tiny account.


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## Davis (Nov 11, 2014)

^ Very good points about the transfer fees.p and back end loads. I hadn't thought if those. Must do your research.


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## zidane (Jan 8, 2012)

Thank you for the advice, much obliged! 

I will look into the switch fees to see if its worth it. 

It is my understanding that there is value into starting early to make contributions to your RRSP, but its probably not the best idea right now since my income is so low. I'm reasonably better off putting my savings into my TFSA since it would provide me with the liquidity to pay towards school.


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## Guban (Jul 5, 2011)

Your TFSA iis also a better retirement planning vehicle for you too at this time. You can save money there and let it grow tax free, assuming you are 18 or older. When your income becomes greater, you can always pull money out of your TFSA and contribute it to your RRSP, without any tax penalties.


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## Eclectic12 (Oct 20, 2010)

^^^^

+1.

Note to the OP ... you may see articles that talk about "contribute to the RRSP now, report the contributions made but don't deduct it until income is higher". The argument is that the tax deferred growth makes it worth it.

Where one has TFSA contribution room available and a low income ... the TFSA route is *much* better. 

This is because by not deducting the RRSP contribution from income, the refund is not useable until the deduction is taken. This puts the RRSP on the same footing as the TFSA in terms of money used (i.e. after tax dollars). What tips the scale to the TFSA account is that it won't owe any taxes whereas the RRSP dollars/growth will have taxes in the future, when the withdrawal is made.

Take your time making sure you understand this ... and it will help avoid making a less than optimal choice.


Cheers


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## zidane (Jan 8, 2012)

Looks like there are no transfer out fees, but there is a rear-end load fee of $40 each. So a grand total of $80 for transferring out.


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## Spudd (Oct 11, 2011)

If you wait, will that rear-end load go away eventually? If so, I would suggest you leave it there for the meantime - the MER's you're paying on that small balance will most likely be less than the $80 fee to transfer it out.


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