As clients accumulate more wealth, advisors are leveraging the knowledge of tax specialists increasingly to implement strategies involving greater complexity to provide sheltered growth and tax-efficient income.William_Potter/iStockPhoto / Getty Images
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Taxes are one of life’s certainties, even if many Canadians would rather not think about them – particularly when it comes to their investments.
Yet, taxation is always top of mind for some advisors on The Globe and Mail and SHOOK Research’s Canada’s Top Wealth Advisors: Best in Province ranking because it affects just about every aspect of clients’ investment portfolios and wealth management plans.
“It’s integral to what we’re doing for clients, especially those in higher tax brackets,” says Eric Muir, senior financial advisor with the Muir Investment Team at Raymond James Ltd. in Vancouver.
Next to providing steady investment returns to achieve client goals – be it retirement, capital preservation amid high inflation, or passing wealth on to the next generation – taxation is often the next greatest concern for advisors.
What’s more is that as clients accumulate more wealth, advisors are leveraging the knowledge of tax specialists increasingly to implement strategies involving greater complexity that provide sheltered growth and tax-efficient income.
“There is lots of focus on rates of returns, but you really need to take it a step further to get clients to think of rates of return after taxes,” says Jamie Keenan, wealth adviser and portfolio manager with Keenan Wealth Management at BMO Nesbitt Burns Inc. in Toronto.
She notes that as a portfolio manager, ensuring investments are held in the right account at the right time in a client’s life are critical to mitigating taxes on growth and income.
Some strategies are within her area of expertise, such as tax-loss harvesting for year-end. It’s particularly salient this year amid a down market with many clients having potential capital losses that could be realized to help claw back taxes paid on capital gains realized in 2021.
“We’ve also been talking about donating in-kind high-value securities from oil and gas to donor-advised funds or their favourite charity,” she says.
‘More intricate strategies’
These tax strategies are typically used by investment advisors and portfolio managers. Yet, more and more, clients require more intricate strategies providing long-term capital preservation from a tax perspective, says Mary Ellen Byrne, senior portfolio manager and senior investment advisor with TD Wealth Private Investment Advice in Halifax.
“I recently helped one client do a very large corporate reorganization to save a lot of taxes down the road because he was retiring,” she says.
Ms. Byrne adds that in this case, as with many others involving entrepreneur clients with corporate account holdings, she leaned on in-house tax specialists for guidance while working with the client’s own accountant and lawyer.
“I sat in on the meetings and was part of the wealth planning process, but I let the accountant drive the more complex parts regarding taxation,” she notes.
Mr. Muir also has many clients with corporate holdings and, in turn, advises them on potential tax strategies involving their investments.
“I’ve been doing a lot of work with estate freezes whereby clients have holding companies that are growing in value,” he says.
Mr. Muir adds the freeze locks in past taxable growth while allowing future growth to be taxed in beneficiaries’ hands as opposed to as part of the estate and leading to a potentially larger tax bill than necessary.
“That’s not something we do in-house, though; we’re more like the quarterbacks,” he says. “I’m here to help guide the client to select the strategy that’s best.”
Hiring advisors with tax designations
As well, Mr. Muir has looked to grow his team’s bench strength on taxation, hiring advisors with chartered professional accountant designations as well as certified financial planners, like Derek Lacroix, whose role is building tax-efficient wealth plans for clients.
“These clients typically face three key milestones with big tax implications,” says Mr. Lacroix, who is also an associate portfolio manager.
These milestones are when they turn age 60, at which point they could draw upon their Canada Pension Plan early; age 65 when they become eligible for Old Age Security, and age 71, when they must convert their registered retirement savings plan to a registered retirement income fund, he says.
When these income streams are started and how they are built into a retirement income plan can lead to clients paying less in taxes when done well or too much if designed poorly, Mr. Muir adds.
“It’s about the balance between being tax-smart and managing investments and other risks,” he says, pointing to how capital gains can offer the best combination of tax efficiency and growth.
“But if you load up a client’s portfolio with stocks where the capital gains would lower their tax bill,” it might not be worth those savings if they are exposed to significant downside risk.
While rates of return after-tax are Ms. Keenan’s top concern for clients, she also notes as a trusted advisor often with strong insight into her clients’ overall financial picture, she can offer an invaluable, 1,000-foot-perspective that other professionals such as accountants may not.
“So, my clients often rely upon me to identify which financial experts to bring to the table.” That can include bringing BMO Nesbitt Burns’s own tax experts to meetings alongside her client’s experts.
She points to a recent meeting with a client to review a tax and estate plan – often deeply connected to tax strategies – in which she offered to co-ordinate with the client’s accountant to finalize the strategy.
“Like all clients, she was really busy,” and so the whole issue was stressful, Ms. Keenan explains.
“So, I could see shoulders drop in relief when she realized all the details were taken care of.”
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