: Amin Mawani - Submission

Dear Members of the Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives,

It is my opinion that individuals who offer financial planning or financial advisory services to clients for explicit or implicit fees be regulated, licensed and required to keep abreast of the law and serve the best interests of the clients instead of the interests of their employers.  The following is an ongoing example of a situation where I believe the bank has made an error in its forms, and the designated financial planners (CFPs, PFPs) who are employees of the bank continue to implement their customers' TFSAs based on the error in the forms. This does not serve the customers well.

More and more Canadians are lining up at their financial institutions to open a TFSA account if they have not already done so, especially since the April 2015 federal budget increased the cumulative TFSA contribution limits to $41,000 for every Canadian over 18 years of age. This potential for large contributions and large accumulations – especially over many years of tax-free compounding for younger Canadians – increases the need for due diligence to make sure the accounts are set up in a way that facilitate sound planning. Not all financial institutions administer their customers' TFSA accounts the same way, and subtle differences could be costly to the account holders down the road.

In most provinces, TFSA account holders have a choice in their TFSA contracts to designate their spouse or common law partner as a successor holder or anyone else as a beneficiary, or both.

A surviving spouse named as a successor holder in the TFSA contract becomes the new holder of the TFSA immediately upon the death of the original plan-holder, and the assets remain continuously sheltered inside a TFSA.

The successor holder can make tax-free withdrawals from the deceased holder's TFSA after taking over the ownership of the deceased holder's plan, and can continue having their own TFSA plan with their own contribution limits unaffected by having assumed ownership of their spouse's account. The successor holder could also merge the two separate TFSA accounts.

A beneficiary designation also allows the surviving spouse to retain the tax-sheltered status of the TFSA, but only up to the market value of the assets in the TFSA at the time of the original owner's death.  Any increase in value of the assets inside the TFSA between the original owner's death and the transfer to the beneficiary's plan does not qualify for the TFSA's tax sheltering benefits.

As a result, a successor holder designation is usually better than a beneficiary designation for a surviving spouse.

Most provinces allow a TFSA holder to designate both a successor holder and a beneficiary. If the original holder and the successor holder die at the same time, the beneficiary can get the money without having to go through probate.  In such contexts, most plan holders would prefer to designate both a successor holder and a beneficiary.

While most financial institutions' TFSA contract forms offer account-holders the choice of designating both a successor holder and a beneficiary, some do not. For example, CIBC Investor Services Self Directed Tax-Free Savings Account (TFSA) form explicitly instructs bankers to "Complete Section I or II (but not both)" (italics from the form) where Section I is for "Designation of Successor Holder" and Section II is for "Designation of Beneficiary (Other than Successor Holder)."

CIBC seems to be restricting customer choices even though such restrictions are not imposed by laws, and even when such restrictions are not in customers' interest. CIBC has been aware of this issue since May 1, 2015.

Canadians opening up new TFSA accounts need to be careful before signing these legally binding contractual provisions. Understanding the differences between successor holder and beneficiary is difficult enough without having the financial institutions not offering all the choices available under the law.  Financial planners (both with and without professional designations) working in financial institutions usually offer advice that is consistent with their banks' legally approved forms. It can be hard to undo what has been legally agreed to and signed by the original plan holder. These TFSA documents are legal contracts.

The options available under the law in this context are of significant value, and TFSA plan holders (13 million as of 2014) should review their legal agreements to verify that their choices reflect what is available under the law.

Here are the links to the TFSA forms for some of the largest financial institutions as of June 29, 2015.

https://www.bmoinvestorline.com/selfDirected/pdfs/TFSA_SAHA.pdf https://www.investorsedge.cibc.com/ie/pdf/10804.pdf