Community bonds are small, private market bonds issued by non-profit organizations, co-ops and social enterprises to raise capital for a social or environmental purpose. Issuers sell community bonds to reduce their borrowing costs and to expand impact investing to retail investors. Investors buy community bonds to earn a return while doing good.
Canadians hold more than $1 trillion in Registered Retirement Savings Plan (RRSP) accounts, and they add more money every year.1 Keen to attract investment from community members who may wish to invest their RRSP savings, community bond issuers have structured some community bonds to qualify for RRSP investment. Yet, despite client requests, financial advisors have hesitated to put community bonds into RRSP accounts.
This paper aims to clear confusion in the market as to why financial institutions rarely process community bonds into RRSP accounts. The paper draws on sixteen interviews with community bond issuers, major banks, credit unions and transfer agents. It begins by describing community bonds and how they can help issuers, investors and financial institutions. It then reviews the barriers to putting community bonds into RRSP accounts. Finally, it concludes that, for retail (non-wealthy) investors, the gap between community bonds and mainstream financial institutions is too wide to bridge. Community bonds issuers should look to strategies other than mainstream RRSP accounts to sell community bonds to retail investors.
Table of Contents
Benefits to Issuers, Investors and Financial Institutions
First Steps to Putting a Community Bond into an RRSP Account
Open a Self-Directed Account
Understand the Risk-Return Profile
Hurdles to Putting a Community Bond into an RRSP Account
Prove Income Tax Act Eligibility
Calculate Fair Market Value (if Necessary)
Avoid Administrative Costs
Overcoming Hurdles to Putting a Community Bond into an RRSP Account
Overcoming Hurdles for Retail Investors
Overcoming Hurdles for Wealthy Investors
Appendix A: Securities Law
Appendix B: Costs
Appendix C: Glossary