Friday, December 16, 2011

Why the RDSP is failing?

Tax Policy Branch: Department of Finance

L’Esplanade Laurier 16th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario K1A 0G5
Facsimile: 613-943-5597

1. Sales and marketing 2. The identity of the holder

1. Sales In conversations with financial advisors and mutual fund agents they have stated that the commission for selling an RDSP are so small it’s not worth their efforts to prospect for 5% of the Canadian population that have a child with a disability and then target 3% of that group for parents who have a child under age 18 with enough disposable income to invest in the plan. Mutual fund commissions on new deposits are 4%, out of which 2% is paid to the agent and 2% goes to the dealer. Commissions are only payable on the initial RDSP deposit and not on the grants or bonds. To prospect for 5% of the population and then target 3% of that group for a $1,500 deposit to earn $30.00 and a .05% annual trailer fee of $2.09 a month on the total assets of $5,000 has little incentive for the agent.

In addition a mutual agent is required to submit $15,000, $20,000 or more of investment deposits per month or their contract with their dealer will be terminated. Add to this their monthly expenses for gasoline, mortgage, food, utilities and other items and their financial needs prohibit them from leaving their current lucrative sales efforts to prospect for 3% of the population who have $20,000 of disposable assets to invest in an RDSP. Furthermore there is the requirement of annual reviews and the concern that many of these families will not continue to deposit $1,500 a year or $125 a month for 20 years. Already Financial institutions complain that they spend thousands of dollars administering hundreds of thousands of RESP’s that families started and never continued.

1.1 Marketing Since 1989 I have dedicated my financial planning practice to planning for families or people with a disability. I can attest that leaving the family market to concentrate on families who have a child with a disability takes a lot of effort and time. From 1989 to 2001 758 families purchased a LifeTRUST Life insurance policy I designed to provide their child with a lifetime income they cannot outlive. I have conducted over 400 seminars to families on life planning for people with a disability. I am the registered ISBN author of “lifetime Security Planning Kit” and “Just Imagine” a board member of my local Community Living association, and a fee for service life planner who is recognized as being instrumental in helping to shape provincial and federal policy that makes life planning possible, helping hundreds of Ontario families have peace of mind that would not have been possible without my efforts.

Merrill Lynch, Tri/Mark, Met Life, Prudential of America, Northwest mutual, Mutual Life of New York and Protective Life insurance of Birmingham Alabama who established “Estate Planning for people with Disabilities”, are major financial institutions in the United States. They established divisions dedicated to financial products for families who have a child with a disability. Over the years I have met and spoken to all of them, but all their programs failed. Met Life, Tri/Mark and Prudential of America continue to have a disability presence within their companies, but they all failed for the same reason. Protective life told me we found that “you can’t turn a financial advisor into a social worker and you can’t turn a social worker into a financial advisor”. They failed for one simple reason, they were selling product.

Solution The solution to this dilemma is the creation of foundations similar to the ones that market and sell RESP’s which the RDSP was modeled after. Foundations such as Heritage education and the Canadian Scholarship trust successfully sell RESP’s through a sales force that can earn a living wage selling RESP’s. Or a pooled RDSP that offers GIC’s only. A pooled trust offering GIC’s only will allow organizations, associations, agencies, family members, individuals and the more than 75,000 deposit agents and financial advisors across the country who offer GIC’s to sell RDSP’s in which the beneficiary can be the holder .

2. The identity of the holder The second reason the plan is failing is because of the interpretation of a holder set out in the regulations. Below is your definition of a holder.

The holder of the RDSP is the person or organization that opens and manages the RDSP.

* For beneficiaries under the age of majority, the holder can be a legal parent, legal representative or public department.
* For beneficiaries over the age of majority, the holder is generally the beneficiary. In certain circumstances, a guardian, legal representative or public department may be eligible to become the holder.

One of my clients attempted to open an RDSP for his niece who is in receipt of the Ontario Disability Support Program (ODSP). When his niece applied for the ODSP it was found that she has an IQ of 71, 1 point above the cutoff for the ODSP program. ODSP accepted her and she applied for an RDSP and named herself the holder. This was rejected. She completed a Power of Attorney naming her uncle as her power of attorney, the bank rejected the application. Her uncle emailed the director of the plan at the bank asking why he could not be the holder. The email reply he received from the major bank is set out in italics below. The name of the bank is anonymous.

2.1 THE BANKS COMMENTARY ON THE DEFINITION OF A HOLDER As you are no doubt aware, the scenario you have outlined on the legal representation of the RDSP has caused great concern to all parties involved with the RDSP, as we have all clearly heard in the sessions hosted by CRA on the RDSP 3 year review.

The RDSP is not a bank product governed by the Bank Act but is a Trusteed Plan governed under the Income Tax Act with a Trustee and a Bank as an agent. The RDSP was clearly not intended as a transactional type account. The whole concept of the RDSP makes the RDSP plan more complex that a savings account, with federally funded grant and bond payments, multiple investment options, and the impacts of making a withdrawal.

The current definition of who can be a Holder to open an RDSP is very restrictive; parent of a minor child, a legal guardian, or the beneficiary (over 18). If the beneficiary is to be the Holder we require that the beneficiary is capable of entering into a contractual agreement and managing their finances.

I believe the issue is more around the restrictive requirements of opening a plan, than the underlying investment decisions. Once the plan is opened, the Sales Person would engage the Holder in the discussion of appropriate investments within the plan; mutual funds or GIC.

From my understanding of the situation you have described, our hands are tied in opening a RDSP that follows the current definition of an RDSP Holder. Your (relative) would require the appointment of a legal guardian, of which I can completely understand the reasons for you not wanting to do so.

The Finance Department is clearly aware that legal representation of the RDSP is an issue and as part of the 3 year review has specifically reached out to the industry (including Providers, provincial Public Guardian & Trustee, Associations for Community Living etc) to review potential solutions.

As you can see their legal department has interpreted your definition of the “legal Holder” of the plan as, very restrictive. The government of Saskatchewan has sent out their definition of a holder in a booklet they printed for the public. Their interpretation is pasted below

2.2 Why is mental capacity important? “To set up an RDSP and manage it, a person must enter a contract with a financial institution. For contracts to be binding, the person signing the contract must have the capacity to understand the nature of the document and the consequences of signing the contract. Many persons with physical or mental disabilities have that capacity. However, some persons with extreme mental disabilities do not have the capacity to enter a contract. In this case, the person requires a legal representative appointed to sign the contract to set up an RDSP” province of Saskatchewan Office of “adult guardianship and trustee” booklet on the RDSP

2.3 What is Legal Capacity? The banks answer was “did the beneficiary of the plan know that if they withdrew $10.00 from the plan they would lose $45,000”. They are referring to paying back all the grants and bonds if a partial withdrawal from the plan is taken. This was something I was not aware of and none of the people in the review session I attended were aware of. If that is the test of capacity, how many of the parents who now hold an RDSP for their child is aware of the consequences of this regulation? I would venture that less than 1% or none.

Valued social inclusion of people with a disability is an important commitment in the United Nations Charter on people with a disability. People with an intellectual disability have the same rights as other citizens and have the right to live and participate in the community. They have the right to open a bank account, sign documents with the Ontario Disability Support program, and they should have the right to participate in the RDSP program. Denying them the right to own an RDSP denies their right to belong to the community and participate in the plan.

2.4 What is the benchmark to determine legal capacity? What is the measure or benchmark that the banks and issuers of the RDSP use to determine if the beneficiary is competent and has the capacity to be the holder of their RDSP? Is the benchmark the way they write or cannot write their name, their manner of speech, facial expression or mobility? In the absence of a clear definition we are left with the interpretation of eight corporate legal opinions. If you asked eight lawyers for a legal opinion you’ll get eight different answers, that’s par for the course.

I have a large number of people with a disability who have placed their assets in a segregated fund to exempt them from the ODSP asset rule and none of these applications have been denied. They own their own plan. In the absence of a clear definition of what the capacity of the holder is the plan will fail. If legal guardianship is the only benchmark of a holder as was stated at the seminar, the plan will not proceed.

2.5 Solution

* If the holder of the RDSP is the person or organization that opens and manages the RDSP, the organization that supports the person with a disability should be allowed to be a holder.

* A power of attorney for property should allow the POA to be the holder

* Allow a foundation established to help people with a disability be a holder.

* Establishment a deposit trust with a pooled RDSP fund offering guaranteed fixed assets only and the person with the disability can hold their RDSP.

* Remove the restriction that ONLY a trust company can offer a RDSP. This will allow life insurers to offer RDSP’s through their segregated funds.

Submitted by
John Dowson Ex. Director
LifeTRUST Planning
60 Harrison Drive Newmarket On L3Y 4P4
Toll free 1 800 638-7256 fax (905) 836-5458
Email :

Monday, December 12, 2011


By: John Rae

Over the past twenty or thirty years, the world has undergone dramatic changes. This is also true in the lives of persons with disabilities, including those of us who are blind, deaf-blind or partially sighted.

We used to say that access to information was our greatest barrier, then the internet came along, and now we also must deal with information overload, yet Donna Jodhan was compelled to file a Charter challenge against the federal government over inaccessible federal government websites.

Technology has made it possible for some individuals with disabilities to live more independent lives, yet much of the world's new technology is not developed with us in mind, often requiring work around or expensive adaptations.

The range of jobs is probably wider, yet some jobs that employed numbers of blind persons, like darkroom technician, transcriptionist, and telephone operator have been rendered largely obsolete by this same technology.

Braille is easier to produce than ever before, yet less and less is being made available, as some incorrectly argue it is no longer needed.

More and more blind students are attending colleges and universities, yet, even in this more technological era, these students must still deal with obtaining essential texts and other course materials in a readable format and timely manner.

The Charter of Rights and Freedoms protects the rights of persons with disabilities, but the federal government cancelled the Court Challenges Program, which makes it extremely difficult to go to court to test the reach of these rights.

Human rights codes now cover persons with various disabilities, yet enforcing our rights have too often become bogged down in legal procedural wrangling and growing case backlogs.

Descriptive narration is now being introduced to some movies and television shows, but some Canadian broadcasters will not or cannot "pass through" the dv track from some American programs that already include the dv track.

Intervenor services for deaf-blind persons have been developed, but governments have failed to adequately fund these critical programs and today they are also facing cutbacks.

Many museums are more physically accessible, but their displays often contain even more "hands off" restrictions than in years past.

More blind persons are out and about in their communities, yet few restaurants offer braille or large print menus.

More and more audible pedestrian signals are appearing in our communities, but community pressure leads to some being turned off at 10:00 or 11:00 p.m., long before some of us are home and snug in our little beds.

Studies tell us public attitudes have improved, but our level of employment has not increased significantly.

And while there is now a growing network of consumer-led organizations of us rights holders across Canada, governments and businesses too often still turn to service organizations when they are seeking advice on disability issues.

Disability is the only equity seeking group that everyone can, and many will join during your lifetime, and with the aging of the baby boomer population, more and more individuals will experience disability, either permanently or temporarily, and so may your family members, friends or associates. Thus, it is in everyone's interest to help persons with disabilities join the mainstream of Canadian society.

The more persons with disabilities are present every day in newsrooms, the more likely we will see stories that cover the reality of our lives, and will tell the public about our aspirations and needs. The more we work with developers and manufacturers of new technology, the more likely that universal design approaches will be built in from the start of the development phase. And if more Canadians with disabilities participated more actively in the political process as staff members for the various parties, sought nomination as candidates, ran for elected office, and succeeded in getting elected - the more that members of our community participate more directly where decisions that affect our lives in a very direct way get made, the more likely those decisions will help bring us into the mainstream of Canadian society.

The research has been conducted. The recommendations are in. As our numbers continue to rise, will we see increased government and business commitment and concrete action?

Engage with us. Involve us. Collaborate with us.