As you help your clients work through the many stages and phases of retirement income planning, financial planning, and creating long-term projections, the importance of tax planning undoubtedly remains a top priority and focus throughout these discussions. Whether you’re a Financial Planner, Advisor, or an Investment or Wealth Manager, chances are that your clients are coming to you for financial and retirement planning advice.
At its core, a solid tax planning strategy will have invaluable long-term benefits for your clients. It will ensure that there are no unnecessary taxes being paid during the asset decumlation phase, help to keep investments efficient, provide ample opportunities and insights for charitable donations, maximize both your clients after-tax spending and estate value … I could go on, but I think you get the picture so I’ll stop there.
Likely, you already know all of this – the real issue here is how to facilitate, implement, and execute these tax planning conversations without creating additional work in your already jam-packed schedule. The good news is that this is the very objective of this blog post — to help you provide tax planning through your financial advisory process in an efficient and streamlined way.
I’m going to focus on how you can do these things within Snap Projections, a leading Canadian financial and retirement income planning software for Financial Advisors, Planners, and Investment Managers. We’re designed specifically to help small to medium Advisory teams and Independent Financial Advisors serve their clients effectively and efficiently.
So, let’s start with asset decumulation.
Asset decumulation is a major component of retirement income planning and it rarely gets the attention it deserves. Everyone talks about saving and investing but no one ever talks about the best way to spend during retirement.
As a financial planning tool, Snap’s primary objective is to maximize the longevity of your client’s portfolio by minimizing or deferring tax liability, thus providing them with the highest possible amount of after-tax spending throughout their retirement.
Snap’s default logic to maximize your client’s cash-flow during retirement is to first drain the non-registered accounts, followed by the TFSAs, and then the registered accounts, outside of any RIF or LIF minimums. This will keep marginal tax rates as low as possible during the early years of retirement.
In some cases, this strategy won’t align with your clients’ objectives so it’s simple to create your own decumulation strategy by setting your own default (we call this the cash flow management logic). Additionally, you can make manual overrides to the default withdrawals.
But you may still be wondering, what is the best way to decumulate the assets in a projection?
This is a simple question on the surface, but the answer isn’t always obvious. We would need to define the client’s goals first.
For instance, are we optimizing for the
- Highest retirement income?
- Highest estate value?
- Lowest estate taxes?
- Short-term liquidity?
- Long-term growth?
We suggest using this Financial Planning Questionnaire with your clients to ensure you fully understand their needs, goals, dreams, and desires. This knowledge is what will put you in the position to truly help them. Plus, it makes your data entry much easier. You do not need to be an existing Snap user to take advantage of our questionnaire.
Between the default CFM logic, and the pension income splitting, Snap Projections does perform initial optimizations on the order of withdrawals, and for 90% of cases, the defaults work very well.
However, you can modify the default algorithm (to essentially create your own default logic) and achieve even more desirable results. You can use the CFM Order column to change the order around and see if that results in either a higher cash flow or higher estate value, depending on the goals of the client. As well you can change the conversion age for RRSPs and LIRAs, and see whether drawing the minimums sooner or deferring them until later creates a better outcome.
In most cases, the defaults work great for quick planning. However, if you want to invest some time optimizing for a specific goal, you can create copies of the base scenario and see if changing the default settings yields a more favourable outcome for your client.
What about charitable donations?
Planning for charitable donations is an essential part of both tax and estate planning — modelling the impact of any potential decisions for your clients not only provides them with a massive value with respect to tax planning, but will help ensure their legacy dreams become reality.
In Snap Projections, you can easily plan for assets, insurance, and cash donations and have the associated tax credits applied to your projections. You can see the guide on that here.
What about tax credits, deductions, & taxable benefits?
In Snap, entering these critical pieces of the tax planning pie are simple. You can see the step-by-step guide here in our help section that will help you set those things up to ensure each plan is totally customized for your client.
What about maximizing RRSP & TFSA contributions?
Unused RRSP and TFSA contribution room is tracked and shown easily in Snap to ensure your clients are leveraging those opportunities. You can see the breakdown of how those calculations are done here and what assumptions the software starts with.
If extra funds are being invested or saved during the decumulation phase, Snap’s default logic will be to maximize for tax efficiency, automatically maximizing first the RRSP and then the TFSA. The software does the calculations for you, and you can easily modify the default logic and create your own decumulation and contribution strategy as well.
What about spousal situations?
When you’re dealing with spousal scenarios, Snap is going to do all the heavy lifting for you. You have all the advanced options you need to optimize the situation with easy access to elements like pension income splitting and even basing the minimum RRIF withdrawals on the age of the younger spouse.
You can easily set up a spousal RRSP or model a surviving spouse scenario (that includes asset rollover) by simply modifying the projection length for one person. It really is that simple to show your clients what their financial situation could look like if one spouse passes away earlier than expected.
You can watch a live event recording here where we work through a case study, showing how to model a surviving spouse scenario in Snap.
What about transparency & compliance?
We spend a lot of time talking with our users, as our product truly is a user-led design. Our product team works continuously to improve, iterate, and build the new features our current users are requesting.
One thing we know first hand is that lack of transparency and hidden calculations is an absolute deal-breaker for Financial Advisors, especially when it comes to tax planning. If your client pushes back or asks a question, you need to be confident with what you’re presenting and you need to know you’ll be able to not only answer their questions but explain how the numbers were generated. If you’re a CFP or a QAFP, your designation requires that you understand how the software you’re using for financial planning works. You can read more on those rules here.
This is exactly why you will find tax charts to show you what is under the hood and behind those high-level numbers on the main planning page. You can see what those look like and how the calculations are generated right here. And, we make it easy for you to export these tax tables and entire spreadsheets into Excel, should you need to pull the information out of the software for your own verification purposes.
With respect to compliance, we provide multiple resources to help cover you. Our Financial Planning Questionnaire can help you satisfy your KYC requirements, and our reports provide a full summary of key values for the plan (including our Life Needs Analysis tool) to share with your clients. All assumptions are included within the report for complete transparency and documentation purposes.
What about updating last year’s plans?
Updating old plans can be cumbersome, but it doesn’t have to be. With Snap, you’ll be able to rebase and update your plans with the click of a button. Upon accessing an outdated plan in the New Year, you’ll be prompted to rebase your scenario. You click the button, and that’s it — you’re done. The rebasing will cover all annual updates for income amounts, asset values and costs, RESP grants, debt balances, government benefits, contribution rooms, tax settings, charitable donations, and more. You’ll just want to confirm and validate that all the projected new year values are accurate before proceeding with your plan.
What are the key elements of the plans to compare for opportunities to make improvements?
One of the biggest challenges Advisors bring to us is that they can’t create multiple what-if scenarios for their clients in real time. In Snap, it’s, well, … a snap. You can see how quick and easy it is to create multiple what-if scenarios here.
Once you’ve built out multiple what-if scenarios to compare various strategies and potential outcomes, there are some specific areas where you will want to look for tax information and any potential opportunities for improvement.
To compare the scenarios here are a few areas to look at:
- An Estate Summary is available for any year of the plan by clicking the Estate Before Tax value on the Planning page and for the final year of the projection in the report.
- The Marginal and Effective tax rate columns on the Planning page, or on the Cash Flow Summary page of the report.
- The Total Tax paid during the projections, not including estate tax (click the blue icon at the top of the Total Tax column).
- The Estate after Tax column in the Net Worth Projections page of the report for each year for all scenarios.
What about tax planning for clients with corporations?
Snap integrates both personal and corporate financial planning seamlessly with an optional corporate planning model (available in our Advisor Business plan) that can be layered onto your personal projections. You can get a brief overview of the module in this video here, it’s about 8 minutes long.
You can review the basic corporate assumptions we use here, and learn more about how we handle and track the refundable dividend tax on hand and how to customize your fixed income and equity return allocations here.
Snap understands the importance of having those tax planning conversations with your clients. This aspect of financial planning is extremely important to your clients’ overall financial success and health, especially during those retirement and decumulation years. Our goal is to make it as simple as possible for Advisors to model and demonstrate these scenarios effectively in order to help their clients reach their financial goals.
Welcome to Snap’s first ever user spotlight! Today, we’re doing a deep-dive with Renee Hawk. You can download the full case study down below if you want the numbers and business impact information. Let’s start with some questions.
What is your background?
I’ve been working in the industry since 1990. I started with one of the big banks and followed my desire to have a greater impact on people’s lives by making the switch to independent and personal financial planning in 2002. In 2018, I created Innovate Financial Group, formerly Hawk Wealth Management. I’ve held my securities, mutual funds, branch manager, and insurance licenses and most recently received my Responsible Investing Certification. I started my business just like everyone else in the industry did back then, with phone calls and knocking on doors — not a format typically used these days! Almost all of my clients come through referrals now, for the last 8 years my business has grown strictly through referrals. Even through the pandemic, I’ve been able to grow thanks to my happy clients sending their friends and family my way. With the adoption of more technology, I’ve been able to continue to serve my clients virtually and still connect through video meetings and screen-sharing.
What’s your process?
We co-create plans for each client’s unique future. We believe co-creating the plan with the client is the most effective approach as each person has unique goals, dreams, and aspirations. We develop investment strategies designed around the client’s specific risk tolerance and time horizon, as they expect to earn a competitive rate on their investments as well as preserve their capital. By following our planning process, as developed by the Financial Planning Standards Council, we help minimize tax, protect assets, and build wealth. We believe this planning approach meets the client’s unique needs, keeps them on track, and maybe even more important, provides peace of mind.
But what does working with you look like? How do you really help your clients?
We’re turning dreams into numbers which brings reality to those hopes and dreams of my clients. With my clients, when I sit down with them, the first thing that we do is have a discussion about their goals and dreams. It’s a very client-specific approach that always starts with understanding their goals and aspirations. Afterwards, we move into the numbers and product, which at the core are nothing more than tools to help us accomplish those goals. We’re taking their goals, quantifying them and then modelling those numbers and products to show my clients what their dreams look like. When I show my clients what their dreams look like in numbers, they are simply blown away. Because I am able to produce a financial plan that my clients can genuinely understand, it’s a very different conversation — right on the spreadsheet you can say, “See? This is what your retirement looks like.” One recent story that comes to mind is a long-term client that I recently had the opportunity to work through my process with. He came in and said he wanted to retire early, so we got to work seeing what the possibilities were. When he first asked me if he could retire earlier than planned, I really didn’t know, but once we looked at it and modelled what it would look like to sell his property and invest, plus account for everything that comes along with that, including tax implications, it become clear what the optimal solution for him was.
What do your clients have to say after working with you?
As a dual-licenced, independent Financial Advisor, I have a well-established practice and client-base. The cornerstone of my success and growth has been the fact that my happy clients continue to send me new business. It’s phenomenal to have the kind of impact on a client where they talk about our co-created plan with their friends and family. I’ve noticed a substantial increase in referrals, this year in particular, which I can attribute in part to my adoption of newer technologies and processes that are aligned with the new ways we all need to work. For example, the client in the above story sent me two referrals after that meeting. It is so rewarding when happy clients walk away from our meetings and are excited to tell their friends and family about what we created – really, the best compliment I can receive.
Renee has a true passion and drive to help her clients establish a solid financial plan. She takes the time to understand people’s goals and dreams and doesn’t take a one size fits all approach that you sometimes see.
–Blair Greenwood, Debt Consultant | 4 Pillars
As a public servant I feel secure knowing I have a great job that allows me flexibility and provides security for my future. As a working woman, wife and mom, I need to have that same flexibility and security for my future where my investments are concerned. Renee Hawk has provided that peace of mind for me and my family. She is a dedicated professional, she keeps us informed and most importantly, she ensures we understand every element of how our investments are handled. I would – and have – recommended her to many friends and family.
–Lisa Marie Seeger, Public Servant
Grab the full case study now to learn about the real business impact Renee has experienced since using Snap Projections.
Did you know that there are new technology rules for Financial Planners?
Certified financial planners (CFPs) & qualified associate financial planners (QAFPs) have some new expectations and requirements pertaining to the technology they use as part of their financial planning process. We’re going to break these two new rules down for you and demonstrate how Snap Projections helps to satisfy these requirements. We enable planners to easily comply and meet these requirements, so if you’re a Snap user, we’ve got you covered for these changes.
Let’s start with Rule 28, which you will find on page 16 of the updated set of standards.
It states that:
(28) When relying on or using technology in the financial planning process, a Certificant:
a) Must take reasonable proactive steps to gain a general understanding of the methodologies underlying the technology that have a direct impact on financial planning projections and recommendations;
b) Must have an understanding of the financial assumptions underlying the technology that have a direct impact on financial planning projections and recommendations;
c) Must validate that the inputs and assumptions used are reasonable and appropriate based on the client’s circumstances; and
d) Must validate that the outputs generated are reasonable and appropriate for the client before relying on them, or presenting the final recommendations or strategies to the client.
In laymen’s terms, this new rule simply means that Financial Planners need to understand what data goes into a financial planning software, and whether or not the numbers that go both in and come out, are reasonable. It means that you need to understand how things are calculated, and be able to validate that the assumptions and outputs are reasonable. The other layer here is that all of this pertains to what is reasonable and appropriate for your individual client, which means you really need to “know your customer”. If you use financial planning software that you don’t understand because it isn’t transparent, or don’t invest the proper time in client discovery and awareness, you may find yourself in breach of these new rules.
How does Snap Projections help with this new expectation?
Snap Projections takes great care to document and share the methodologies and assumptions that underlie the software. We believe a thorough understanding of these inputs is important to ensure the outputs of the software are as intended for your needs. We use current government-provided inputs where available (e.g., tax rates, CPP benefits) and use reasonable and customizable assumptions where required (e.g., inflation, portfolio holdings). Where possible, we use industry-recommended inputs (e.g., the FP Canada Projection Assumption Guidelines (PAG) for the rate of return assumptions). Additionally, our data entry flow encourages the review and validation of many of these assumptions as the plan is initially being created. In addition to the resources you’ll find below, it’s worth mentioning that we have a stellar Customer Support team that is available to answer any questions you have. If you’re wondering where a number is coming from, or how something was calculated, all you need to do is ask. You won’t be left in the dark and we will ensure you have the information you need to be confident in the numbers and plans you present to your clients. Articles outlining our methodologies and assumptions can be found throughout our Help section of the website. Some of the most relevant articles are included below:
Once we cover the data and numbers, we also need to consider the human element here, which is the responsibility to know your customer, and to know what is reasonable and appropriate for each individual. We provide you with a Financial Planning Questionnaire to obtain the relevant information that you need to not only serve your clients but remain compliant.
Next, let’s cover Rule 29, which you will find on page 17 of the updated set of standards.
It states that:
(29) In all cases, irrespective of the data used, the material assumptions used as well as the rationale must be documented, and clearly communicated to clients.
This one is a bit simpler to digest, and is essentially stating that you must be able to both demonstrate and document your assumptions and reasonings, and also show you’ve shared this information with your clients in a manner they can understand.
How does Snap Projections support managing this requirement?
Snap Projections includes a dedicated page in the Report section for assumptions used in the projection. In addition to these values, advisors can add their own comments in this section for any other material details not captured in the default tables. If assumptions are more appropriate in reference to specific figures (e.g., tables, charts) you can add comments to any section of the Report. Assumptions currently included are listed below:
- Start year
- End year
- Inflation rate
- Province for tax purposes
- Rate of return on capital assets
- Appreciation rate on real assets
- Retirement age
- CPP start age
- OAS start age
- CPP % of maximum
- OAS % of maximum
Other assumptions may be included depending on additional functionality added to the projection (e.g., education goal, insurance). There is also the option to export the plan as an Excel file, which documents 100+ different assumptions/parameters used in the plan. Our reports are simple and easy to understand for clients. For sharing the plan and communicating with your client, you have several options. You can present the plan and charts in real-time, either in-person or through screen-sharing, and then download a PDF of the report to email or print and provide it to your clients.
At the end of the day, even though this may be a lot to digest, these changes are good. These new rules, which are timely and relevant to the changing environment, are designed to protect not only the clients but the Advisors as well. And in the spirit of complete transparency, these resources and features in Snap are not new and were not built to accommodate these new rules. For us, this is business as usual because we fundamentally believe in having a tool that advisors/planners and clients alike can understand. We believe in transparency, and ensuring everyone involved understands the assumptions and methodology.
Over the last few weeks, I decided to take a deep dive into the practices of our top clients in order to distill their approach into a simple framework for what makes them referable.
I always take meticulous notes when I see something that works, so I went over my notes from several hundred conversations with advisors from the past three years to see if I could discover something useful. It turns out that some of the best advisors consistently focus on 4 key areas of their business that determine everything else and significantly impact referrals.
You have likely heard that 20% of activities generate 80% of results. This is called the Pareto Principle. Pareto noticed that 20% of the pea plants in his garden generated 80% of the pea pods and later showed that approximately 80% of the land in Italy was owned by 20% of the population. When you really start to look, you can see other examples of this principle almost everywhere. The 4 areas I’m going to share with you today make up the 20% of the work that generates an overwhelming 80% of results in your businesses. We started referring to these key principles as the Referability Quadrant.
Some advisors think a referral strategy consists simply of a tagline in their email signature like the one below.
That’s insufficient at best and dangerous at worst. It won’t actually drive sufficient volume of referrals and it is dangerous to make your business growth dependable on a single tactic that simply doesn’t work.
The Referability Quadrant is a systematic approach to structuring your business so you become more referable.
It all starts with elevating your game and ends with evaluating your systems. Here’s how it works.
Elevate Your Game
Great advisors constantly improve their business. Period. They improve their systems and processes by designing useful workflows. They ruthlessly prioritize and apply technology to eliminate waste anywhere in the process. This instantly leads to more efficiency and time savings not only for the advisor, but also for their team and, most importantly, for their clients.
Here are two quick wins you can implement today to elevate your game.
First, schedule meetings online. Jason Pereira, an award-winning financial planner and senior financial consultant and partner at Woodgate Financial, Inc., recently shared an anecdote with me that perfectly exemplifies how this can have a huge impact on your practice. One of his staff members was spending nearly 70% of her time booking, rebooking, and confirming meeting times with clients over the phone. When they moved to an online solution to automate the process, they saved his staff and his clients a lot of time. In fact, he estimates they got that time spent booking appointments down to 20% of his staff member’s day. Suddenly, she had half of her day back that she could now spend on more productive tasks, significantly improving the firm’s efficiency. Similarly, his clients can now easily choose a time that works for them without having to play phone tag with anyone.
Another way to elevate your game is to use face-to-screen technology to meet with prospects and clients. Face-to-screen technology has been said to be one of the most disruptive forces sweeping through the financial advisory space for several reasons. You’ll be surprised that not only do your out-of-town clients want to meet online, but that even some who live in town prefer it because it saves them time, too. After all, who wants to be stuck sitting in traffic?
Clients appreciate advisors who value their time. As an advisor, if you’re easy to work with, you become way more referable.
Engage Your Prospects
Top advisors optimize for client engagement rather than for customer experience in their financial planning process. According to Paulo Sironi, one of the most prominent minds in FinTech, customer experience can be copied or purchased and therefore quickly commoditized, so it isn’t a sustainable competitive advantage. Instead, you need to provide something of value. Show prospects what you can do for them in a way that clearly shows them the value you provide.
Financial planning is a tremendous way to engage clients. In fact, in the quickly changing landscape of financial services, with at least one major shift underway (which we wrote about here), it is one of the few areas where you can predictably add value to each of your clients.
Advice has to come before products. Financial plans should be the core of your client relationship. Do you understand the biggest financial worries of your clients? Are they thinking about a new roof or saving for their children’s education? What are their biggest questions about retirement?
If you don’t know the answers to the above questions, you’re missing a great opportunity ‒ and your clients are missing out on a lot of value. Ask good questions and listen. There is really no magic about it. It’s just listening empathetically and trying to help your clients make better financial decisions. If you focus on their life, what matters to them, and their financial goals and challenges, you become an important and even integral part of their life and build a long-lasting relationship. This naturally leads to referrals.
Educate Your Clients
The recent research by Credo Consulting shows that “the likelihood a client will provide a referral to his or her advisor gradually grows with that client’s increasing levels of financial literacy.”
The key takeaway here is that investing in educating your clients pays off. Education is key not only when it comes to serving your clients and retaining them, but also in growing your practice.
Don’t even think about a textbook approach to financial planning or 50-page financial plans, though. Rather, be practical. Educate clients about the specific impacts of their financial decisions and answer their biggest questions about their finances. What happens if they stay the course vs. following your advice? How long will their money last? How much can they spend without running out of money in retirement? When should they take their government benefits? Which of their assets should they spend first?
Quick and meaningful what-if scenarios increase the level of understanding, which builds trust that then helps drive referrals. When clients understand what is going on in their financial plan, they’re actually excited to tell other people about what they know. This is how you generate referrals.
Evaluate Your Systems
In order to continue elevating your game, you need to create a feedback loop so you can see what is and isn’t working. Peter Drucker famously said “What gets measured gets improved.” See how that brings you back to elevating your game? Measuring results and identifying areas for improvement should be a regular activity, and collecting feedback from clients is a big part of that.
However, that’s only half of the story. What you might not realize is that by creating a client feedback system, you receive referrals. Yes, the referrals can be a byproduct of your feedback gathering process if you implement it correctly.
We have interviewed a multitude of experts on the topic of referrals ‒ here’s a short list of some links you can check out to learn more about great processes that can help you gather referrals almost automatically:
Grant Hicks recommends building an advisory board that includes your top clients so you learn directly from your best clients, and suggests having six centres of influence completely integrated with your business.
Julia Chung and Sandi Martin show how they integrate working with other professionals and how referring out to the professional they think is best for each individual is a cornerstone of their business.
John Page has a process that gathers referrals without the advisor ever having to ask. Seriously! He stresses that this process “needs to be systematic.”
It starts with laying out the ground work during the first meeting, creating an advisor evaluation form, reviewing the evaluation with the client, and creating a system to reach out (if you want to listen to him lay this process out in detail, you can listen from 13:00 to 22:00 of this podcast episode).
By building feedback and referrals right into your evaluation process, you capture a big opportunity that many advisors miss.
Focusing on these 4 areas will help you organize your advisory practice to maximize referrals and ultimately help more people achieve their financial goals. And I think this is what we all are here for ‒ to help Canadians make better financial decisions.
If you’d like to learn more about how we approach addressing the 6 most common financial planning questions, here’s a quick video ‒ or you can always request a 1-1 demo with us here.
Today marks a big milestone for the Snap Projections team.
We’ve been working hard for the past 5 years to bring you financial planning software that is intuitive, interactive and impactful so that you (and your clients) can easily determine which strategies add to and detract from building long-term, after-tax wealth.
It’s been a great journey so far and Snap continues to grow quickly serving planners and advisors across the country – from independent practices to wealth management firms, and credit unions.
Today, we announce a huge leap forward towards our goals of continuing to build out extraordinary planning tools that can help you grow your financial advisory practice.
We’re excited to share that we’ve been acquired by WealthBar, a leading Canadian online investment manager that’s focused on providing Main Street Canadians with the same opportunities that the ultra-rich use to build wealth. WealthBar shares our vision of ensuring all Canadians can access professional financial planning.
This partnership means we’re gaining resources that will help us accelerate our product roadmap, invest in our team and maintain the level of support you appreciate so much about Snap.
We have been working with WealthBar for over 4 years and couldn’t imagine a better partner for the next part of the journey.
Here is a bit more context on questions you may have:
Will my experience with Snap Projections change?
Not at all. You put your trust in us and we don’t take it lightly. You’ll continue to have access to the same platform you’ve been using and can expect new enhancements in the near future. Snap will remain a separate entity and nothing will change day to day. We’re only getting better.
What about the Snap team?
Every member of the Snap Projections team is making this transition (including myself, the founder). So if you’re used to hearing from me, Leigh, Riley, David, or anyone else on our team, expect that to continue.
What are the future plans for Snap?
In a nutshell, our plans are to stay the current course, but move faster. What we’re doing is working really well. This partnership provides us with the resources needed to build features you’ve been waiting for faster, scale our team, and double down on educating the industry (and the public) on the value of professional financial planning.
I look forward to continuing this journey with you!
Founder & CEO, Snap Projections
PS – If you haven’t yet tried financial planning with Snap, now is a great time. Try it out in a free trial or book a demo with us here.
On February 27, 2018 the federal government released Federal Budget 2018. It’s titled, Equality and Growth, A Strong Middle Class.
You can view the entire 369 page report at this link, but perhaps first read this quote from Jamie Golombek, Managing Director, Tax and Estate Planning with CIBC in Toronto:
“There’s not a lot there for the average individual, and not a lot of changes from a personal tax perspective…very few changes in tax credits.”
The most headlined topic of Budget 2018 is “how the government will deal with passive investment income inside a private corporation”
In fact, you can listen to a great summary from Jamie in just 4 minutes at this link.
If you have been waiting until the weekend to dive into the budget further, I hope I can save you a few minutes by answering the questions that are likely top of mind:
- Are there any changes to personal tax that will affect my clients?
- How did the government address the disputed proposal towards taxation of passive investment income for my small business clients?
- What has changed in Snap Projections as a result?
- What strategies can I consider to better serve my clients?
Are there any changes to personal tax that will affect my clients?
Short answer – No. Not really. The highlights in this area are changes and modifications to the Working Income Tax Benefit (WITB), tax deductibility for service dogs and administrative changes to the RESP to increase awareness. A great summary of these specific changes can be found in this economic analysis in Macleans here.
How did the government address the disputed proposal towards taxation of passive investment income for my small business clients?
In July 2017, the proposals were announced and consultations and feedback were taken for changes in 3 main areas:
The federal budget has not added any further changes to these proposals that were finalized in an update on December 13, 2017. Essentially, what we have called “kiddie tax” in the past, now applies to adults, with a number of unique exceptions.
If your clients are using income splitting strategies using dividends from their corporation, you will want to be familiar with these changes as they are in effect. The changes were effective January 1, 2018 and if you are not yet familiar with the new legislation BDO has summarized it nicely here.
Converting Income into Capital Gains
The federal budget has not added any further changes in this area as well. The proposals introduced in July were scrapped during small business week last October. The reasoning behind this (mainly due to what was found during the consultation period) is summarized by BDO here.
Passive Investments in a Corporation
This was the headliner. The government dislikes that corporations have a tax deferral advantage that essentially allows someone who is incorporated to accumulate more money inside the corporation.
The proposal in July was complex and would clearly have taken a lot of effort to track. It was a disputed change and in October it was not abandoned but we were left hanging without much direction and many unanswered questions.
In Federal Budget 2018, the government has completely scrapped previous proposals and has taken a different approach, which is a significant improvement, here are the key points:
When passive investment income inside the corporation is greater than $50,000 the small business deduction (SBD) will be reduced by $5 for $1; eliminating the SBD when investment income is above $150,000.
For example, Diane is a physician who has accumulated $1,000,000 in her corporation and it earns a 5% rate of return. The $50,000 of investment income is under the threshold and she will not be affected by the new rules.
The technicalities of what defines passive income, what is included and excluded, and detailed changes to RDTOH will be important to know if the changes will affect your clients.
A client can only be affected by these rules if they are earning active business income. Even if they are affected, integration still works, investment income is still taxed at the same rate and overall taxation is not higher. Rather, the limitation on the SBD only removes the opportunity to defer taxes.
For more clarifying examples, see the link for IE webinar below and go to minute 33:00.
What has changed in Snap Projections as a result?
There have been no changes required to the software as a result of this federal budget, other than the changes we had already released in the first week of January of this year. This is due to the fact that some proposals were abandoned and others will not be effective until January 1, 2019. We will be addressing these changes and making the required updates to the software later this year to ensure Snap Projections is accurate and up to date with all new legislation.
What strategies can I consider to better serve my clients?
Investment Executive hosted a webinar with Jamie Golombek focused on how Federal Budget 2018 will affect the industry. You can listen to the whole webinar here. At the 34:30 mark, Jamie shares some of his thoughts:
New Passive Income Rules
- Keep corporate passive income under $50,000 using buy and hold strategies and investments that primarily provide capital gain income
- Consider Permanent Life Insurance within a Corporation
- Consider IPPs
- Invest corporate funds to maximize the RRSP and TFSA
- Spousal loans – instigate before CRA’s prescribed interest rate doubles to 2% at end of March 2018 (40:30)
Still have questions? In the same webinar Jamie was able to answer all of the common questions from advisors live on the call (the Q/A starts around 46:00).
For a more in-depth analysis and additional information, I would like to recommend an excellent analysis by BDO Canada titled: 2018 Federal Budget: Equality and Growth.
If you book and attend a lot of meetings, you and I have a lot in common.
You’ll probably agree that:
- The most valuable aspect of our work is the time spent with our current and prospective clients.
- We have limited resources and staff, and the less time we spend on administrative tasks, the more time we have available to serve our existing and new clients.
- We want to grow our companies, but we don’t want to decrease the quality of the services we provide. That’s why we need to be more efficient in how we work as we need to constantly be doing more for more clients, with the same amount of time.
My name is Riley, and if you’re a subscriber to Snap Projections, we’ve likely spoken at some point. In the past year, I’ve booked and attended 400+ meetings with our prospective and current clients.
I learned how to do this efficiently, with no administrative staff, and I’d like to share how you can use the same efficient process in your practice.
I use these two tools:
Calendly eliminates the back-and-forth emails when scheduling meetings.
Join.me allows me to meet online with any client on any device without them needing to download or install any software.
Both applications have free versions available and are easy to get started with.
Here is exactly how they work for us; I think you’ll easily see how they could work for you, too.
Effortlessly schedule client meetings
It all starts with me wanting to meet with someone I was introduced to. I often receive an email like this:
Rather than searching my calendar for a list of available times and converting them to the customer’s time zone, I just reply like this:
Then I get an email notification back, and our meeting is automatically scheduled in my calendar. It looks like this:
Isn’t this great? With just one click, a prospect or client can see every single time I’m available and easily find a time that works best for them.
The real magic is behind the scenes because this is what your client sees.
It’s so easy for them to pick a date and time to schedule their meeting with you. You’ll have more meetings scheduled with much less follow-up.
Bottom line, Calendly works great, and you are never again bothered with a time-consuming (and probably all-too-familiar) email chain like this:
You can sign up for Calendly without downloading anything, and you can create several meeting types. For example, you can have one called “Financial Plan Review” and have it set for 90 minutes. Another type of meeting might be set for just 30 minutes.
Calendly also sends an auto-reminder before the meeting to avoid missed appointments.
And if a client needs to reschedule, she can even do this on her own without having to contact you.
Now let’s go over online meetings
You may have already tried to meet with clients online using tools like Skype, Google Hangouts, GoToWebinar, HighFive or Zoom, or maybe you still prefer in-person meetings.
The big problem with face-to-face meetings is that they do take time. They are harder to schedule, they limit you to certain geographical areas, and they constrain your daily capacity.
Online meetings tend to result in quicker and more frequent meetings because the financial advisor does not have to schedule an hour just to justify the commute time invested by clients.
There is no time spent on driving, figuring out directions, or looking for parking, for either yourself or your clients.
However, perhaps the biggest advantage of online meetings is that they open up your territory and allow you to scale your financial planning practice beyond your city, province or even country.
Bob Veres calls face-to-screen technology the most disruptive force sweeping through the professional space of financial planning firms.
Bloomberg News reports that just about every planning firm has had clients move away. Video technology makes it much easier to maintain those client relationships.
Our own experience working with advisors confirms that some are having a lot of success meeting with clients online. They often have long-term, extremely engaged clients thousands of kilometers away with whom they have never met in person.
Some advisors use face-to-screen technology to meet with their own staff, too. The growing feasibility of having a completely virtual planning firm with staff located all across the country has unique lifestyle and recruitment implications.
In the end, you can have better, more frequent interactions as online meetings tend to be more focused and effective, so you can spend more time with your clients and prospects.
Here’s how you can conduct online meetings once they’ve been set up in Calendly:
Fifteen minutes before a call is scheduled to begin, send an email with the join.me link:
To use Join.me as an advisor, you need to download and install the application, but your clients can simply click a link without downloading anything.
When they click the link, they’ll see something like this:
Once your client enters their name and clicks “join,” you can choose to share your screen, webcam, or both.
I typically share only my screen to keep the conversation more focused and on point.
If you wish to have another person in a different location on the call, such as their spouse, lawyer or accountant, it’s as simple as emailing them the link as well.
I prefer to still use a phone to call the person directly while using join.me just to share my screen, but speaking through join.me or using the join.me conference call is also an option.
Once your clients see your screen, it’s easy to go over their list of questions, show them any relevant documents, or even walk them through their retirement projections interactively if you use an interactive financial planning tool like Snap Projections.
Need more help?
If you want me to shed more light on how I schedule or host online meetings, I am happy to help.
I’m sure you’ve already guessed it, but the best way to get a hold of me or see how we do this here at Snap Projections is by clicking this link.
Talk to you soon!
Whether you’re an established advisor looking to grow your business or just starting your career, you cannot ignore a major shift happening in the financial services industry worldwide: we now live in the world of low fees. Today, I’m going to show you how to succeed in this new reality by staying technologically relevant, using client education as an opportunity to create great experiences, and seizing an underserved market.
How did we get here?
Vanguard started lowering their investment management fees in the early 1980s when the rest of the industry did the exact opposite. Their long-term focus on passive low-cost diversified portfolios eventually paid off: the firm now has over $3.5T in assets under management, adding $1B from investors every working day. Their commitment to passing value onto the retail investor made them one of the largest fund companies in the world.
Vanguard’s unique ownership structure, where the firm is owned by its funds, puts further pressure on keeping fees low. Competing with such a fee structure is a race to the bottom; it would be a decidedly flawed strategy. While most Canadian investors still own mutual funds rather than low-cost ETFs ($1.1T in mutual funds vs. $100B in ETFs in 2016), the net outflows from mutual funds into ETFs show what the not-so-distant future holds.
Because the technology landscape is changing so quickly, leveraging technology to deliver more value and a better experience to the customer is not optional; it’s now key to survival. If you don’t leverage technology, you’ll be quickly displaced by a more technologically savvy competitor. One of the most relevant recent examples is the bankruptcy of Blockbuster, totally outcompeted by Netflix, which offered lower fees and more value through an online business model delivering memorable and personalized experiences for their customers.
A great success story in the financial services sector is a firm that applied technology to better serve their clients. AdvicePeriod has gone from a startup to managing more than $6B of assets under advisement in the span of a few years. They did this by combining technology with a heavy focus on financial planning.
“We wanted to focus more on what really mattered to clients, and for us that means a lot of planning, a lot of advice, leveraging technology where we can,” says Larry Miles, one of the principals of AdvicePeriod. “It’s more important than ever because technology is just changing so rapidly that if advisors fall behind, it’s going to be really difficult to get back ahead.”
Customers expect great experiences
Consumers now expect great experiences. What are the ingredients of a great experience?
Customers want ongoing value from a service. If the value stops being delivered, the service is cancelled.
We got used to instant fulfillment when we started being able to order food, an Uber or anything on Amazon with just the tap of a finger right from our smartphones. This is setting a standard for all industries, including financial services. For example, if you insist on asking for all financial data from a prospective client upfront and telling them you’ll see them in 3 weeks, you may lose a prospect.
Customers also expect personalized and relevant advice to help them make better financial decisions. This advice encompasses not only investment planning, but includes the broader areas of tax planning, financial management, estate planning and even behavioural coaching.
Collaboration means the session with the advisor becomes interactive instead of an advisor working in the back office on a complex plan and then presenting that plan to the client. Collaboration between the client and advisor helps to identify the client’s goals that would otherwise go undiscovered. It helps to cement the client-advisor relationship, too.
All of the above aspects help to create a great, memorable experience for the client.
The question now becomes how to find the right opportunity to deliver such an experience.
Finding the right opportunity
I wrote about the value of client education in why client education matters today more than ever. The likelihood that a client will provide a referral to her advisor gradually grows with that client’s increasing levels of financial literacy. Providing the right advice to clients and educating them in the process leads to a powerful referral formula.
Well-educated clients become more satisfied clients. Satisfied clients become long-term, loyal clients. Loyal, long-term clients tend to generate more referrals.
Even though opportunities for advisors in the investment management area are somewhat diminished, you can still build and grow strong, sustainable and profitable businesses. The formula for success is not just providing advice and educating clients, but also focusing on the right clients. This means picking the right market segment and specializing in serving it better than anyone else.
While there has been a lot of attention on millennials lately, with 13.6 million Canadians who are 50 years and older, I see the pre-retirement and retirement segment as particularly attractive for many reasons.
While there are a lot of DIY options and tons of free education online, retirees have a lot at stake. They are heading into retirement during historically low interest rates, which forces them to be more exposed to equity and makes retirement planning more complex. Their biggest concern (and rightfully so) is not running out of funds in retirement.
The progressing fee compression forces larger institutions to raise their minimums, making the mass-affluent segment underserved. These firms cannot effectively serve clients with assets roughly between $100,000 and $800,000, which creates an opportunity for independent advisors and smaller, more efficient advisory teams to come in and effectively serve that market.
Most advisors are not focused on retirement planning, retirement income planning or asset decumulation. This is an obvious gap in the market.
What do clients want to know?
Addressing the needs of the retirement market segment doesn’t have to result in spending hours on creating long, complex financial plans. In fact, we found that long, complex financial plans are rarely read, never updated, and frankly useless to clients (you can read here that clients, unsurprisingly, don’t understand 50-page reports). A lot of clients have fairly basic questions around their retirement.
First and foremost, they want to know if they are going to be okay. They ask questions about how long their capital will last or how much they can spend so they won’t run out of funds in retirement. They are also curious about when to take their CPP and OAS, which of their assets they should spend first and how their estate will transfer upon their death.
You can instantly add a lot of value by providing them with useful insights into their financial situation.
There are many ways to help clients address these questions. If you would like to see how we help advisors do so here at Snap Projections, click here. See for yourself how you can address the 6 most common financial planning questions for your clients in just a few minutes.
If you expect that one spouse will outlive the other in your clients’ retirement projections, it’s useful to project the surviving spouse’s financial situation after the death of their spouse. We call this a Surviving Spouse Scenario in Snap Projections financial & retirement planning software.
Here’s a quick summary of what happens to your clients’ assets upon the first spouse’s death and how to avoid common pitfalls around asset rollovers.
What happens to their RRSPs?
Key terms: Annuitant and Beneficiary.
When an RRSP annuitant dies, you can roll the RRSP over to a beneficiary on a tax-deferred basis. The beneficiary must be a spouse, a common-law partner (CLP), or a financially dependent child or grandchild with a mental or physical disability.
When an RRSP annuitant dies, they are deemed to have received their RRSP assets just before death; this generally means the RRSP value at the time of death is included in the taxable income of the deceased for the year of death. However, the CRA allows a “qualified beneficiary” to receive the proceeds and report the income inclusion on their tax return instead.
When the beneficiary contributes the amount to their RRSP, they can claim a deduction to offset that taxable income inclusion. Keep in mind, though, that the beneficiary’s RRSP contribution room doesn’t change.
To avoid possible pitfalls, have your clients review their beneficiary designations to keep them updated and make sure their will matches everything else to avoid financial disasters like this one.
What happens to their RRIFs?
Key Terms: Annuitant, Successor Annuitant and Beneficiary.
When the annuitant of a RRIF dies, the rollover is performed similarly to that of an RRSP. The remaining amount received from the RRIF in the year has to be reported on the annuitant’s income tax return for the year of death unless one of the exceptions below occurs:
- The annuitant names their spouse the successor annuitant of the RRIF. In this situation, the RRIF continues, and the spouse becomes the successor annuitant under the fund. All amounts paid out of the RRIF after the annuitant’s death become payable to that successor annuitant.
- The spouse or partner is named in the RRIF contract as the sole beneficiary, and the entire eligible part of the RRIF is directly transferred to an RRSP, PRPP, SPP, or RRIF under which the spouse or CLP is the annuitant.
Possible pitfalls can include not starting the RRIF early enough. Often, it makes sense to make partial withdrawals in retirement from both registered and non-registered accounts. Snap Projections allows you to fully control the amount of withdrawals from any asset, which means you can decide and adjust how much clients should withdraw from their RRSP, RRIF, LIF, TFSA or any non-registered asset.
What happens to their TFSA?
Key Terms: Successor Holder, Survivor and Beneficiary.
If designated as a beneficiary, the surviving spouse has the option to contribute and designate all or a portion of a survivor payment as an exempt contribution to their own TFSA without affecting their own unused contribution room, subject to certain conditions and limits.
A TFSA does not terminate on death; the successor simply replaces the deceased as the plan holder, and the plan continues with all rights passing to the successor.
The successor holder is the person named to inherit the TFSA. There are two types of successor holders:
- Survivor: a spouse or CLP at time of death. The survivor can designate all or a portion of the TFSA to contribute to their own TFSA without affecting their own contribution room.
- Beneficiary: a child or qualified donee. The beneficiary can contribute all or a portion of the TFSA to their own TFSA only if they have unused room.
To avoid potential pitfalls, make sure your clients have named a successor holder − not just a beneficiary.
What happens to their non-registered assets?
An automatic rollover rule applies, and the spouse will receive the assets with no tax consequences. The disposition and transfer is deemed to have happened at ACB − not FMV, which would trigger taxes (Income Tax Act, Section 74.2).
The automatic rollover applies unless a couple “elects out” of section 74.2 and wants to have the transfer happen at FMV, which can be desirable in certain situations, for example if you want to trigger capital gain taxes in the estate of the deceased spouse.
How are asset rollovers handled in Snap?
If the projections of the spouses end in different years, the assets are automatically rolled over in the following manner:
- Registered assets are rolled over on a tax-deferred basis,
- TFSA assets are rolled over on a tax-free basis, and
- Non-registered assets are rolled over at ACB, not FMV (without triggering capital gain tax).
The combined page (please see the screenshot above) will show the value of their combined estate in the last year when both spouses are alive, the estate of the deceased spouse at the end of his/her projections, and the estate of the surviving spouse at the end of his/her own projections.
Note that you can further adjust the spending that the surviving spouse needs to maintain their lifestyle as their spending level can be different from the couple’s combined spending. This is an essential functionality in the financial & retirement planning software as it not only allows you to adjust the spending in different phases of their retirement (active vs. passive) but also enables you to be very precise in planning for the surviving spouse.
If you have any questions regarding rollovers, get in touch with me over email or click here to book an online demo so we can show you step by step how rollovers are handled in Snap.
Integrating a holding company or an operating company into the personal retirement projections of your business owner clients is useful as often their businesses accumulated sizeable assets and these assets will play an important role in funding their retirement.
Taking the funds out of the corporation in an efficient manner can add significant value for your clients and the Refundable Dividend Tax on Hand (RDTOH) account is a key component in that equation.
What is Refundable Dividend Tax on Hand (RDTOH)?
RDTOH is a federal mechanism available to Canadian-controlled private corporations (CCPCs) that allows, under certain circumstances, for a corporation to be refunded a portion of income tax paid. The refundable portion is calculated based on the aggregate investment income generated by a corporation (Part I Tax) and on eligible dividends received by a corporation (Part IV Tax) and tracked in the RDTOH account.
The RDTOH account balance is tracked annually (typically with the corporate tax return), and when dividends are paid out to the shareholder(s) of the corporation and if the RDTOH balance is positive, the corporation receives a dividend refund.
To make it easy to take advantage of RDTOH, the balance is tracked automatically in Snap Projections. The balance is calculated based on your selected corporate portfolio settings and the corporate asset mix, and updated based on dividends declared from the corporation.
Why RDTOH is useful?
RDTOH mechanism gives you more accuracy in terms of planning for your clients when investing in and withdrawing funds from their corporation and gives you some control over the corporate taxation as well.
This is useful because you can now be much more precise in modelling investing in a corporation. For example, you can evaluate different strategies to take the funds out of the corporation via salary, non-eligible dividends or eligible dividends and determining their impact on personal and corporate taxation. You can also test an approach of completely taking the funds out of the corporation and investing them personally.
Is RDTOH available in Snap Projections?
Yes! We are excited to announce adding RDTOH to the Business / Corporate Component in Snap Projections. Here is some more information on how it works.
RDTOH affects only investment income generated by the corporation and it does not impact the remaining corporate component’s functionality; including the active business income section.
This means you can generate both active business income and passive business income (i.e. investment income) in one corporation and both income streams will be taxed separately. That way, in Snap Projections, a corporation can act as a holding and an operating company at the same time, and you do not have to resort to setting up multiple corporations to model active and passive business income separately, which can be a closer representation of the reality for your clients.
You can continue to use the corporate component as part of an income splitting strategy for your clients – if both spouses are shareholders of the corporation you will be able to declare a dividend to one or both spouses.
You can add multiple corporations to the client’s projections and easily report on all of them within one client- friendly report.
In the end, you are able to provide your clients with an additional level of comfort that all of their assets are properly accounted for.
If you have been trying to model RDTOH in excel, you’ll love this new functionality in Snap Projections. That’s because the corporate component is as easy to use as the rest of the Snap Projections platform.
If you haven’t tried the corporate component in Snap yet or if you are curious to learn how it works, you can click here to watch a short video of the Corporate Component.
Otherwise, you can click here to book a short demo with us. You’ll learn how you can use it to plan more effectively for your clients with corporations.