Advisors urged to get up to speed on government benefits

(November 26, 2004) Advisors can provide better service to clients and benefit themselves at the same time by learning more about the CPP and other retirement benefits, says tax expert Evelyn Jacks.

A CPP audit released by the Retirement Planning Institute earlier this week found errors in one of every six household accounts, resulting in retroactive payments to date of $1.3 million. RPI director and actuary Sylvain Parent notes that if those numbers are consistent across Canada’s approximately two million CPP recipients, the amount of benefit errors could total as much as $1 billion.

“It seems like that there’s a lot of money being missed out there, money that could be invested,” says Jacks, an author and president of the Knowledge Bureau. “And I think it’s important to note that advisors have a role in not just accumulating wealth, but also preserving wealth. And some of that wealth preservation falls in line with social benefits and tax preferences. You have to get up to speed on those issues.”

Even though recipients of federal social benefits, such as the Guaranteed Investment Supplement and Old Age Security, generally don’t have lot of money to invest, it’s still something a progressive advisor will want to add to his or her client visit interview checklist, Jacks advises.

“As people get older, they need help in filling out these kinds of forms,” she adds. “They are members of a family and therefore a family-centric advisor has the opportunity to be of service to a number of people within that group and I think that’s of ultimate benefit to their practice.”

So does that mean advisors need to be tax experts? Not necessarily, but they do need to understand the link between different income lines on the tax return and how that affects user fees clawbacks on social benefits, and pharmacare and nursing home fees.

“In many provinces, you have to fill out a special form to arrive at your deductible for pharmacare purposes,” Jacks notes. “Drugs are very expensive these days, so if you’re not adding those particular forms to the client interview checklist, the erosion on wealth accumulation can be huge. The key point here is that you have to be in the know, and when you are, you will save your clients a lot of money.”

And even if advisors aren’t comfortable preparing clients’ tax returns, they should at least consider consulting with a tax specialist. “If you’re not sitting down with a tax advisor and establishing where the income falls within a bracket, you could be costing your clients money,” Jacks says.

Jacks is sharply critical of the entire CPP application process, arguing that applying for benefits should not include “trick questions, complicated jargon or other bureaucratic barriers.”

“I find that completely unacceptable,” she says, using the example of the Child Rearing Dropout Provision, a separate form (except in Quebec) responsible for about 60% of CPP benefit errors, according to RPI.

“Who should know about that?” Jacks asks. “Should it be the client making the application or should it be the government employee who helps the client along, or at the very least, the advisor, who should be able to get help from the government on this.”

“The process needs to be reviewed and when you have a professional industry that can take a look at these forms on behalf of clients, perhaps we should be advocating for change.”

But advisors often don’t put themselves in a leadership or advocacy position on behalf of their clients. “However, these [RPI] findings demonstrate that it is important for financial services professionals to become more involved in the process of applying for CPP and other government benefits. Professional advisors can do so by offering to complete these complicated government forms on their behalf of their clients and by lobbying government departments to make it a priority to simplify forms and application procedures.”

Jacks says advisors should also insist that the onus for properly filling out benefit applications is on the government, whose employees should be trained to catch errors immediately.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com