A registered retirement savings plan, best known as an RRSP, is a retirement savings plan that you set up, register with Canada Revenue Agency, and to which you, your spouse or common law partner contributes. Deductible RRSP contributions may be used to reduce individual tax obligations.
Income earned through an RRSP is exempt from tax as long as the funds remain in the plan. Generally, you must pay tax when you receive payments from the plan. In this section, learn what you need to know to make your RRSPs more responsible.
Most of the information in this section on RRSPs also applies to other registered plans such as registered education savings plans (RESPs).
What responsible investment products are RRSP eligible?
Your options include the following (each is hyperlinked to a full explanation of the product, responsible investment strategies that apply as well as a link to a list of available RI products in that product type):
What are the returns on RI RRSPs?
Many studies have been devoted to the issue of RI performance. The majority of findings tend to indicate that responsible investment performance generally equals or surpasses that of traditional investments. See our section on RI returns for study summaries and references.
In this section, we examine returns for each eligible RI RRSP product type:
The responsible investment industry association, RIA, produces quarterly mutual fund reports on performance. Upon perusal of these reports, one will observe that Canadian equity, Canadian fixed income, global equity and US equity mutual funds generally outperform regular mutual funds in their respective investment categories. The details reveal that there are some underperformers as well as top-performing RI mutual funds in every major investment category.
View the RIA quarterly mutual fund performance charts here:
What about the costs of RI mutual funds?
Fees applying to these funds will impact your returns. No comprehensive study has yet been conducted comparing the costs of RI mutual funds with those of other mutual funds.
All mutual funds have a management expense ratio (MER). The MER includes the management fee (paid to the mutual fund manager) plus the fund’s day-to-day operating expenses (legal fees, fund valuation costs, costs for mailing out prospectuses, etc), as well as an adviser compensation component.
The adviser compensation component of the MER can be paid out to the adviser in a variety of ways. The most common methods are front-end loads, back-end loads (often called DSC or LL) or no fee funds for clients who have fee-based accounts. The difference between front-end vs back-end loads is that back-end loads have early redemption penalties, whereas front-end loads may require you to pay an additional sales commission to your adviser.
Trading costs are also accounted for separately and depend on how much turnover a fund generates in a given year. Most RI funds are long term investments and do not tend to generate abundant trading costs.
Bear in mind that although you do not assume these expenses directly, they do impact you because they reduce aggregate fund returns. Be certain to ask your adviser about all applicable fees.
The Canadian equity ETF iShares Jantzi Social Index (XEN) has performed in a manner comparable to that of iShares S&P TSX 60 (XIU). Although the Jantzi Social Index has outperformed the S&P TSX 60 Index since inception in 2000, index performance is not completely reflected in the performance of the ETF created to replicate the indices.
iShares has included the XIU in its ultra low cost series which charges an MER of 0.15%. In comparison, XEN’s management expense ratio is 0.55%, thereby providing XIU with a performance advantage in terms of real dollars earned.
The breadth and quantity of responsible ETFs in the US market make it difficult to draw any general conclusions about their performance. It is important to apply a diligent strategy for assessing ETF performance, risks and costs, as well as ETF suitability in terms of your individual financial objectives and overall portfolio.
You may find ETF performance and fee information for specific RI ETFs on websites such as Morningstar and Globefund. Use the Ethiquette RI ETF chart to identify RI ETFs, and check each fund individually.
According to a 2012 study by Deutsche Bank, companies with high ratings for environmental, social and governance (ESG) performance were less risky than their counterparts. The report also found — in 89% of the studies examined — that companies with high ESG rankings outperformed their counterparts from the standpoint of market returns over the medium and long terms. These findings pointed to a strong correlation between solid ESG performance and higher risk‑ adjusted market returns in stocks.
Fossil fuel divestment is a trending topic within the responsible investment community. There are abundant opinions and concrete strategies on how to approach one or other of the divestment or responsible investment in fossil fuels. Fossil fuel investments are not just about ethics. Ever increasingly, they beg action in terms of financial prudence and risk mitigation. Selecting a responsible fossil fuel investment strategy requires that you assess your values and the impact that implementation of your strategy of choice will have on your portfolio.
Bonds are evaluated on the basis on credit quality. Companies with high environmental, social and governance (ESG) performance rankings tend to have lower risk profiles than their counterparts (See reference to study by Deutsche Bank in ‘Stocks’ section above). This is reflected in higher credit quality.
Returns on impact investment products vary greatly. Some offer tax advantages that also need to be considered. Once again, these decisions should be made on a case by case basis with a trusted financial adviser.