As a part of The Financial Comfort Zone (FCZ) Study, Credo has been monitoring the usage of tax-advantaged investment vehicles by Canadian investors sing 2015.  In particular, we have been watching investor usage of TFSAs and RRSPs. We have noticed a few things.

TFSAs are the relative new kid on the block.  As such, they have been of such interest to investors that they now have penetration that rivals the long-in-the-tooth but really important RRSP.  Most investors who have some money to spare are now using both of these tax-advantaged instruments.

Tax Advantage Clearly Drives Usage

Consider what is going on as investors opt to use RRSPs and TFSAs.  (It isn’t rocket science.) These investors have developed a clear appreciation that these instruments provide them with a tax advantage.  And Canadian investors are very concerned about taxes.  In fact, Taxes are among the top five financial matters that concern Canadians (see Exhibit 1 below.)

Exhibit 1. The importance of various financial matters to Canadian investors  

(Truth be told, considering the level of financial literacy among Canadian investors, Credo believes that many investors DON’T actually appreciate the tax advantage. Rather, we believe that many of them are simply told by a financial advisor that you really should be putting your money in one or more of these instruments/vehicles.)

Approximately 1 in 5 Canadian investors identifies taxes as either a 9 or 10 on a scale where zero connotes no importance at all while a ten connotes extreme importance.  This is displayed in Exhibit 2 below where, on our scale, 9 and 10 represent the Top-2-boxes of the importance scale.

Exhibit 2. Top-2-box and Bottom-2-box rating of taxes as an important financial matters to users of tax-advantaged investment instruments

Considering advised investors who have at least $250k in investable assets… and more specifically those who have neither an RRSP nor a TFSA, we see that only 17% of these investors rate taxes as a really important financial matter. However, as soon as these investors start feeling that taxes are indeed an important financial matter, their use of tax-advantaged solutions increases.

Age, Tax Advantaged Instrument Use and Feelings of Taking Advantage of Tax Advantaged Opportunities

Credo asked many thousands of investors whether or not they use RRSPs or TFSAs. In a separate but related line of questioning, we explored whether or not they feel that they are taking advantage of the tax-advantaged investment opportunities that are available to them.  We divided investors into a number of age groups to further examine investor sentiment.

At every age-group level we considered, we found that investors are more likely to agree that they take advantage of tax advantages if they are using RRSPs or TFSAs. The two graphics presented below (Exhibits 3 and 4) each show two curves.  Exhibit 3 relates to investors who have RRSPs. The second similar exercise is portrayed in Exhibit 4 and relates to investors who have TFSAs.

Exhibit 3. Agreement with the statement, “I maximize my tax-advantaged investment opportunities,” BY Does the investor have an RRSP and BY Age categories.

Two red curves in the bottom portion of Exhibit 3 above sit wide apart; one sits to the left, the other to the right.  The one that sits to the left represents investors at different life stages (defined by age group.) These investors do NOT have RRSPs.  The curve that sits to the right represents other investors who are similar in every respect to the first group except these investors DO have RRSPs.  The gap between the two curves represents a significant difference in sentiment about whether of not these investors maximize their tax-advantaged investment opportunities.  At every life stage, investors who are using RRSPs are more likely to agree that they are taking advantage of their tax advantaged investment opportunities.

Exhibit 4. Agreement with the statement, “I maximize my tax-advantaged investment opportunities,” BY Does the investor have a TFSA and BY Age categories.

Similar to the previous analysis, Exhibit 4 explores sentiment among investors who have TFSAs.  Again we see two curves and again the gap that exists between the two curves represents the difference in sentiment about maximizing tax advantaged investment opportunities.  The sole difference between the investor groups is their use of TFSAs.

Usage By Investor Wealth Level

Consider various subgroups of the population; three, in particular:

  1. Smaller Investors have less that $250K in investable assets
  2. Mid-tier investors have between $250k and $500k
  3. Lager investors have more than $500k of investable assets.

Smaller Investors

Let’s begin with investors who have relatively small asset bases — investable assets of less than $250k.  Some of these Canadians live too “hand-to-mouth” and too “day-to-day” to have given much thought to managing their investments and tax status.  Within this segment of the population a full 30% have not taken advantage of RRSPs or TFSAs at all; they use neither of these vehicles. Even still, some 70% of these investors have taken the initiative to begin using either an RRSP or a TFSA. And, half of these small investors (i.e., 35% of these investors where 70% are using at least one of the two vehicles) have recognized that both an RRSP and a TFSA have their advantages. They have taken steps to use both as a part of their investment strategies.  

Exhibit 5. Usage of Tax-advantaged Investors among Canada’s Smaller Investors

Mid-tier Investors

When we look upstream somewhat, to investors who have between $250k and $500k in investable assets, we immediately see the effect on product usage of having additional wealth/resources for investment.  Whereas with the smaller investors we considered above, 30% had not begun using either an RRSP or a TFSA, once we begin looking into the nature of the mid-scale investor we see that the vast majority are taking advantage of tax-advantaged instruments.  Only about 8% of mid-scale investors don’t have either an RRSP or a TFSA. Some 77% of mid-tier investors are using RRSPs and 76% are using TFSAs. Impressively, 62% of mid-tier investors use both of these tax-advantaged vehicles. About 14% have opted for a TFSA and not an RRSP while 15% have taken the RRSP route rather than the TFSA.

Exhibit 6. Usage of Tax-advantaged Investors among Canada’s Mid-tier Investors

Larger investors

When we examine Canada’s larger investors — those who have at least $500k in investable assets — we see a situation that is similar to mid-tier investor in some respect, but different in others.  A striking similarity is the fact that the vast majority of larger investors (94%) are using TFSAs or RRSPs. Only 6% of larger investors are not, for one reason or other, using either of these tax-advantaged instruments.

Where we see some small differences is in the distribution of usage of these instruments.  Among larger investors, fully 70% have elected to use both types of tax-advantaged instrument.  This is a significantly higher proportion than the 62% we observe using both instrument types among mid-tier investors.  This difference is driven by a confluence of age and investable asset levels. Asset accumulation is a journey and the mid-tier investor is only a part way along on his journey to becoming a larger investor.  As investors grow from mid-tier to larger tier, the probability of their usage of TFSAs increased from 76% to 83%. And as they grow from mid-tier to larger investor, the probability of their usage of RRSPs increases from 77% to 81%.  

Exhibit 7. Usage of Tax-advantaged Investors among Canada’s Larger Investors

Another subtle but significant difference between the mid-tier investor and the larger investor’s use of TFSAs and RRSPs is seen in the fact that the larger investors appear to lean slightly towards TFSAs while the mid-tier investor leans slightly toward the RRSPs as tax advantaged instruments.  This is to say, among larger investors who have only one of the two tax-advantaged vehicles we’re considering, they are 18% more likely to be using a TFSA than an RRSP. By contrast, among mid-tier investors who have opted for the use of either a TFSA or an RRSP, they are about 7% more likely to be using an RRSP than a TFSA.

A principal driver of this subtle but real difference is the governmental age restriction on holding an RRSP.  By age 71, these have to be collapsed into income instruments. Accordingly, the usage of RRSPs falls off a cliff among older investors as they convert their RRSPs to other holdings.  This drives down the usage of RRSPs among members of the older and wealthier members of the population. If this regulatory requirement were not in place, this peculiar leaning towards TFSAs among larger investors would not be quite so pronounced.

RRSP and TFSA Usage Over Time

The use of TFSAs have been growing.  At this point, more than 80% of investors who have at least $250k in investable assets have set up a TFSA.  In fact, 52% of investors who have less than $250k have established a TFSA, too. This tax-advantaged instrument has gained popularity very quickly among Canadian investors and is now effectively as well used as RRSPs.

In the graphical analysis below (Exhibit 8), we have mapped Canadian investors’ usage of TFSAs (in orange) and RRSPs (in blue) on a monthly basis for the last couple of years.  What we see by looking at a trend-line for each of these two tax-advantaged instruments is that the usage of RRSPs appears to be declining while the usage of TFSAs seems to be on the increase.

Exhibit 8. RRSP and TFSA usage over time among Canadian investors

Since the inception of our study in October of 2015, RRSPs have been used, on average, by 57% of Canadian investors.  This is seen in the Exhibit 8 above, where the blue line across the graphic shows RRSP usage on a monthly basis; it’s average position in the graph is 57%. That the RRSP’s trend line (the dotted blue line) has been descending moderately over this time is interesting.  We believe there is some good reason for this.

As time progresses, people are getting older. (Pretty obvious, right?) Well, when you add to this the fact that RRSPs are an instrument that an investor is allowed to hold only until they are 71 years of age, we begin to appreciate that as the Canadian investor population grow older, the proportion of investors who have the right to continue using RRSPs declines.  We mentioned earlier in this article that RRSP usage falls off a cliff among investors whose age is 65+. Exhibit 9 below shows this clearly.

Exhibit 9. The incidence of RRSP use among different age groups

RRSP usage grows until the 55-64 age category, then it declines with the 65+ age category as investors collapse their RRSPs into income streams of one form or other. The same is not at all the case for TFSA usage. In fact, TFSA usage is at its highest level among investors who are 65+. This is seen in Exhibit 10 below.

Exhibit 10. The incidence of TFSA use among different age groups

The usage of TFSAs is interesting in that it is not perfectly linear with age; there is a swelling in usage of TFSAs among younger investors.  While RRSPs have traditionally been the instrument of choice for investors who are focused on saving for retirement, Credo believes that the heightened penetration of TFSAs among younger investors implies that younger investors are leveraging these instruments for their tax advantage but not for long-term retirement savings.  TFSAs are seen and used by younger investors as a tax-advantaged tactical instrument rather than as a long-term investment vehicle. (Of course, they are used in this manner by older investors, too.)

Among the 18 to 24 age group, 42% use TFSAs but only 18% have set up an RRSP.  In our next age group, the 25 to 34 year olds, the same is the case. RRSP penetration is at 51% while TFSA penetration is at 54%.  The prevalence in use of TFSAs among these younger investors is likely driven by the perceived time horizon associated with the vehicle.  Indeed, both are tax-advantaged, but one (the TFSA) provides that advantage in a more near-term, tactical way while the other (the RRSP) has its sights set on a timeline that is decades away.  Decades away is not the interest of the younger demographic, generally.

Financial Literacy and The Use of Tax-Advantaged Solutions

Credo found a clear link between financial knowledge and the use of RRSPs and TFSAs. Simply put, people who don’t have financial knowledge are significantly less likely to be taking advantage of the opportunities available to them.  In the graphical analysis below, we present data from more than 4,000 investors, all of whom have more than $250,000 of investable assets.

Exhibit 11. Financial literacy scores vs Usage of tax-advantaged instruments

What we see is that the investors who are using either RRSPs or TFSAs or both of these tax-advantaged instruments score significantly higher on a test of financial literacy than the investors who have neither of these investment types.  Investors need knowledge in order to make smart, tax-efficient investment decisions.


Advice and The Use of Tax-Advantaged Instruments

Credo also found a clear and significant link between investors’ use of tax-advantaged instruments and their use of financial advisors.  In fact, the probability of a Canadian investor using either an RRSP or a TFSA doubles if they are working with a financial advisor. This is clear evidence that advisors bring value to the investor by guiding the investor with respect to tax matters.  In the analysis below we separate investors into four groups of investor:

  1. those with neither an RRSP nor a TFSA;
  2. those with both of these investment vehicles;
  3. those with only an RRSP; and,
  4. those with only a TFSA.
Exhibit 12. The effect of having an advisor on having tax-advantaged instruments

Among those with neither of these investments, only 27% had an advisor.  Some 73% of these individuals were not benefiting from working with an advisor.  In some respect, there is little wonder they had neither of these tax-advantaged solutions.  By stark contrast, among the investors who had both a TFSA and an RRSP, 68% had an advisor.

Of course, with such a high penetration level of RRSPs and TFSAs among Canadian investors already, it’s quite clear that the simple offer of these instruments as solutions is mere tablestakes for any advisor; most investors already know and use these tax-advantaged solutions.

Below are two additional graphical analyses that point out the significant difference having an advisor makes on whether or not an investor is likely to be using these tax-advantaged instruments.  The first (Exhibit 13) looks at investors who DO have advisors.  The second (Exhibit 14) is a similar analysis for investors who DON’T have advisors.  

One can immediately see that the proportion of investors using BOTH a TFSA and an RRSP is greater among advised investors and that the proportion of investors who use NEITHER of these tax-advantaged instruments is far higher among investors who don’t have advisors.  This shows quite clearly that advisors affect constructive guidance for clients by getting them to use accessible, simple but important (if not essential) tax-advantaged solutions.  Investors who aren’t working with some form of advisor are likely missing the tax-deferral and tax-avoidance boats!

Exhibit 13. TFSA and RRSP usage among advised Canadian investors

Exhibit 14. TFSA and RRSP usage among unadvised Canadian investors

How These People Think

As advisors are trying to connect with their clients, insights about the investor’s mindset with respect to financial matters are particularly important. So… if you ask more than 3,500 investors who have more than $250k in investable assets whether or not they feel that they have a good understanding of the financial matters that they currently need to address at this stage of their lives, you would find that:

  1. Investors who don’t have either an RRSP or a TFSA are significantly less likely to indicate agreement.  These people need help… and it’s likely deeper help than simply the offer of a tax-advantaged solution.
  2. Interestingly, investors who have only an RRSP are only marginally better off than the investors with neither.  In particular, investors in this category who are 55+ in age are in a relatively bad way with respect to understanding key financial matters.
  3. Investors who have TFSAs or both a TFSA and an RRSP indicate that they have a good handle on the financial matters that they are currently facing.
Exhibit 15. Agreement with the statement, “I have a good understanding of the financial matters I need to address at this stage of my life,” BY Which of these tax-advantaged instruments do you have in your portfolio?

Exhibit 16. Agreement with the statement, “I have the knowledge I need to build my own financial security,” BY Which of these tax-advantaged instruments do you have in your portfolio?

When we asked investors about their orientation to personal financial matters in general,  those who had TFSAs were least likely to indicate that personal financial matters were of no interest to them while investors who had neither an RRSP nor a TFSA were significantly more likely to agree with this concerning statement. Investors with an RRSP fell between the two extremes.  Credo infers from several of these analyses that TFSAs — the relatively newer instrument — are more engaging instruments that are being employed by more engaged investors.

Exhibit 17. Agreement with the statement, “Personal financial matters are of no interest to me,” BY Which of these tax-advantaged instruments do you have in your portfolio?


Most Canadians who have managed to save some money ($250k+) have figured out that the two government sanctioned tax-advantaged investment vehicles are worth their time, effort and money.  While many investors use both an RRSP and a TFSA, some opt for one or the other.  Preliminary research has revealed there are some substantial differences in the psychographic profiles of investors who opt to use one or the other… and this makes intuitive sense: apart from being designed as tax-advantaged savings motivators, the vehicles are structurally very different and have very different value propositions .  In another report, we will delve deeper into the differences in mindsets between these two groups of people and we will show how the differences in the instruments is reflected in the investors they attract.

Methodological Notes:

  1. The data for this analysis comes from The Financial Comfort Zone (FCZ) Study… an ongoing cooperative research exercise between  Credo and TC Media.
  2. The FCZ Study surveys a random sample of 1,000 Canadians online each month to track the evolution of various financial matters within the population.
  3. Clients of the FCZ study are welcome to nest proprietary questions within the monthly fielding of the FCZ data collection.
  4. Data collection for the FCZ Study began in September of 2015. As a result, the FCZ dataset currently contains more than 30,000 Canadian investors’ responses.