An advisor's worst nightmare come true

An advisor's worst nightmare come true

An advisor

Canadian advisors are beating their heads against a wall, as clients insist on tapping into their RSPs to tackle debt.

This trend is one of the gruelling challenges facing advisors today, as Canadians continue to overspend and live beyond their means.

“I’m seeing more money coming out than going into these plans,” says financial educator and owner of, Jim Yih. “It’s creating a new set of problems in our society.”

According to Yih, in a culture of spending, or overspending, “the definition of emergency has changed dramatically” (you ‘need’ that trip or new car), fast forwarding people into debt overload.

“A lot of people are taking it (money) out for the wrong reasons,” says Yih. “You want to go to Hawaii, so you just put it on the credit card, your car broke down, you need a new fridge... then you need to get (the debt) paid down, so you might as well take it out of the RSP and pay it off.”

Toronto-based financial advisor, Sudhir Bhalla, is seeing the same behaviour from his clientele, who, he says, are unaware of the long-term consequences.

“People are living pay cheque to pay cheque, so if they have to pay for anything extra, they don’t have any savings and they are stuck,” he explains. “They don’t realize the lost opportunity and the taxes they will pay. It’s very difficult to convince them.” (continued.)

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  • Daniel Hanzelka 2013-10-25 8:48:01 AM
    I do agree with Jim. It is a problem when people start taking money out of their RRSP's to pay things off. But I believe that the problem is more than just financial literacy, the issue is that people don't understand the reason why they find themselves in the financial situation they are in. I believe people are smart and educated and they know that taking money out of an RRSP will have financial consequences. In order to change this trend we need to tackle a much deeper issue. People need to understand that they have a money story and a money personality. I cover this in my book "Financial Reset". Advisors need to help their clients understand that they have a money behaviour and this money behaviour is costing them their retirement. This same money behaviour is the reason why 85% of people that win the lottery are broke after 5 years. The same happens with professional athletes or celebrities.
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  • Daniel Hanzelka 2013-10-25 9:10:19 AM
    I agree with Jim. It is a problem with people cashing out their RSP's. I believe they know that there are consequences in doing so, but in reality that is not the real problem. What I have found in researching for my book Financial Reset, is that people need to know the money scripts and money personalities they have which are leading the decisions they are making. It is the unseen factors in peoples lives that make them make the financial decisions that they are making and until they see these they will continue to do what they are doing such as cashing in their RSP's.
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  • Ryan 2013-10-25 4:08:35 PM
    When you have people that think it is a good idea to use a card at "The Brick" that they do not have to pay for a year then get hammered with 25% accrued interest on the balance (to purchase something that they cannot really afford), then maybe they do not deserve to have registered savings.

    Serious clients that have put away hard earned RRSP money for retirement will rarely pull the funds out if they understand the negative tax consequences of doing so. I believe as a financial advisor it is your job to help a client to make informed decisions that better their finances, but not to babysit someone that can't control their own compulsions against sound advice. the only time I really ever see clients that withdraw from an RRSP is in the situation of a job loss or family emergency.

    I am actually surprised to see that there is a trend of people using RRSP funds to pay off debt, all the more reason for people to start early with a competent planner that can financially educate them from an early age.
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