How Canada’s Broken Account Transfer System Led Us to Automatically Reimburse Transfer Fees

FROM OUR SPONSOR

One of our big goals as a company is to give Canadians more power over their money. The system works best when it’s transparent, when there’s competition, and when you’re free to make the best choices with your savings. It’s why we think open banking is going to make money better in Canada. Unfortunately we don’t have that kind of simple and transparent system right now — especially when it comes to investment account transfers.

If you’ve ever tried to move an RRSP from one place to another, you know: it’s a headache. And not a nagging little headache that’ll go away with a glass of water and a nap. These headaches can take months and can cost you quite a bit of cash, both in fees and lost opportunities to grow your money.

While we can’t solve the problem just yet, we can do our best to limit some parts of it. That’s why we decided to automatically reimburse transfer fees when you move more than $15,000 into a Wealthsimple account in a single transfer (you can see full terms and conditions here). We wrote this story because we want you to know the details of why we’re doing that and how it works, but we also want you to know how the system itself works — and why it needs to change.

Are we supposed to think Wealthsimple is doing this out of the goodness of its corporate heart?

Yes and no. Getting rid of unnecessary fees is kind of our whole reason for being. (We don’t charge foreign exchange fees on Wealthsimple Cash card transactions, commissions on stock trades, or a fee for simply having a chequing account. And we are one of the few places that lets you move your accounts to another place without charging transfer fees.) Unnecessary transfer fees were a barrier to wealth-building that we could easily remove on our own. But also, we are a business. By making this bad experience a little better for you, we also incentivize you to trust us with more of your savings.

Weren’t you already reimbursing transfer fees before?

Yes, but the process required you to let us know when you’d made the transfer and how much you were charged. Less than 40% of clients who qualified for reimbursement took us up on it; the rest either didn’t know or didn’t bother. With an automated system, a lot more people will benefit.

Now what’s all this about the system being so terrible?

You might think that once you tap that transfer button, your information gets fed into a big humming machine — a 21st-century digital network that seamlessly links all the different financial institutions, allowing information to be quickly sent back and forth. But Canada’s financial plumbing is not seamlessly connected. And instead of humming, big portions of it are loudly clicking. And starting to smoke.

Canada has many types of financial institutions: big banks, brokerages, credit unions, insurance companies, etc. They are all regulated by different groups, and each regulator has its own standards for transfers. Some are electronic and some are… not. When two places transfer your investments electronically, the process is usually relatively quick and simple.

But not everyone uses an electronic system. Which means paperwork. You fill out forms, they fill out forms, and you often send them to each other using the very cutting-edge technology of… the fax machine. If either of you makes a mistake along the way, you’re hit with a delay. And usually new forms. Eventually a cheque is cut and mailed, and a few weeks (or months) later, your money shows up.

How many Canadians have bad experiences transferring accounts?

There is no easy source of data for the entire industry, but in 2023, 46% of investment account transfers into Wealthsimple were performed by fax. The average processing time for these transfers was three weeks, and 8% took more than six weeks.

We can also tell you that Canada’s banking ombudsman, which investigates and resolves customer disputes with banks, saw its complaints about investment-related service issues double since 2019. Plus, a quarter of the mediations by the mutual fund dealers division of the Canadian Investment Regulatory Organization (CIRO) last year were related to business standards and transfer delays.

Does anyone benefit from the slow process?

When institutions know they’re losing a client, there’s not a ton of incentive to prioritize efficiency. In fact, it’s in their best financial interest to do the opposite. Not only can manual processes serve as delay tactics, providing more time to try to convince you to stay, they’re more likely to rack up excessive fees.

When we attempted to calculate the costs to consumers, we found that investors paid an estimated $50 to $100 million in 2022 alone.*

Are other countries this bad?

Not nearly. In the U.S., for example, once a request is validated, the transfer is typically completed in four to eight days. In the UK, investors are entitled to compensation for financial losses caused by transfers taking longer than 30 days. In Australia? Electronic transfers have to be completed within 48 hours.

Why does it matter how long a transfer takes?

If you know the process is horrible and drawn out, you are less likely to want to suffer through it. So you keep your money in a place you may not want it. Then there are the corrosive effects fees have on potential earnings. Plus, transfer delays mean more time out of the market, which can mean missing out on growth. If the markets go up and your money is on the sidelines, you don’t benefit. The institution holding your money, however? They can keep earning interest as long as it’s in their hands.

Also, waiting for money is stressful. If you need it, you can’t get it. Until it shows up in the right place and everything is back to normal, it can be pretty tough to feel good.

Why has no one fixed this yet?

It’s a big, complicated problem! While some banks may want to digitize and automate their systems, it can be hard to prioritize that over more attention-getting updates, like cool new apps and customer portals. The reality is, many institutions don’t see a financial benefit for automating their systems, only a cost.

That doesn’t seem right.

It’s not.

Is there any hope for improvement?

Yes! CIRO is working to modernize transfers and make everything electronic. But we’ll still need a universally accessible, low-cost system that works for every institution, along with rules and transfer timeline requirements that everyone signs on to follow. But trying to get agreement from a huge group of companies and regulatory bodies, each with their own interests, can take a while.

In the meantime, we’ve been doing our best to help. Along with refunding your transfer charges, Wealthsimple introduced a transfer tracker to provide clients with near real-time updates on their money. (It’s like seeing that your Uber driver is only two blocks away, but for your TFSA transfer.) If nothing else, transparency like this can lead to less anxiety.

What can I do if my outgoing bank takes forever to move my money to Wealthsimple?

Your first step is to file a complaint with your financial institution. If they can’t help, you can take your complaint to the Ombudsman for Banking Services and Investments (OBSI). OBSI can investigate your case, determine whether the delay was reasonable, and assess whether you suffered a financial loss or missed out on potential gains. From there, OBSI can calculate any compensation you may be due. But if the system was fixed, none of us would have to worry about an ombudsman — or any real delay — at all.

*Assumptions: 47% of Canadians have investments; 1.4 investment accounts per Canadian with investments (the average at Wealthsimple); average transfer fee of $106.39 (the average transfer reimbursement paid by Wealthsimple in 2022); and a churn rate (the percentage of investment accounts being moved each year) of 2% to 5%.

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Wealthsimple

Wealthsimple uses technology and smart, friendly humans to help you grow and manage your money. Invest, save, trade, and even do your taxes in a better, simpler way.