Slow uptake for FHSAs among advisors leads to missed opportunity to connect with the next generation.

Written by:

Kelsey Rolfe

The Globe & Mail

May 6, 2024

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More than $4-billion flowed into tax-free first home savings accounts (FHSAs) last year after they became available on April 1, but financial advisors and full-service brokerages were responsible for only a small fraction of the new accounts, according to a report from Investor Economics, an ISS Market Intelligence business.

FHSAs, which have a 15-year lifespan and allow Canadians who don’t yet own a home to contribute up to $8,000 per year to a lifetime maximum of $40,000, got off to a slow start, Investor Economics reported, as financial service providers took additional time to launch the accounts.

As of December 2023, Investor Economics estimates there was just less than $4.4-billion in FHSAs. According to government figures released the same month, more than 300,000 Canadians had opened the accounts. By comparison, tax-free savings accounts (TFSAs) amassed more than $18-billion in assets in their first year. Will Stevenson, senior research associate at Investor Economics, says the expectation at the start of 2023 was for around $10-billion to flow into FHSAs in their first year.

Clients of financial advisors and full-service brokerages accounted for only about 5 per cent of FHSA assets, the report states. In contrast, about 70 per cent of FHSA assets were in branch networks. Online or discount brokerages, favoured by younger clients, claimed 20 per cent, while robo-advice platforms had 4.6 per cent.

Yet, Cindy Marques, a certified financial planner, co-founder and chief executive officer of MakeCents in Toronto, says she’s not seeing much interest for FHSAs among her largely millennial client base.

Those who are saving for a home are mostly prioritizing TFSAs, she says, because it gives them greater flexibility to use the money in other ways if they change their mind. If FHSA holders don’t buy a home within 15 years, funds can be transferred tax-free to a registered retirement savings plan, registered retirement income fund, or withdrawn on a taxable basis.

Ms. Marques says some clients don’t have the funds to contribute to a new investment account, although she’s seeing interest from more affluent clients who can max out their annual contributions to other registered accounts.

“They may or may not be interested in buying [a home],” she says. “They’re just seeing the FHSA as a way to increase their RRSP room. Those who may need these incentives more are not the ones taking advantage.” [...]

Accounts used primarily for savings, not investments

More than half (55.7 per cent) of total funds in FHSAs are in deposit accounts, the Investor Economics report found. Mr. Stevenson says that’s likely due, in part, to the slow roll-out, but also to investor psychology and “savings account” being in the name. The same thing happened with TFSAs at first, Mr. Stevenson says.

[...] Ms. Marques says she recommends anyone whose timeline to purchase a home is two years or less to use a high-interest savings account within their FHSA. For those at least a year away from buying, a GIC can make sense. “If it’s sitting in a chequing account, you’re not getting anything – you’re losing to inflation,” she says. “And if it’s a down payment’s worth, that’s a lot of money sitting there not being productive.”