Why Tax Strategies are So Important in Wealth Advisory Practices

Tax is a trigger for most clients. It’s complicated, time consuming and requires the meeting of a deadline. It’s also very expensive: it is the family’s largest lifetime expense.

Here is an excerpt from the certificate course Tax Strategies for Financial Advisors:

A Real Wealth Management™ framework in a collaborative wealth management practice focuses on four elements to build family wealth: 

• Accumulation,
• Growth,
• Preservation, and
• Transition of sustainable wealth to other family members

Integration of tax strategies into the four elements of Real Wealth Management, is the focus on the sustainability part of this wealth strategy: it requires professional advisors to calculate and make decisions about pre- and post-tax income and the purchasing power of invested capital in the future. 

The work of an inter-advisory team—the collaborative efforts of tax, legal and financial advisors—is to develop strategies to create both tax efficient income and capital. This of particularly high importance in today’s economic environment, when governments are implementing "high income surtaxes" to fight debt and taxpayers are struggling to find investment returns to pay them in an uncertain marketplace.  

Here are a few examples of basic tax strategies leading advisors of multiple disciplines must be comfortable implementing in a modern wealth management practice:

• The  reduction of withholding taxes and/or quarterly instalments on income, to free up more whole dollars for investment purposes, sooner.
• The optimal RRSP contribution required to reduce net income, in order to increase monthly income from Child Tax Benefits, preserve Employment Insurance premiums and create or increase other refundable credits, such as provincial tax credits.
• The optimal family net income for tax purposes, creating the right mix of investment income sources, together with pension income splitting, to reduce the clawback of the Old Age Security benefits and average down taxes on capital withdrawals at the lowest possible tax brackets.
• The tax efficient transfer assets—during lifetime or at death—which can significantly reduce capital gains taxes on family assets and ultimately preserve wealth for transition purposes, using market troughs to the family’s advantage.
• The proactive council for each adult in the family to top up TFSA contribution room as a priority—the only way to combat the big three wealth eroders of the future:  taxes, inflation and fee, and create a tax free pension for the retirees of 2063. 

Distinguished Practices: Tax efficiency plays an important role in a wealth advisory practice. Advisors who invest without considering the precise effects of tax on income and capital may face irate clients; tax advisors who are not participating in discussions with investment advisors may not be optimizing opportunities for their clients either. A collaboration between the professionals, in short, will help clients to better understand the effect of taxation on personal net worth, in the short, medium and long term, and make investment choices that help to build purchasing power along the way.