"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."

~ Niccolo Machiavelli, historian and writer

Monday, March 2, 2009

Royal Bank RDSP Best Described As 'Work in Progress'

I considered titling this post "Royal Bank RDSP SNAFU" but then decided that perhaps that was a little harsh.

The sales rep I dealt with was very personable, very friendly, worked hard to resolve my issues (all the way up the chain of command) and despite and through it all, still managed to leave me with a reasonable enough sense of confidence in his knowledge and ability regarding his investment advice at the end of the day. So that was the positive part of the experience.

The rest of it, you ask. Yeah, about that.

Can anyone say screwed up?

In defence of the Royal Bank, again (and no, they are not my primary banking institution, I had no dealing with them prior to opening this RDSP), from the comments on this particular post over at the RDSP blog, the Bank of Montreal seems equally screwed up. I can only expect (but have no actual knowledge) that CIBC will be in the same leaky boat.

But screwed up? Yeah. My sense is that maybe, just maybe, the financial institutions are 'making this up' as they go, with conflicting interpretations and advice coming from all directions.

In my case, I had serious reservations around the wording of who, exactly, could be the Holder of the Plan. No, sorry, saying the paper says something other than it actually does does not make it so. No matter how many times you try. That just doesn't work.

The problem was that the application documents were worded to provide that although I, as the beneficiary's parent, could open the RDSP, once she turned 19, one of two things must happen.

It stated that if she was competent, she would become the sole holder of the Plan. And if she wasn't competent, someone else (other than I) would have to be appointed holder.

Which is, of course, completely contrary to what the Canada Revenue Agency (CRA) says, namely, that if the beneficiary is under the age of majority when the Plan is opened, not only can the parent open the Plan but they will stay on as holder after the child reaches the age of majority. No matter whether the child is judged competent or not at that time.

So, yeah, a little difference there. In fact, the application was so badly worded that it purported to say that even if I obtained guardianship of my incompetent child when she turned 19, I still couldn't be the holder of the Plan. Some stranger would have to be. Yeah. As in no, I don't think so.

In their defence between Thursday afternoon when I first went in to open the RDSP and today at noon, they were finally able to advise me that Royal Bank was aware of the mistake in their documents (the actual Trust agreement, while better worded, was still out of compliance with the CRA policy) and had entered into an undertaking with the CRA to (hopefully?) bring the RBC documents in line with the CRA policy.

Being advised that once this occurred, the changes should be retroactive (meaning that my documents would be magically legally fixed), I decided to take the plunge. For the simple fact that, best as I can tell, the other banks aren't necessarily doing a much better job sorting out the documentation at the moment. And if, worse case scenario, the Royal Bank doesn't change its documentation, I can always move the RDSP to another financial institution who is doing it right. Fortunately for us, our daughter is only 16 so we at least have a few years before she is considered adult and this issue would become relevant.

So there you have it.

Moral of the story ~ You might want to make sure that you know at least as much as to how the RDSP works is suppose to work as your financial institution. Actually, it might not be that hard to raise the bar and ensure you know more about how it is suppose to work than they do.

Because if you don't read the fine print and if you're not well-familiar with the CRA rules, you could just find yourself signing something completely different than you intended. And it isn't always a good idea just to accept what a sales rep or even someone above them tries to tell you is the correct interpretation of a document. Never ever count on what someone verbally tells you changing or amending the document you are signing. Not without legal advice.

And if you're not sure of what you're about to sign, don't sign it. That's just good common sense legal advice in any situation you find yourself in. And perhaps extra important to keep in mind while the banks try to sort out the intricacies of the RDSP.


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