Canadians are not keeping up with the rapid pace of changes in their employer-sponsored retirement plans, as defined benefit(DB)plans are scrapped in favour of defined contribution(DC)plans and group RRSPs, according to a study by T.E. Wealth.

Rather than lament the loss of guaranteed retirement income, the firm suggests advisors view this climate of change as a new and potentially lucrative source of clients.

Scott McKenzie, T.E. Wealth’s regional vice-president for Ontario, says this lack of awareness has resulted in potentially huge risk for both companies and their employees. Employees apparently do not realize that they must be proactive with their contributions and are not aware of certain features such as employers’ matching contributions. As a result, their retirement saving potential is greatly diminished.

On the flipside of this, McKenzie says by not ensuring their employees are properly educated about their retirement compensation options, employers are leaving themselves vulnerable to potential legal action from retirees left with scant savings.

“I’ve literally seen people face to face who have been in DB plans and had no idea they had been switched out,” says McKenzie. “I met one guy who had no idea, and asked ‘when does my pension start?’ and the money had been sitting in cash in a DC plan.”

McKenzie says his firm is using these types of situations as an opportunity to expand their client base—both from plan sponsors and their employees.

“We’ll go in and we’ll do a financial education audit and we’ll help the company design an education strategy for their employees,” he says. “[We help employees] consider that plan as part of their overall investment plan or financial plan.”

As investments go, he says, DC plans may not be as desirable as DB plans, but they’re likely much better than anything that’s available to employees as individual retail investors.

“The company is not only giving you money to contribute, they’ve also paid so that the MER on these funds is basically subsidized at lower levels,” he says. “On a decent plan for a good-sized company, your aggregate of fees is probably less than 1% of the portfolio. Where else do you get that from? It’s all at institutional rates, and you’re getting all the big-time institutional money managers.”

T.E. Wealth makes its money offering fee-based advice, but McKenzie says weaving group benefits into a client’s financial plan can have a big payoff for commission-based advisors as well.

“There is a huge win for the advisor because some of these plans can grow to be quite huge over time. When those employees leave the company, their money is likely going to that advisor,” he says.

Mary De Paoli, senior vice-president at Sun Life Financial, one of the country’s largest providers of group retirement plans, says financial advisors are imperative to the success of group investments.

“The advisor is critical in the group plan arrangement because they can give advice at many critical [financial] milestones for plan members,” she says, pointing out that Sun Life and its plan sponsors will compensate advisors for their assistance.

“From an advisor standpoint, you have the benefit of group sales,” she adds. “If you’re the advisor of choice to a small- to mid-size company, it’s a phenomenal way for an advisor to build their business and to build a referral system.”

There are some risks, warns Steve Bonnar, principal with Towers Perrin. Bonnar says independent financial advisors hired by plan sponsors may be a stop-gap to improve employee understanding of their plans, but there may be legal risk involved.

“In a vacuum, I think it would be wonderful to provide a non-conflicted advisor or organization to provide financial advice to plan-participant employees,” Bonnar says.

But plan sponsors are facing a double-edged sword: While offering no advice leaves a company open to legal liability if employees don’t understand their plans, there is also serious liability if an appointed advisor offers bad advice.

“To what extent does an employer risk exposing themselves to the risk in court by providing investment advice to plan participants? Are they more at risk by doing that or doing nothing?” he asks. “I’m not a lawyer, but I would hope that the answer would be they would limit the risk by providing high-quality, non-conflicted investment advice, but I don’t know if that’s the case.”

Filed by Mark Noble,

Copyright © 2020 Transcontinental Media G.P. Originally published on

Join us on Twitter