Tax planning is increasingly becoming a category through which financial advisors can enhance the value of the services they provide to their clients.
In fact, 58% of Canadian investors said they would fire their advisor in favour of another who could advise them regarding the impact of taxes on their investment portfolio, according to a recent survey by Toronto-based NGAM Canada LP (a.k.a. Natixis Canada).
Clients are becoming increasingly aware of the effects that tax planning has on their accounts and, as a result, are looking to advisors for tax advice to save money.
“The advisor of the future – in order to be successful – is going to need to answer that call,” says Robert Handelman, vice president of wealth and tax with Natixis Canada. “People care about how much [money] they keep at the end of the day.”
And, according to Handelman, many advisors are offering only the “tip of the iceberg” when providing basic advice about maximizing RRSPs and TFSAs.
Other topics on which you can provide tax-efficient investment advice include income splitting with a lower-income spouse or child, charitable giving and asset allocation, he says.
Regardless of whether you have the expertise to provide advice on complex tax issues yourself, addressing the topic indicates to clients that you are considering their tax-planning needs.
“It’s an area in which the advisor can brainstorm a few ideas, then collaborate with an accountant to confirm that they’re suitable and appropriate, and work within all of the rules,” says Brad Coutts, a chartered professional accountant and financial planner with Nicola Wealth Management Ltd. in Vancouver.
Further, tax-related investment advice is a category in which you can differentiate yourself from robo-advisors, Coutts adds.
And tax advice is vital for high net-worth clients. Wealthy clients can be particularly sensitive about the amount of taxes they are paying because taxes represent one of their biggest bills of the year, says Rosemary Horwood, vice president and investment advisor with Richardson GMP Ltd. in Toronto.
Horwood recommends tackling the issue of tax planning head-on with clients during the first meeting. If the topic doesn’t arise naturally, then bring it up.
– CONNECT WITH YOUR CLIENT’S TAX PROFESSIONAL
Often, the first step in providing comprehensive financial advice is to ask if your client has an accountant, then for permission to contact him or her.
Even when creating a financial plan, giving your client’s tax advisor a phone call to double-check that the plan is ideal for your client’s financial situation is a good idea, says Joanne Ferguson, president and coach with Advisor Pathways Inc. in Toronto.
Connecting with your client’s tax professionals also is important for avoiding the friction that can occur when multiple advisors serve the same client, adds Tony Maiorino, vice president, wealth management services, with Royal Bank of Canada in Toronto.
“We tell our accountant: ‘Save us as much taxes as you can’ and we tell our investment professionals: ‘Make us as much money as possible’,” Maiorino says. “In Canada, if you’re making a lot of money on investments, you’re paying more taxes. So, the messaging that we give to our professionals as clients sometimes can be conflicting.”
For Maiorino, a well-integrated team can be the antidote to any dissonance between the two professions. Having an advisor and a tax practitioner who work well together and can share information (such as unrealized gains or losses from previous years) regarding their mutual client is ideal, Maiorino says.
– DEVELOP NEW RELATIONSHIPS
Advisors who don’t have a tax specialist on hand – either through their client or through their firm’s tax and estate planning division – still can create their own partnerships to ensure their clients’ tax planning needs are met.
Many advisors may need to look no further than their own book of business, Ferguson says. For example, if you repeatedly see the same accountant’s name on your clients’ information, you and the accountant probably serve the same demographic group, geographical region or client niche.
“If there is an accountant who is working with quite a few of your clients,” Ferguson says, “that would be a good place to start.”
The next step is introducing yourself to that accountant and asking questions about his or her typical process with clients. This discussion will help you assess whether this person is a good fit for client referrals. You may form a relationship with this accountant, making him or her a centre of influence (COI) and, potentially, a valuable source of referrals.
– SEEK MULTIPLE PARTNERSHIPS
Tax planning is rarely “one size fits all” activity, as each client has unique tax planning needs. So, you may need to network with several tax professionals as COIs, Ferguson says, especially if you serve more than one client niche.
A widowed client, for example, wouldn’t share the same tax needs as a small-business owner; therefore, both clients would be unlikely to use the same accountant.
Coutts recommends providing at least three options for clients who need help finding an accountant. “Any time we do a referral, it’s good to have options so the client can interview each of them and make their own decision and find which one is most suitable for them,” he says.
Similarly, Horwood’s firm may utilize more than one tax professional for one client family if there is a business involved.
“I think it’s really important that the complexity of our client’s situation is well matched with the sophistication of the professionals they’re working with,” Horwood says.
– FINDING THE PERFECT MATCH
Locating a good tax advisor to work with is no different from finding a good match for anything else in life, Handelman says.
“If you’re interviewing a tenant for a rental building, you’re calling past references to check to see if they are a reasonable person,” he says. “You can do the same thing with any professional.”
Adds Handelman: “Always follow your gut.”
If you are uncertain of an accountant’s qualifications or background, ask another accountant or a financial advisor for a second opinion.
“You’ll be able to sniff out if there is someone who isn’t doing something right,” Handelman says.
Also note that referring your client to an accountant doesn’t mean that you relinquish control of your client’s account. Rather than outsourcing your client’s tax needs, Handelman says, you should remain the financial advisor, acting as a “quarterback” for your client’s financial affairs.
– WIN/WIN RELATIONSHIP
Ideally, partnering with a tax professional should be a “win/win” situation, Ferguson says. This relationship might involve passing referrals back and forth, so that you will be helping each other generate new business.
One way of working with an accountant to generate referrals together is to collaborate on a client newsletter. You can work on such vehicles with an accountant and other professionals such as lawyers, real estate agents and business coaches, Ferguson says. Each professional would be responsible for a section of the newsletter in which they share their expertise on a particular topic. The participating professionals can distribute the newsletter through their networks, ideally generating interest in the services of the other professionals involved in the project.
– MEET REGULARLY
To keep your partnerships with tax professionals running smoothly, Ferguson recommends meeting on a quarterly basis – even if the meeting is just a chance to touch base over lunch.
“It’s important with any centres of influence that you treat them almost like a client,” she says, “and have a process that you’re following so that you ensure you’re on top of what’s new with [that COI].”
These meetings also can present an opportunity to discuss issues your shared clients face – as long as those clients have given you permission to discuss their accounts, Ferguson adds. Keeping the other professional abreast of significant changes in your shared client’s file ensures the client will receive the best possible advice from both parties.
This exchange of information is particularly important for accountants who may not have as in-depth a relationship with your shared clients as you do, Coutts says. For example, you know more about how clients are spending their money, as well as any concerns they have about family members and dependents. Says Coutts: “You need to have everybody working together for the client’s benefit.”
EVERY TAX RETURN TELLS A STORY
Even if you are not a tax expert, examining your clients’ tax returns and notices of assessment can reveal tax planning opportunities, says Rosemary Horwood, vice president and investment advisor with Richardson GMP Ltd. in Toronto.
“Tax returns really tell a story about my clients,” Horwood says. “We use [tax returns] to prepare for discussions with our clients and their accountants. The more information we have, the more value we create.”
For example, Horwood will note RRSP contribution room, looking for opportunities for additional tax deferral by taking advantage of a spouse’s RRSP contribution room or making a larger RRSP contribution in a future year to offset a bonus, sale of a business or higher than average income.
Also, Horwood says, reading tax slips for investment income can help identify opportunities to benefit from a higher interest rate on a client’s external savings accounts.
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