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April is typically one of the busiest months for financial industry professionals, especially accountants who take care of all things tax. However, with an increasing number of clients who expect their financial professionals to do more with their money than just invest it, advisors are getting more involved at tax time.
But with accountants doing most of the tax prep, what can advisors do to help their clients? It turns out, quite a bit, says John De Goey, a certified financial planner with Wellington-Altus Private Wealth. Professionals in the advice sector can serve a vital role in clients’ tax management, he says, “but it doesn’t start in April.”
Here are just a few of the ways advisors can help their clients get ready for tax season.
Think ahead
Any advisor who has invested client money knows that tax and investments go hand in hand. Putting money into a registered retirement savings plan (RRSP) has tax implications; selling a stock in a non-registered account before the end of the year can trigger capital gains or losses; withdrawing funds from a registered retirement income fund (RRIF) can push someone into a higher tax bracket.
Tax mitigation should always be a factor in giving client advice, year round. “What I do is proactively trade in a way that minimizes tax liabilities year over year, while still making a properly balanced portfolio suitable for my clients,” says De Goey.
“If you aren’t considering the tax elements of both the accounts used or investment strategies planned, in both the accumulation and decumulation phases, you’re missing a very significant part of financial planning,” adds Peter Bowen, Fidelity Investments Canada’s vice-president, tax and retirement research. “April 30 is really just the end result of the tax-planning that comes before.”
Watch out for life changes
Advisors are often among the first to know that a client is getting divorced, married, having a baby or moving into a new house, as big life events can impact a financial plan. Most life events also have tax implications – selling a cottage can trigger a capital gains tax, for instance – but you’ll likely get the heads up before your client’s accountant, says Bowen. If that happens, you can alert the accountant so they’re ready in case they need to take a different approach to tax planning, he says.
As well, advisors should inform clients of any new tax laws that can impact a client’s financial plan. For instance, new rules around small businesses and passive income will certainly change the way people invest in their corporation.
Help with prep
As April 30 approaches, you’ll want to be in touch with your clients to make sure they have what they need. “Statements, slips, receipts – you want to make sure they’re not missing a key document at tax time,” says Bowen. If there is something new going on with your client, be sure they have the right documentation in hand.
It’s also a good idea to show the client how the tax strategies you’ve employed can help their overall financial picture. Tax is complicated, but if they can understand that a tax refund should be reinvested in the market, rather than spent on an unnecessary splurge, or how TFSAs can be more appropriate in certain situations, then they’ll be increasingly willing to share their important tax details and stick to their overall plan, says Bowen.
Plan your time
Accountants tend to be most focused on tax in April, but advisors should be planning throughout the year. Once May hits, while money is still top of mind for clients, reach out to them and set up meetings to review their taxes and, while they’re there, look over their financial circumstances against their goals holistically and update their plans. .
You may want to keep April open, too. De Goey, even though he’s not an accountant, still gets a lot of tax-related calls. He finds himself handling a lot of last-minute requests, some of which are practical, others more emotional. “Reassure them and remind them you have experience and will take care of it,” he says. “For most reasonable people, that’s all it takes.”
Be a team player
As tax season gets underway, financial advisors may need to support other financial professionals, particularly accountants. Not only does the advisor have information the accountant could need, but communication between the two disciplines can help both sides think more holistically about their shared client’s finances. “Accountants may see more of the big picture than the slice advisors see or vice versa, depending on the client” says Bowen.
If there’s a strategic disagreement, say, an advisor wants to pull more money out of RRIF than the accountant would like, the advisors should analyze their own ulterior motives, put themselves in their client’s shoes, and think, “What’s best for the client, and not for me?” says De Goey.
As well, with such tight tax deadlines – clients often do things at the last minute – financial advisors must be at the ready. “If an accountant asks for something by the end of the day Friday, and you send it on Monday, that looks bad on you,” says De Goey.
It’s a good thing that advising and accounting are becoming increasingly integrated, but advisors have to remember what their job is, and what it isn’t. “Unless you’re an accountant, you can’t give tax advice,” says De Goey. “You want to be thinking about tax proactively, and understand it, but you have to know your limitations.”
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