Cana­di­ans who work with an ad­vi­sor are much more likely to take ad­van­tage of tax-reg­is­tered plans such as RRSPs and TFSAs

Investment Executive - - FRONT PAGE - BY RUDY MEZZETTA

Cana­di­ans who work with an ad­vi­sor are more likely to have RRSPs and TFSAs.

financial ad­vi­sors have a crit­i­cal role to play dur­ing RRSP sea­son in ed­u­cat­ing Cana­di­ans about tax-reg­is­tered plans and help­ing clients take best ad­van­tage of the in­vest­ment ve­hi­cles avail­able, ac­cord­ing to re­cent re­search from Mis­sis­sauga, Ont.based Credo Con­sult­ing Inc.

That’s be­cause Cana­di­ans who work with an ad­vi­sor are much more likely to own an RRSP or a TFSA, or to take ad­van­tage of both of these tax-reg­is­tered plans, than are Cana­di­ans who aren’t get­ting the ben­e­fit of per­sonal ad­vice, the re­search found.

This re­search was drawn from Credo’s Financial Com­fort Zone Study, an on­go­ing na­tional con­sumer sur­vey con­ducted in part­ner­ship with Mon­treal-based TC Me­dia’s in­vest­ment group. (TC Me­dia pub­lishes In­vest­ment Ex­ec­u­tive.)

“The re­sults show clearly that ad­vi­sors pro­vide con­struc­tive guid­ance for clients by en­cour­ag­ing them to use ac­ces­si­ble, sim­ple and im­por­tant tax-ad­van­taged so­lu­tions,” says Hugh Mur­phy, man­ag­ing di­rec­tor with Credo. “In­vestors who aren’t work­ing with an ad­vi­sor are miss­ing the boat.”

This trend holds true at all lev­els of client net worth, but it’s most pro­nounced among Cana­di­ans with mod­est amounts to in­vest.

Specif­i­cally, 48% of sur­vey par­tic­i­pants who work with an ad­vi­sor and have less than $250,000 in in­vestible as­sets re­ported that they own both an RRSP and a TFSA, vs 17% who own nei­ther. In con­trast, only 25% of Cana­di­ans at this level of net worth who don’t work with an ad­vi­sor said they own both an RRSP and a TFSA, while a whop­ping 42% of these Cana­di­ans said they own nei­ther.

Among Cana­di­ans who work with an ad­vi­sor and have $250,000-$500,000 in in­vestible as­sets, 64% own both an RRSP and a TFSA, vs only 7% who own nei­ther. As for Cana­di­ans at this as­set level with­out an ad­vi­sor, 58% own both plans, while 12% hold nei­ther.

Fi­nally, among Cana­di­ans who work with an ad­vi­sor and have $500,000 or more in in­vestible as­sets, 71% own both an RRSP and a TFSA, vs only 4% who own nei­ther. And among Cana­di­ans at this level who don’t work with an ad­vi­sor, 66% own both an RRSP and a TFSA, while 12% hold nei­ther.

You can use con­ver­sa­tions about the ben­e­fits of the RRSP and the TFSA, and the rules that gov­ern each type of ac­count, to ini­ti­ate a broader di­a­logue with your clients about their over­all financial plan, says Carol Bezaire, vice pres­i­dent, tax and es­tate and strate­gic phi­lan­thropy, with Macken­zie Financial Corp. in Toronto.

“The be­gin­ning of a new TFSA year, dur­ing RRSP sea­son,” Bezaire says, “is a good time for in­vestors to take a look at their financial plan to make sure it’s what they really need.”

Adds Sara Gil­bert, founder of Mon­treal-based Strate­gist Busi­ness De­vel­op­ment, “[Reg­is­tered plans] are an en­try point, a way to frame the dis­cus­sion about a financial plan and to get it go­ing.”

You also can help your clients de­ter­mine which plan would be best to use, based on the client’s age, in­come, goals and over­all financial plan.

Younger clients, in par­tic­u­lar, tend to favour the TFSA rel­a­tive to the RRSP, the re­search re­veals. For ex­am­ple, among sur­vey par­tic­i­pants who were be­tween the ages of 25 and 34, 58% own a TFSA vs 51% who own an RRSP.

In con­trast, 52% of sur­vey par­tic­i­pants be­tween the ages of 35 and 44 own a TFSA vs 65% who own an RRSP.

TFSAs are well suited to younger clients, who tend to have lower in­comes and not be in a po­si­tion to ben­e­fit much from the abil­ity to re­duce tax­able in­come via con­tri­bu­tions to the RRSP, says My­ron Kn­odel, di­rec­tor of tax and es­tate plan­ning with In­vestors Group Inc. in Win­nipeg: “You need to com­pare your mar­ginal tax rate to­day to what you ex­pect it to be when you even­tu­ally with­draw money from your RRSP or RRIF.”

The TFSA’s flex­i­bil­ity — no­tably, any with­drawals re­sult in an equal amount be­ing added to the sub­se­quent year’s con­tri­bu­tion room — is an ap­peal­ing fea­ture for younger clients, Gil­bert says: “For young peo­ple, re­tire­ment plan­ning is really far off in their minds. In­stead, [they won­der], ‘What’s the next step: buy­ing a house, hav­ing kids or other goals?’”

You also can help your clients max­i­mize the value of their tax-reg­is­tered plans. For ex­am­ple, clients can give money to spouses and adult chil­dren to con­trib­ute to­ward their TFSAs with­out trig­ger­ing the at­tri­bu­tion rules that oth­er­wise would make any in­come and port­fo­lio gains tax­able in the hands of the clients.

“With some high net-worth clients, ad­vi­sors find the client has maxed out his or her [TFSA], but the spouse has noth­ing [in his or her TFSA],” Bezaire says. “So, you can top up [the spouse’s TFSA] be­cause there’s no at­tri­bu­tion.”

You also can help older clients man­age RRSP with­drawals in an­tic­i­pa­tion of re­ceiv­ing gov­ern­ment re­tire­ment ben­e­fits, such as the Canada Pen­sion Plan and old-age se­cu­rity (OAS). Do­ing so many help clients smooth out re­tire­ment in­come and avoid the OAS claw­back. In ad­di­tion, RRSP and RRIF with­drawals now can be di­rected to­ward a TFSA.

“We see more clients uti­liz­ing their TFSAs be­cause their ad­vi­sors coun­sel them to,” Bezaire says. “Ad­vi­sors tell clients: ‘You don’t need that RRIF money; you’re go­ing to pay taxes on it. But let’s not have you pay taxes twice. We’ll move your RRIF pay­ment into your TFSA and in­vest it there’.” The on­line Financial Com­fort Zone Study has polled 27,000 Cana­di­ans thus far. The sur­vey is meant to gain in­sight into the re­la­tion­ships among financial ad­vice, financial well-be­ing and over­all life sat­is­fac­tion in Cana­dian so­ci­ety.

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