A proactive advisor can cut your taxes

Clients are often unaware of investment alternatives, credits, loss-recovery options

I ask every new client to sign a Canada Revenue Agency (CRA) form T1013 – Authorizing or Cancelling a Representative. This authorizes CRA to release tax related information to me, referred to as a “representative.” It is an invaluable tax tool to proactively help clients.

Canada Revenue Agency’s website (cra-arc.gc.ca) is a great resource for general information.   On this website, representatives can access their client’s tax information. When I have clients sign the T1013, I request Level 1 authorization which enables me to view information only. There is no ability to make changes. The most obvious benefit for clients in signing the T1013 is that they no longer have to bring in a copy of their annual tax returns and applicable notices of assessments. This information is available online. I use it for a variety of purposes, primarily to give proactive advice to save tax dollars. Here are a few situations clients have encountered to which I was able to provide solutions as a result of having the T1013 on file.

Situation 1: In examining Mr. Red’s tax return, we noted he had to pay $456 in interest and penalties to CRA for not making his quarterly instalments on time.

Solution: We brought this to Mr. Red’s attention and provided automatic solutions that could help him. The first was that we could begin withholding tax on his RRIF payments. The second was that we could contact Service Canada and request that withholding tax be taken on CPP and/or OAS payments. A manual option was that we could make his quarterly instalment payments to CRA for him directly from his non-registered investment account.

Situation 2:   Mrs. Brown is a new client who transferred in a non-registered investment account. During our initial conversations, she said she prepares her own tax return. My evaluation of her past returns showed there was no carry-forward information for realized gains or losses on her investments. I confirmed that she had sold many investments over the years, but had not recorded these on her tax return.  

Solution: I explained that all dispositions in a taxable account must be manually reported on Schedule 3 (no tax slip is issued for this). We assisted her in obtaining previous annual trading summaries to calculate the numbers needed to adjust her previous tax returns.

Situation 3: Mr. Black has been contributing to his RRSP for many years. In the last year, his income dropped substantially and he was comfortably in the first marginal tax bracket. Mr. Black said he projected that his income would continue at the current level or decline as he approaches retirement.              

Solution: It no longer made sense for Mr. Black to continue to contribute to his RRSP account. His savings should be directed to a Tax Free Savings Account.

Situation 4: Mr. Orange received penalties for over-contributing to his TFSA accounts. In our first meeting, he explained that he had several TFSA accounts and had lost track of his withdrawals and contributions.

Solution: We outlined the rules with respect to TFSA accounts and any replenishment for a previous withdrawal must occur in the next calendar year. I also had him sign the T1013 form. I printed out all of his TFSA contributions and withdrawals from the online service. I recommended that he consolidate his TFSA accounts. I also provided copies of the CRA reports, including a report which shows his current year contribution limit.

Situation 5: Mrs. Yellow has been a long time client whose health has deteriorated over the years. In reviewing her tax returns, I noted that he was not claiming the disability tax credit.

Solution: I provided her with a copy of the Disability Tax Credit form T2201. I advised her to bring this to her doctor to have the form signed and submitted. A few months later, Mrs. Yellow received a letter back from CRA with their approval for her application. They also approved backdating her eligibility to 2009. In assisting Mrs. Yellow and her accountant with the T1-Adjustment form, we projected that she would receive a tax refund of $12,490. From now on, Mrs. Yellow will be able to claim the disability tax credit every year, resulting in significant tax savings.

Situation 6: Mr. White has, in the last few years, completed his own tax return using Turbo Tax. He has correctly reported the taxable capital gains on line 127 of his tax return during this period. Unfortunately, Mr. White did not initially key in his loss carry-forward information. Many years ago, Mr. White had a significant net capital loss on a real estate investment, and was not aware that he could apply his net capital losses to reduce his taxable capital gains on the stock sells.  

Solution:   I arranged a meeting with Mr. White and explained to him the importance of keying in the carry-forward amounts when starting to use Turbo Tax. I also showed him how he can use a T1-Adj form to request CRA change line 253 – Net capital losses of other years. Mr. White had to submit four T1-Adj for each year he missed applying his net capital losses. Combined Mr. White received a refund of $47,024 after all reassessments.

Situation 7: Mrs. Green has recently transferred her investments to us. We noted a few investments with significant losses that she has held in her account for many years.   There is little hope that these investments will recover in value. In reviewing Mrs. Green’s online account with CRA, I looked up all of her previously reported taxable capital gains and net capital losses. In this analysis, I noted she had substantial taxable capital gains three years ago that brought her income into the top marginal tax bracket.   Net capital losses can only be carried back up to three years. Mrs. Green was unaware net capital losses could only be carried back up to three years.

Solution: I recommended that Mrs. Green sell most of her investments that were in an unrealized loss situation. By selling these she triggered the tax situation and created the net capital loss. I printed off the T1A – Request for Loss Carryback form and explained to Mrs. Green how the form works. Mrs. Green was able to recover $29,842 after CRA carried the loss back and reassessed her tax return from three year ago.

Situation 8: Mr. Blue had stopped working at the age of 62, but his spouse was continuing to work a few more years. In looking at his CRA online reports, I noted he was collecting CPP and that this represented most of his income, which was below the basic exemption.  He had not thought about taking money out of his RRSP early as Mrs. Blue was continuing to work and they had enough money flowing in from her income and in the bank to take care of the bills. Mr. Blue had a sizeable RRSP account and Mrs. Blue will have a good pension when she retires that can be shared.

Solution: I explained to Mr. Blue that when he starts collecting OAS, pension splitting with his spouse, and having to withdrawal from his RRIF that his taxable income will increase significantly. We recommended that he convert a portion of his RRSP to a RRIF and begin taking income out on an annual basis immediately. We mapped out a plan to keep his taxable income around $35,000. With these early withdrawals, our projections would keep both Mr. and Mrs. Blue in the top end of the first marginal tax brackets throughout retirement.

Situation 9:   Mrs. Purple is extremely busy with work and has a great income. It is definitely advisable for Mrs. Purple to maximize her contributions to her Registered Retirement Savings Plan (RRSP). Unfortunately, Mrs. Purple never seems to find the time to photo copy her notice of assessment and provide this to her advisor. She was frustrated that last year, she missed contributing to her RRSP because her advisor did not phone.

Solution:   When Mrs. Purple came to see me I explained the benefits of the T1013 form. One of the main benefits is that I can go on-line and instantly obtain her RRSP contribution limits and unused portions for the current year.   I proactively contact each applicable client and advise them of their limits and recommended contribution level based on projections of current and future income levels.

Emails – the good, the bad, and the fraud

The Canadian Radio-Television and Telecommunications Commission ­ or CRTC ­ has the authority to administer the Telecommunications Act, including the National Do Not Call List (DNCL). Effective July 1, 2014, Canada’s Anti-Spam Legislation (CASL) will also be administered by the CRTC.  The DNCL and CASL are intended to protect the public from unwanted communications, including annoying phone calls and unwanted SPAM. 

People have to be extremely careful when they receive unsolicited phone calls and emails.  In this age of technology, automatic dialing machines and blanket emails can hit large populations quickly.  Caution should always be exercised when you are asked to provide any personal information. 

Unless you know for certain that the phone call or email is legitimate, you are best not to respond.  If the unexpected email or phone call is of a financial matter, we recommend that you hang up and phone your financial advisor.  Your advisor should be able to assist you after you provide the details of the phone call or email.    

In talking with clients, I explain to them that we put measures in place to protect their capital from fraud. We will not accept trading instructions over email or fax, and we will never carry through with a money transfer request without first confirming with our client either in person or on the phone.  Our team knows to be especially careful if we receive rushed explanations, or explanations that are out of the ordinary.  Extreme caution is necessary for any payments to third parties or to overseas bank accounts. 

While the Do Not Call List deals with unwanted phone calls, the Anti-Spam Legislation deals with Commercial Electronic Messages (CEM). The majority of financial advisors utilize email, or rather CEMs, as a means to distribute timely information quickly and efficiently.   CEM is not just marketing emails. 

For example, a financial advisor may be sending periodic emails with timely economic and market commentary, recent financial news, and investing and wealth management strategies.  Sending out event and meeting invitations electronically also falls under CEM.

Government statistics state that over 80 per cent of emails are considered SPAM.  CASL casts a very large net.  The concern is that the rules could prevent businesses from sending you legitimate emails.    The intention of the legislation is to eliminate the huge number of spam emails, not the legitimate ones.  Businesses should also know that the intention of the CRTC is to prevent businesses and organizations from sending email to people who have not consented to receive it.    

What will happen to the approximately 20 per cent of legitimate emails that you were receiving before July 1, 2014?   Will the anti-spam law’s large net prevent you from receiving emails that have relevant and timely information? 

A couple of smart solutions exist to ensure you continue to receive the good emails.  Businesses are still able to send you a CEM provided they have “consent.”  Consent is best understood by looking at two terms, “express consent” or “implied consent.”

“Express consent” is obtained when a business asks for your permission to continue sending CEM and you provide consent (i.e. you say “yes” or click accept on an email).  Many businesses have already created electronic marketing systems to keep track of those individuals who have provided “express consent”.  Some businesses are proactively sending CEM messages before July 1, 2014 requesting that you confirm continued receipt of CEM.  In asking for permission, the distributor of CEM must explain the reasons why they are asking for consent and provide the following information:  name, address, telephone number, and website.  The sender of the CEM must provide you the ability to unsubscribe from any future email communications if you so wish.  

“Implied consent” is best understood from looking at certain actions.  If an individual business owner receives an incoming email requesting information, then the business owner has implied consent and can respond to that email.  One incoming email does not provide ongoing “express consent.”  If the person who initially emailed a business does not reply to the business’s response email, the email chain ends and so does consent. 

Another example:  If a business relationship is already established in the previous two years, then “implied consent” exists.  Similar to the Do Not Call List, the anti-spam law also has exceptions to the general rules adding to the complexity, including exemptions for family, friends, and certain third-party referrals. 

In addition, when the new CASL rules come into effect, all CEMs must contain an unsubscribe feature so that people have the option to retract their express or implied consent, if they wish at a later date.

If you are concerned that you may not continue to receive some of your legitimate emails after June 30, 2014, then we recommend you contact the respective individuals or businesses to determine how they are managing “consent”.  You can respond “yes” to those businesses which have sent you an email requesting consent.  Another alternative is to proactively send the individual or business an email, such as, “I give you my consent to continue to send me emails to the following email address: jack.jones@email.com.  I reserve the right to unsubscribe at a later date.” 

Financial advisors and companies are taking this very seriously.  The CRTC may impose hefty fines on individuals and businesses violating the Do Not Call List and new anti-spam rules.    If a person breaks the Do Not Call List rules, the penalty could be $1,500 per violation, and up to $15,000 for businesses.  The fine for violating anti-spam law for individuals is as much as $1 million per occurrence.  Businesses breaking the anti-spam rules could be fined up to $10 million per occurrence. 

The importance of teamwork in managing affairs

Couples who both have an equal interest in managing their investments are not as common as you might think.  The best case scenario is, of course, that both are working with a financial advisor to ensure continuity and an easier transition when one spouse passes away.  But that doesn’t always happen.  Even the simplest of investment approaches can be quite overwhelming and confusing to the surviving spouse who has never manager their financial affairs.

Although the spouse who has handled the finances may feel they are taking car of their spouse, it may actually do more harm than good.  The obvious pitfalls are failure to manage risk, getting too emotionally attached, missing out on opportunities and spending a good part of their spare time in order to avoid paying an advisor commissions for trades.  They can easily miss a big picture item that can cost dearly later on.  A good financial planning tip can often cover years of fees for an advisor. Ensuring your spouse has a good adviser after you’re gone is more valuable than trying to save a few dollars today.

There are a few basic suggestions to simplify your finances and hope both you and your spouse.

■ Consolidating accounts is almost always a good move, regardless of your age.  By closing unnecessary bank and investment accounts you reduce the amount of work considerably.  You will have fewer tax slips, and have a much clearer picture of your situation.  The more financial institutions you deal with the more phone calls and paper work that will be left for your spouse and executor after you are gone.

■ Having all monthly registered pension plan payments (employer pensions, Old Age Security, and Canada Pension Plan) automatically deposited into one bank account will make it easier to budget.   This one bank account should be linked electronically to your non-registered investment account.  RRIF payments can be set up for monthly payments to be transferred from your investment account to your bank account.  Having all transactions flow in and out of one account makes it easier to track income and expenses.

■ Organizing your financial papers will be helpful for you and your spouse.   Check with your advisor and Canada Revenue Agency regarding what documents can be destroyed and shredded.  We recommend cancelling charge cards you no longer use.  If you do owe anyone money that is not registered (i.e. mortgage), we recommend you inform your spouse of these amounts.  Insurance policies that have been cancelled should be clearly labelled.  Any valid insurance policies should be organized with your spouse knowing where they are stored.

■ Old share certificate that have value should be deposited into an investment account.  Old share certificates with no value should either be shredded or clearly marked as having no value.  An advisor can search old share certificates to provide assurance whether an investment is defunct.

■ We recommend having one easy to access list of professionals you work with (banking contact, accountant, lawyer, investment advisor, insurance company), including all their contact information.  This list should provide key information, such as where your will is stored and the name of your executor.  It is quite common for couples to name their spouse as their primary executor.  Your advisor can provide a list of some of the main responsibilities of being an executor.  Obtaining an understanding of your duties should be done while you’re updating wills, power of attorney, representation agreements, and other legal documents.  Your spouse should know where your will is located and who is the executor (if your spouse is not the executor).

■ Ensure that you have the correct beneficiary designated on each registered account.  In the majority of cases it is advantageous to name your spouse.  If you are naming anyone other than your spouse then we recommend that you obtain advice to ensure it is appropriate and you understand the consequences.

■ Obtain financial and accounting advice for any non-registered investment and bank accounts that are solely in your name.   There are many benefits for opening joint with right of survivorship accounts with your spouse.  Changing ownerships on accounts should only be done after an informed discussion with your advisor.

Nearly every couple has additional steps they should follow that are unique to their individual needs.  We encourage couples to come in to investment and planning meetings together.  These meetings help your financial advisor formulate a plan that helps both of you.  The best way you can take care of your spouse is to ensure that all is in order today and that a trusted advisor will be available to help after you’re gone.

Trust in financial advisors built over time

During times of volatile market conditions it is challenging to build confidence in the financial system.

A stable financial system is the foundation that trust is built upon. Challenging economic data and political uncertainty can slowly erode the foundation.  People who are investing today must trust that the markets will get through these difficult times and reach higher levels in the future.

In addition to trusting the financial system, it is important to build trust between you and your advisor. Unfortunately trust generally does not come instantaneously.  It is a two-sided process that results from the consistent commitment and open communication between you and your advisor or portfolio manager.

Trust should grow over your relationship. If trust is not being built up over time then the relationship is likely not moving in the right direction.

Every relationship has not only mutual trust, but it also has responsibilities unique to you as the investor and your advisor. An advisor is hired to share his or her investing knowledge with you, develop your unique financial plan, inform you of your portfolio’s performance, notify you of potential opportunities, answer questions, and refer you to other internal specialists and external professionals, such as a lawyer or an accountant, when necessary.

You, as the investor, are required to be clear and honest about your risk tolerance and financial situation. Communicating your investment knowledge and past investment experiences with your advisor is an important start. Keeping your advisor aware of any changes to your current circumstances and preferences are also key components. Have you gathered all of the relevant information to have an up to date and accurate financial plan? Have you set realistic expectations? Are you looking short-term or long-term?

Open and balanced communication is one important component to building trust. As an advisor, if I didn’t do something right, or if it could be done better, I would want my clients to tell me.

Being able to give constructive feedback to your advisor is essential. Personally, I lose trust immediately in advertisements of financial products that only highlight the potential return and exclude the potential risk (or have it in small print). A balanced discussion of a new investment idea should summarize both the risks and potential rewards. No advisor has a crystal ball – market rallies and declines are simply unpredictable.

Competency is a big component to building trust. If an advisor has the related designations and credentials then it shows an effort to obtain knowledge that will help their clients. Ongoing continuing education helps advisors stay current with professional development. Experience is equally as important. An advisor who has helped clients through various market cycles will have a greater depth of knowledge on the psychological feelings that investors go through.

It is important to have total confidence that your advisor will act with integrity on your behalf, is competent in their field, has a personality compatible with your own, and whose actions are consistent with what they say. When searching for a new advisor it can be hard to start a trusting relationship without these things previously established. This is where referrals from friends, family, or other professionals can help you feel a stronger connection with an advisor from the very first meeting. The individual making the referral already believes the advisor to be credible and their trust has grown out of respect for their advisor’s hard work. When you make a referral you are putting your own trustworthiness at stake; therefore, if someone refers an advisor to you they trust the advisor to manage their assets and have confidence that the advisor will be reliable and act with the integrity, competency, and empathy when managing your assets. Although it may be difficult to form a trusting relationship with someone new, trust is crucial for a long term relationship with your advisor.

If you find it hard to trust your current advisor, or one you are meeting for the first time, then the relationship is likely not the best fit for you. Consider asking a friend or family member for a name of a financial advisor they trust. While establishing trust does take time, transferring trust among people can be extremely helpful in forming a solid relationship built on integrity, competency, rapport, and above all, trust.

Communication with advisor is important

An important skill that an advisor should have is the ability to communicate effectively with their clients.  Being able to listen is really the key to understanding the unique needs and situation of each client.  It is important for clients to share information with their advisor.

Before opening a new account an advisor is required to obtain some basic information, such as an understanding of your risk tolerance and investment objectives.  The regulatory requirement for information gathering should be treated as the minimum amount an advisor needs to assist you.

Two written documents can really help an advisor – a family tree and a net worth statement.  A family tree can be prepared on a piece of paper by listing the names of people important to you along with their relationship.  As an example, your family tree could list the following relationships:   parents (deceased and alive), spouse (including any previous marriages), children, grandchildren, siblings, powers of attorney, executor, etc.  Birthdates are also useful on the family tree. This information will help your advisor obtain a quicker understanding of your family situation.   The second useful document is called a net worth statement.  This can be done by summarizing your total assets (financial and non-financial) and total debts.  The net-worth statement will give your advisor an immediate snapshot of where you sit today.  Both the family tree and net worth statement will help your advisor in asking the right questions to assist you with your customized plan.

Life events such as marriage, birth of a child, arrival of a new grandchild, new employment, retirement, death of a family member, divorce, etc., are times when you should be communicating with your advisor.  Updating your advisor on life events will allow them to communicate important information that may be of help to you during these times.  This information can be applied when adjusting your investments and plan.

An important reason why you initially went to see an advisor was to obtain assistance with investments.  The advisor’s approach to investing and the types of products that they are licensed to sell often drives both the volume and timing of communication.  Maturity dates of investments such as bonds and Guaranteed Investment Certificates (GICs) are definite times your advisor should be contacting you.  Passive investment strategies, such as Exchanged Traded Funds (ETFs), may require less contact than active strategies.  Even within active management, the number of phone calls can differ significantly.  As an example, an advisor recommending equity mutual funds for their clients may not require as many phone calls as an advisor who is investing in individual stocks.

Most clients initially look at communication with their advisor in the context of how many in-person meetings they will have in a year.  Many advisors may ask their clients how often they would like to meet in-person, with choices typically being quarterly, semi-annually, or annually.  The frequency of in-person, periodic meetings may fluctuate as you and your advisor determine what is most appropriate.

In-person meetings are essential for new clients, especially when reviewing new types of investments (i.e. preferred shares, common shares, and convertible debentures).  The base understanding of the different type of investments will allow different forms of communication in the future, such as telephone calls.  An advisor may phone you with recommendations between the scheduled in-person meetings.

Comprehensive meetings can also be done over the phone.   Scheduled time can be blocked off on both calendars.  A meeting agenda should be emailed in advance of the scheduled portfolio review allowing you more time to look at the recommendations beforehand.   An agenda for each meeting ensures that the time spent is productive and covers the items important to both you and your advisor.

An example of a meeting agenda relating to investments would be as follows:  1. Review market indices and relevant benchmarks year-to-date; 2. Macro view of current market conditions including a review of commodity prices; 3. Discussion regarding your Investment Policy Statement (IPS), and your current asset mix; 4. Detailed review of current investments with recommendations; 5. Options for any excess cash balances.

Your advisor can often assist you with items beyond investments.  In advance of your meeting, you should ask your advisor to put the topics that are important to you on the agenda.  This will help your advisor determine the amount of time to set aside for the meeting and to determine whether any internal specialists or external experts will be required.   Your advisor has relationships with accountants, lawyers, realtors, etc. who can assist with complex questions.  Within each financial institution their are specialists that can also assist you, including full time financial planners, insurance consultants, trustees, bankers, wills and estate planners, etc.

Providing your advisor with your preferential contact information will enable them to contact you when necessary.   Having all work, home, and cell numbers will enable your advisor to contact you quickly should an opportunity arise.  We recommend our clients let us know the dates that they will not be accessible.   If you are planning a long vacation, or a significant period away from home, then you should meet with your advisor prior to your departure.  One of the challenges with advances in technology is the use of email, especially when you are on vacation.  Many clients may feel that a trade instruction sent by email (written record) is better than a verbal phone call (no written record).  Advisors can not take trade instructions by email for various reasons associated with risk.  The following are a few of the risks:  time difference of instructions, risk of failure to execute (i.e. advisor may meeting with clients out of town at the time of e-mail), inability to confirm that order instruction is provided by a duly authorized person, lack of confidentiality of client information, lack of receipt or untimely receipt of order instructions, difficulty in discussing details surrounding suitability and risk of investment, e-mail delivery and server interruptions, or inability to confirm vague or incomplete instructions (i.e. type of order, account number, quantity of shares) on a timely basis.  Another risk of accepting trade instructions via e-mail is a practice known as “e-mail spoofing”. E-mail spoofing is the forgery of an e-mail header, or sender address, to make an e-mail message appear to have originated from somewhere other than the actual source, thereby making it possible to send a message enhanced to look like it originated elsewhere.

E-mail works well for confirming phone and in-person meeting times, adding items onto a meeting agenda, general discussion items, and for sharing investment ideas.  When it comes to executing investment ideas, these need to be communicated and confirmed verbally.

Consolidation to single advisor has its benefits

It’s getting complicated these days to keep track of the various types of accounts and staying on top of limits for Tax Free Savings Accounts, Registered Retirement Savings Plans (RRSP) and other investments.

There are harsh penalties exist for those people who exceed maximum thresholds.  If you have more than one TFSA as an example, it is important that you tell the advisor at each institution you deal with what you have contributed.

Why do some people have their investments at multiple financial companies?  Was it the closest financial institution to make that last minute RRSP contribution?  Was it an inheritance that just seemed easier to keep at the same place?  Maybe it was a short-term advertised special on a TFSA that brought them into another institution.  It could be that you bought a proprietary product that could not be transferred after you purchased it.  There are many disadvantages for people not developing one good relationship with a financial advisor.

The following are a few benefits of consolidating your investments with one advisor:

Asset Mix

The most important component of investment performance is asset mix.  Consolidation can help you manage your asset mix and ensure that you have not duplicated your holdings and are therefore, not overexposed in one sector.   Unless your financial advisors have been given a copy of all of your investment portfolios, it will be difficult for them to get a clear picture of your total holdings.  Even if you were able to periodically provide a summary of each account to each advisor, as transactions occur you would still need to update every advisor with those changes.


Most firms provide access to view your investments online.  If you have accounts at different institutions, then you will need to get online access from each. It is not as easy to get a snapshot of your total situation when you have multiple accounts spread across multiple institutions.

Tax Receipts

If you hold non-registered investment accounts at several institutions, you will receive multiple tax receipts.  By consolidating your accounts, you will receive a limited number of reporting slips for income tax each year.  Reducing the number of tax receipts may also reduce the amount of time your accountant will spend completing your tax return.

Managing Cash Flow

Projected income reports from different institutions will be presented in various formats and at different points in time.  For you to obtain a complete picture of your financial situation, you will have to manually calculate the total income from your investments.  In situations where you have instructed your financial institution to pay income directly from an investment account to your banking account, it becomes more complicated to manage when there are multiple investment accounts.

Estate Planning

One of the steps in an estate plan is to deposit all physical share certificates and to reduce the number of investment accounts and bank accounts.  Having your investments in one location will certainly simplify estate planning and the administration of your estate.  It also assists the people helping you as you age.

Monitoring Performance

Some investors may be comparing the performance of one firm or advisor to another.  Investors should be careful when doing this to ensure they are really comparing apples to apples.  One investment account may have GICs while another may have 100 per cent equities, in which case we would expect returns to fluctuate during different market cycles.  It is easier to understand how all of your investments are performing when you receive one consolidated report from one advisor.

Conversion of Accounts

If you have multiple RRSP accounts and are turning 71 years old you may want to consider consolidating now and discussing your income needs.  It is easier to map out RRIF income payments when you have only one account.

Account Types

Fee-based accounts are usually suitable for a household that has total investment assets of $100,000 or more at one institution.  Consolidating allows these types of accounts to be an additional option.  As your account value grows, the fees as a percentage may decline in a fee based or managed account.


In a perfect world all clients at all financial institutions are treated equal.  The reality is that the largest clients get better service.  By having $50,000 at six different institutions you are probably getting minimal service at each institution.  If you consolidated these accounts at one institution we would suspect that you would get significantly better service.

Other Benefits

When you have all registered and non-registered investments at one location it is easier for financial planning purposes.  Consolidation enables you to fund RRSP contributions through in-kind contributions.  Sometimes it is recommended to change the structure of your investments between accounts to improve the overall cash flow and tax efficiency standpoint – this can only be done if your accounts are at one financial firm.

Making sense of designations

Licensing and designations within the financial sector can be complicated.  Part of the reason for this is the minimum required level of knowledge required between the four main pillars – banks, trust companies, insurers and securities dealers.  Beyond the minimum required level of knowledge for licensing, there are extra designations that can help a financial advisor do their job.

You have likely heard of some of them, including:

  • Certified Financial Planner (CFP)
  • Chartered Financial Analyst (CFA)
  • Fellow of the Canadian Securities Institute (FCSI)
  • Canadian Investment Management (CIM)
  • Chartered Life Underwriter (CLU)
  • Chartered Financial Consultant (CH.F.C.)
  • Certified General Accountant (CGA)
  • Certified Management Accountant (CMA)
  • Chartered Accountant (CA)
  • Certified Investment Management Analyst (CIMA)

This is by no means a complete list but it gives you an idea that there are many potential designations.  Not all designations should be treated as equal, but there are a few tips in evaluating the education level of a financial advisor.

Acronyms: One of the quickest ways to get a snapshot of an advisors education is to ask for a business card.  Designations are often abbreviated on business cards, so ask what they mean and inquire about your advisor’s educational background.

Certificates: Most financial advisors also demonstrate their achievements by displaying their certificates in their offices, including post secondary education and other professional designations.  Make them a discussion point during your meeting.

Websites: You can research professional designations on the internet. Each of the main designations would have a respective organization with a website outlining details about the program.  At the same time you will be able to confirm whether your advisor is in good standing with their organizations.

Time Commitment: Perhaps the most important component when looking at the various designations is the time commitment involved to obtain.  Some of the more recent designations may sound impressive by the name, but if these can be earned in a couple of days then we feel only a minimal amount of weight should be placed on these letters.  Often at times these types of short educational programs should be considered a course rather then a designation in our opinion.

Ongoing Education: The more designations an advisor has, the more likely that person has to continue taking courses to maintain specific licensing requirements.  This ongoing education is often referred to as professional or continuing education.  As an example, the Financial Planners Standards Council requires 30 hours of continuing education every year for Certified Financial Planners (CFP).  Regardless of your designations, IIROC (Investment Industry Regulatory Organization of Canada) requires all licensed advisors to have 30 hours of professional development continuing education every 3 years.

Code of Conduct: Once an individual has earned certain designations they must agree to the applicable code of ethics and rules of professional conduct.   A good example of this is the CFA Institute’s Code of Ethics and Standards of Professional Conduct.   The following is a summary:

  • Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
  • Place the integrity of the investment profession and the interests of clients above their own personal interests.
  • Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
  • Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
  • Promote the integrity of and uphold the rules governing capital markets.
  • Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Years of Experience: It is important to note that an advisor’s years of experience is essential.  Those who have been through many investment cycles have great depth of market knowledge.  Investors should consider both experience and credentials when seeking the right combination of advisory services.

Be diligent before hiring your financial advisor

In recent years we have seen some high-profile cases where a few financial advisors have defrauded investors who have entrusted them to manage their money.  Regulatory bodies have published information sheets, along with radio campaigns to help protect the public.

In the majority of cases, the people who are hitting the media are not even financial advisors – they are pretenders.  In the cases  actual financial advisors, most have not worked for large companies which closely oversee employee actions and have compliance departments to help monitor advisor practices.

We feel you protect yourself by working with a large institution.  Large institutions have branch managers that monitor the activities of all employees.   In the auditing world, an area that can prevent fraud is through the segregation of duties.  Large firms have compliance departments that monitor all trading activity.  They also have a reputation to protect.

In our opinion, there is greater risk if you are approached by an individual either by phone or in-person.   The risk increases if the person is using high pressure tactics or is promising high investment returns.  You can reduce your chances of fraud significantly if you initiate contact with the advisor, slow the process down, and ask the right questions.

The following are some questions that can help in your due diligence process of finding the right financial advisor.

Experience, education

  • What is your educational background?
  • What professional designations do you have?
  • How long have you been in the financial services industry?
  • When do you plan to retire?
  • Are you licensed as a securities dealer?
  • Are you licensed as a mutual fund dealer?
  • Are you licensed to sell insurance products?

Service overview

  • How many clients do you have?
  • Do you have a minimum account size?
  • How often do you contact your clients?
  • Do you have support staff?
  • What are the types of services you provide?
  • What makes your service offering unique?
  • Do you work with other professionals, such as lawyers and accountants?

Investment process

  • What is your investment selection process?
  • Do you sell proprietary products?
  • What type of products do you primarily sell (i.e. individual equities, mutual funds, bonds)?
  • Are there any restrictions on the types of investments you may offer?
  • How liquid are the investments you are recommending?
  • How do you monitor the investments?


  • How is the firm compensated?
  • What are the fees to sell and buy the investments you recommend?
  • What portion of the fee paid to the firm is paid to you as the advisor?
  • Do you offer fee-based options?
  • Do you offer managed accounts?
  • Do you offer commission only accounts?


  • Do you have clients willing to speak with me about your services?
  • Do you have professionals that may be willing to speak with me about your services?
  • Have you ever had a complaint filed against you with the BC Securities Commission, IIROC or any other professional or regulatory body?
  • Have you ever been disciplined by a professional or regulatory body?

We recommend that individuals looking for a financial advisor visit at least three different financial institutions.  The more time that you spend at this stage the more likely you will find an advisor that is most suitable for you.  We suggest that you present a similar list of questions to each advisor you meet with.  By obtaining answers to these questions from at least three advisors, you can make a better comparison.

A fraudster is not going to tell you the truth.  Regardless of the answers you receive in the above process it is important that you spend the time to verify them as best you can.  The chances of fraud are extremely remote but the above process is not wasted time because it will also assist you in the decision process of selecting the right financial advisor.

Experience, training key for advisors

Over the years, firms have changed titles for their employees.   Broker, financial advisor, financial planner, investment executive, wealth advisor, and portfolio manager are a few you’ve probably heard.

But titles don’t always help people understand exactly what the person does – and it certainly doesn’t help in determining experience levels.  A person with two months experience may have the same title as someone with 30 years of experience.  Some people may translate age or greying hair to experience.  But the only way to really know is to ask the person how many years they have been in the industry, something that can be confirmed through the regulatory bodies.  This basic information will help you determine how many market cycles your advisor has helped manage clients through, if any.

We have included a few discussion points to consider when looking at different experience levels.  In order to do these calculations you will have to obtain the following:  years in the industry, assets managed, and expected retirement date of your advisor.

Years to Asset Ratio

In order to calculate this ratio we will assume that an advisor should increase investments managed by $5 million a year (assuming a practice is built up without buying another advisor’s clients).   In the early years (first ten years), the $5 million will be primarily through gathering new clients.  In the middle ten years the $5 million/year is gathered mostly through new clients and performance.  In the mature years (final ten years) the $5 million/year is gathered through some new clients and performance.

Assume that an advisor has been in the industry for 20 years.  At a minimum you could expect one advisor to be managing $100 million.  Assets managed = years x $5 million.  This can also be looked at in a ratio form as follows:  Assets Managed divided by (years x $5 million):1.

If an advisor is managing $100 million after 20 years then the ratio is 1:1.  If an advisor is managing $150 million then the ratio is 1.5:1 (exceeding expectations).  Does the ratio exceed 1:1?  When the ratio is significantly above 1:1, the common reasons are that clients are happy and not leaving, the advisor is receiving more referrals/new clients, and performance of investments.   If an advisor is managing only $30 million after 20 years then the ratio would be .3:1. In this situation we would recommend asking some specific questions regarding client retention and performance.

Capacity Ratio

Behind every successful advisor is a strong support individual or team. The above advisor with a Years to Asset Ratio of 1.5:1 appears to be more successful then the advisor with a ratio of 0.3:1.  Every successful advisor reaches a point where they either have to stop taking new clients or add support/team members to continue the same level of service.

In our opinion, the following provides an outline for people to evaluate whether or not an advisor has the capacity to take on new clients and to continue providing a high level service.  In the early to middle years of an advisor’s career, a general guideline may be one direct support staff for every $75 million managed.   In the middle stage, a general guideline may be one direct support staff for every $100 million managed.  In the mature stage, a general guideline may be one direct support staff for every $125 million managed.

Retirement Factor

With every year of experience an advisor becomes one year closer to retirement.  An advisor may have experience and capacity but may be within five years of retirement.  We feel it is worth asking the “retirement” question if it is on your mind.  There is a happy medium between finding an advisor with experience and also one that is not already mapping out their own retirement plan.  When an advisor retires, they often sell their book of business to another person to ensure continued service.  It is extremely important at this stage that you continue to get the best service you deserve and not to settle for only the person who has purchased your account.

Are you being assigned to another advisor with a lower level of experience then what you have been use to?   It can be an incredibly overwhelming experience for a new advisor who has purchased a book of business to manage all the “new” relationships, especially during difficult times.

With an aging advisor workforce, more and more will be retiring.   Not all advisors work full time and then stop on a retirement date.  Some transition out slowly although this is difficult in our opinion in the financial industry.  Staying current and reacting accordingly involves full time attention.

If you are roughly the same age as your advisor, chances are you will have adequate time to research your options for a new advisor.  People should be looking for an advisor that can assist them as they age and to ensure that all planning is complete before incapacitation becomes a concern.   This is even more important with couples when only one individual has either managed the money directly or been solely working with an advisor.

Rating your portfolio’s performance

One of the easiest ways to monitor overall performance of your investments is to record and compare the total market value of your initial investments, to the total market value at the end of each month thereafter.  Note it on a sheet of paper, or creating a spreadsheet on your computer.  Either way this provides a rough framework in which to monitor your investments.

An overall understanding of why a monthly amount changed is essential.  You should note what the relevant benchmarks are closest to your portfolio.  If it holds primarily Canadian equities then the S&P/TSX Composite Index may be your comparison.  If you also record the value of the relevant indices at each month end, then it is easy to calculate a percentage change to the Index, and compare this against your portfolio.

From a more detailed level you may want to record and compare the month end values for each account.  You should factor in transfers from a non-registered account to fund a TFSA or RRSP contribution.  Within each investment account you could to see what has moved up or down.  For specific holdings that have moved by more than 10 per cent in one month you should find out why.

One of the reasons you have a financial advisor is for them to provide you with reports that are not easy to generate yourself.  If you are working with a financial advisor you should periodically receive a performance report.  This report is not the same as your monthly or quarterly statements that are sent to you automatically.  A performance report essentially calculates your rate of return for a specified period, such as one year.  It should provide a summary of cash in-flows and out-flows.  Cash in-flows would be deposits and income generated from the investments.  Cash out-flows would be primarily withdrawals and fees.   Buys, sells, and market value changes of existing investments should be factored into the report as well.

One of the benefits of consolidation and working with one financial firm for a long time period is that it simplifies your ability to do performance reporting on your investments.

There can be many complicating components that make performance reporting more difficult including:  special holdings with no publicly available market value, values that came from old legacy computer systems, multiple transfers between financial firms, share certificates deposited where the owner does not know the original cost, transfers from an estate account in-kind, and frequent deposits and withdrawals from an account.  The above items may make reporting from inception (when you began investing) to the present more difficult.

Every performance report should be compared to relevant benchmarks.  As most Canadians have at least some Canadian stocks we have listed the returns for the TSX/S&P Composite Index for the last decade:





















A performance report is effectively a report card on your financial advisor.  As an example, in 2008 when the equity markets dropped 35 per cent, it could be viewed as a success if your equity investments declined only 12 per cent.

On the other hand, in 2009, if your equities only rebounded 15 per cent then you significantly underperformed in that year.  This is assuming the equity component of your portfolio is taking the same amount of risk as the index.

A component that may impact performance is whether or not you were actively involved in choosing your investments, or if you took 100 per cent of your financial advisor’s recommendations.  In some cases, investments are transferred in that a client likes and wishes to hold onto even though they are not part of the advisor’s current recommendations.

Unsolicited selling when you were advised not to sell, unsolicited buys not recommended by your advisor, and solicited buys and sells that you declined should all be factored in when looking at the final numbers.  The term unsolicited means that you phoned your advisor up with a trade to be executed.  All of these types of trades should be marked “unsolicited” on the trade confirmations you receive.

Another factor to consider when assessing performance is whether an advisor has taken over a portfolio that may be significantly different from their own model portfolio.

As an example, a client may transfer in Deferred Sales Charge (DSC) mutual funds with large redemption fees to an advisor who purchases individual securities.  In some cases we would recommend to hold the DSC funds to the maturity date (or to a specific date where the fees are lower) to eliminate or reduce the redemption charges.   When this occurs it may take some time to manage out of current holdings and into an advisor’s model portfolio.