Self-Directed RRSPs

A self-directed RRSP is a registered retirement savings vehicle that can hold mutual funds, exchange-traded funds (ETFs), stocks,GICs.

Most investors who choose this option are looking for control, and as such it makes sense to choose an account offering access to a discount brokerage tool. In short, self-directed RRSPs are best suited to people with a strong understanding of how the markets work, who are willing and have the time to do their own research, and are disciplined enough to buy and sell their own investments when markets present opportunities.

Investors still in the earlier accumulation stages of their retirement planning, and not yet in need of tax-related or other specialized advice, are ideal candidates for self-directed RRSPs.

Like conventional RRSPs, annual contribution limits apply. Likewise, a self-directed RRSP requires you to name a beneficiary at the time of account opening, and will roll the account over to that beneficiary should you pass away. He or she can decide whether to maintain it as a self-directed account or work with an advisor.

Be curious about fees

Investment fees for self-directed RRSPs are generally lower, but you can expect to pay sales charges or commissions when you buy and sell investments, and an annual trustee fee to the institution that actually holds your account.

If your intention is to invest in mutual funds, you're better off opening an account with one of the major banksScotiabank, RBC, TD, CIBC, or BMO as they tend to treat you as a preferred customer and offer lower fees. While the preference is usually linked to the purchase of their products, it can be a solid cost savings.

But, if your intention is to buy ETFs or other equities directly, you'll want to use a discount brokerage tool to accumulate investments within your RRSP. Your trading fees will generally be lower than when working with an advisor, but there are subtle variations to the service offerings from Canada's major banks, as well as the independents.

In some cases, an institution may charge a fee for providing the research you use to make your investment decisions. Each provider is different, so when you narrow your choices, get as many specifics on fees as possible to get close to an apples-to-apples comparison.

Self-directed RRSP mortgages

A self-directed RRSP can also help you with your mortgage. While an individual piece of real estate can't legally be held in an RRSP, there is an option for the registered plan to lend money that's secured via a title-the same way a bank would lend you a second mortgage for which a property is used as collateral.

Certain providers of self-directed RRSPs will allow account owners to invest in debt instruments, although conventional RRSPs generally do not. If you are able to do this, you'll essentially be creating a private mortgage, which the

National Housing Act says it must be administered by an approved lender. Likewise, interest rates have to reflect the prevailing market.

You'll also be expected to do the same level of due diligence on the borrower as a conventional lender; and show that the loan-to-value ratio is within standard tolerances.

On balance, the tactic is best suited to RRSP owners who have large amounts of fixed-income investments in their plans-as the mortgage repayment rates will provide a better return than many of those holdings.

But, some words of caution, these lending arrangements are tricky and can run you afoul of the CRA if not correctly structured. You should get a second opinion from a tax advisor before proceeding.

Banks' self-directed accounts

All of Canada's major banks self-directed RRSPs through their online brokerage divisions. Here's a quick overview of what they have along with the fee for online trades, the quarterly or annual maintenance fee, and what criteria are needed in order for the fee to be waived:

Discount brokerage Online trading commission Maintenace fee Fee waiver
BMO InvestorLine $9.95 per trade $100/year If your account value is $25,000 or more
CIBC Investor’s Edge $6.95 per trade, or $4.95 if you make 150 trades or more per quarter $100/year If your account value is $25,000 or more
RBC Direct Investing $9.95 per trade, or $6.95 when you make 150 trades or more per quarter $25/quarter If your account value is $15,000 or more across all of your self-directed accounts