Many Canadians are missing out on a great opportunity to grow their wealth because they remain confused or completely unaware of the advantages of the tax-free savings account (TFSA), according to a survey from Toronto-based Mackenzie Financial Corp. released on Wednesday. Thus, financial advisors and financial services firms have to do a better job of educating Canadians about the savings vehicle and how it fits into a financial plan.
“There’s not enough advertising about it, not enough support for it. It’s [treated] like a loss leader for other investments,” says Carol Bezaire, vice president of tax and estate and strategic philanthropy at Mackenzie. “I think of [the TFSA] as an important part of [clients’] overall planning for [their] finances, especially as [they] reach retirement age.”
Canadians were asked five basic true or false questions about the TFSA as part of the Mackenzie survey, which polling firm Leger conducted on a representative sample of 1,588 adult Canadians from May 19–22. Only 51% of those surveyed answered three or more of the questions correctly, a modest improvement from a similar survey conducted in 2009, just after the TFSA was launched, when 44% of respondents managed to answer three or more of the same questions correctly.
When provided with the statement that a broad range of investment options are available within a TFSA — including stocks, bonds and mutual funds — only 46% of respondents were able to correctly identify it as “true” compared with 41% in 2009.
In another part of the same survey, those without a TFSA were asked why they hadn’t yet opened one. Sixty-four per cent said they didn’t have the money while 26% said they didn’t know enough about TFSAs. That would suggest that advisors and financial services firms have an opportunity to raise awareness about the investment vehicle, Bezaire says.
“I’m finding most of the people who have a TFSA are dealing with a financial advisor because they’re using the TFSA as part of their overall [financial] plan,” she says.
The relative newness of the TFSA as compared with the RRSP may be one of the reasons Canadians continued to have a fuzzy idea about how the program works. In addition, the TFSA’s name continues to confuse some people into thinking that it’s just another savings account, Bezaire says. The “tax-free account” or the “tax-free investment account” may have been preferable names, she suggests.
The federal government’s proposal in its 2015 federal budget to raise the TFSA contribution limit to $10,000, effective immediately, provides the investment industry and advisors a golden opportunity to contact clients, alert them to the increased contribution room and remind them again of the TFSA’s many attributes.
“There’s $41,000 total contribution room now if someone hasn’t ever contributed to a TFSA. And for a couple, the high-income earner can give money to the lower-income spouse [without attribution rules applying], so there’s $82,000 in combined room,” Bezaire says. “It’s a significant amount of money that if you invest it well enough, you’re going to have a lot more to take out at retirement.”