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My bank is trying to sell me on switching to using a self-directed RRSP account. Right now, it doesn't make sense to me to do it, but it does look like an interesting investment option.

What are some general guidelines I should be following for self-directed RRSPs? When should I start looking at switching into one, or, the reverse, switching out of using one?

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I find it strange that they would actually recommend switching to a SD RSP. Most of the Big 5 banks would be happy to have you blindly invested in their high-fee mutual funds without even making you aware that the self-directed option exists.

In my view, there are a few very important things to consider:

  1. Would you like your investments to be self-directed? Would you be able to decide what to invest your money in if you had all the choice that's offered through a SD RSP? Would your financial advisor at the bank still be involved? Only consider answering the question of when you should start looking into switching to one if you have already decided that you would like to switch to one. If you would like to have a SD RSP, it might make sense once your invested amount can justify any added commissions and fees you may incur with your new investments. If it's at a Big 5 bank (i.e. TD or RBC) you're looking at $30/trade for stocks and ETFs, and maybe a fee for third-party mutual funds.

  2. Are you well-versed with all the products that you can invest in using a self-directed account? Although I would generally recommend a SD RSP, or even a self-directed TFSA or non-registered account, it would behoove an investor to really be committed to knowing what they're doing. Without presuming too much about the OP, I would recommend anyone reading this answer to start at a great post at the Financial Webring Forums.

  3. What are all the fees associated with the SD RSP? Many of the Big 5 banks and other companies charge exorbitant fees. Commission fees notwithstanding, the two major fees that I would be careful about are the annual administration fees and transfer out fees. RBC Direct Investing, for example, charges $75/yr for RSPs that are less than $25000 in value. They also charge an exorbitant $135 transfer out fee. Of course, you'd need to pay that if you decide to switch brokerages since you can't just withdraw from bank A and redeposit at bank B without triggering tax consequences.

  4. If you really would like a self-directed account, must you stick with your current bank? Having said all this, I think that there are other brokerages out there that should be evaluated apart from the Big 5 banks should you choose to go this route, particularly if one has less than $25000 invested. A good starting point is at a post at the Million Dollar Journey blog, which includes a table of many Canadian discount brokerages. The irony would be staggering if you inform your financial advisor at your bank that you have decided to take their advice and open a SD RSP, but somewhere else.

Best of success with your RRSP, whatever you decide to do. If you would like me to elaborate further on any of these points, please post a comment and I'll do what I can.

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