An advisor's worst nightmare come true

Canadian advisors says they`re beating their heads against a wall in fighting this growing trend unique to this country and with the power to undermine their clients` futures.

An advisor's worst nightmare come true

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.)


According to Bhalla, investors can be taxed upwards of 30 per cent on withdrawals. “It’s a huge hit for retirement,” he says.

In the very first meeting, Bhalla tells his clients to consider this tactic a last resort. If the option comes up later, he explores every other avenue for his clients to tackle their debt.

Focussing on financial education, Yih has considered how to solve this problem. His suggestions include educating investors (explaining in detail why taking money out is a bad idea and the consequences of doing so), monitoring withdrawals more closely, or having employers ban withdrawals on plans completely.

“A lot of companies don’t even know the withdrawals are as high as they are,” Yih says. “The question is how do we fix things? Is it temporary or is it an ongoing trend?”

Are you experiencing a similar trend in your firm? Tell WP your story in the comments section below.