Contributor: Pension lawyer Jean Pierre Laporte, BA, MA, LLB. (Jp.laporte@integris-mgt.com)

We know from Statistics Canada that less than three per cent of the total entrepreneurial marketplace currently uses registered pension plan solutions for themselves.

Given their significant advantages—tax or otherwise, as noted in previous columns—many REALTORS® might wonder why pension plans aren’t more widely promoted in Canada.

As with many financial products, a REALTOR® doesn’t “shop” for a pension plan the way one shops for a car or a house. Usually, a financial intermediary—such as an advisor, accountant, financial planner, or insurance specialist—must first introduce the concept of a pension plan to the business owner to assess whether it’s a fit.

This means someone must promote the idea of a pension plan to the marketplace to give it visibility. However, as with any financial product, the economic incentives in place often determine whether a particular solution is presented, and in what order, when multiple options are on offer.

Take, for example, the seemingly competing concept of an insured retirement plan. In this case, a life insurance agent might recommend that a REALTOR® use cash to pay premiums for a permanent life insurance policy. The idea behind these insured retirement plans is that the premium exceeds the cost of insurance protection, and the extra dollars can be invested in the policy’s “cash surrender value” account on a tax-deferred basis.

Often, an insured retirement plan is paired with an immediate financing arrangement in which a lender takes the insurance policy as collateral and immediately lends money back to the REALTOR® or their corporation. This provides immediate cash flow and life insurance protection without significantly impacting operational cash flow.

Where these insurance solutions are sold, the commission paid to the agent for placing the policy can equal or nearly match the first year’s premium paid by the REALTOR® or their corporation. Imagine a policy with 10 equal annual premiums of $100,000—the life insurance agent could earn $100,000 in commission once the policy is approved.

By contrast, an advisor suggesting a pension plan might only earn investment management fees of about $10,000 per year (depending on the plan’s size) and often wait months to receive any payment while the plan is being registered and funded.

It’s understandable that if a financial advisor has limited time and faces a choice between earning $100,000 immediately or $10,000 annually, the tendency might be to recommend the insured retirement plan first. If there’s still available cash after the policy is in place, the pension plan might then be introduced as a companion strategy—often as an afterthought.

Most REALTORS® also rely on their accountants for tax advice, even if that professional’s main role is preparing financial statements and tax filings.

Typically, an accountant isn’t financially compensated if a REALTOR® establishes a pension plan. In fact, in the absence of a pension strategy, the accountant might recommend other corporate or trust structures to build family wealth, such as holding corporations, investment corporations, and family trusts.

In those cases, the accountant bills for services related to each entity. Any new solution, such as a pension plan, that could be seen as disrupting an existing structure may face resistance.

The lack of pension plan champions isn’t the only reason these plans are rare in the small private sector. A lack of expertise and widespread myths—often stemming from limited experience with the complex rules governing pensions—add more reluctance.

For example, even though pension plans for shareholders typically don’t require any funding, some claim that setting up a pension plan creates a financial commitment that doesn’t fit the cyclical nature of small business revenues. Others argue that annual maintenance fees make the solution too costly.

In reality, these plans often pay for themselves by unlocking tax refunds or savings that aren’t available without them.

Without a champion with a strong financial incentive to popularize the pension solution, it’s understandable that these retirement tools remain seen as “niche” products.