Minimizing tax helps strengthen relationships

The latest economic indicators have livened the financial sector. Job creation is up, so is retail spending. Predictions the recession is ending are starting to hold water.

Investment returns are getting easier to come by. And many advisors said they actually enjoyed sending out third-quarter client statements. The numbers are up and it’s nice to spread a bit of cheer.

But some advisors started spreading cheer at the opening bell of the credit crisis. They pushed tax strategies that saved clients more money than they might have been able to gain in investments returns.

They advised clients to engage in income splitting, tax loss selling, dividend payment structures, and sheltering strategies that put money in clients’ pockets before it had the chance to pack for Ottawa. Many advisors who saw the opportunities but don’t do tax work in-house linked with qualified professionals to enable them to provide this key service.

Demographic trends also make monitoring tax exposure a priority. Large client cohorts have just entered, or are verging on, retirement; and can derive immediate benefit from tax-efficient income planning. Making sure these clients use monies that aren’t tax- sheltered first, and withdraw minimally from RRIFs, will trim tax obligations and create opportunities to re-shelter cash drawn from non-registered sources.

Further, the well-timed introduction of TFSAs creates opportunities for clients who understand those $5,000 annual limits aren’t limiting at all. A move toward holistic planning has advisors asking deeper questions and ensuring clients understand, and then meet, their true financial priorities.

For many, this includes adoption of a warm-hand gifting strategy to family members, for which sheltered savings accounts are a perfect vehicle. Advisors working with retirees who’ve expressed desire to help children and grandchildren have been quick to point out TFSA contribution limits synch well with annual tax-free gifting levels for relatives.

And tax will continue to matter, since future governments will be obliged to raise marginal rates to pay down debt created by stimulus spending – despite the fact much of that cash has yet to deploy. As tax rates rise, and loopholes close, clients will look to advisors to help them decrease outlays.

Bottom line: Minimizing tax payments can often be as important as maximizing return. So ask yourself how much it’s worth to look a client in the eye and say, “I just saved you a lot of money, and we haven’t even talked abut investing yet.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.