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When clients move to a new advisor, transferring the assets from the previous financial institution or advisor can take a bit of time to sort out.
If a client has proceeds from the sale of a property, business, or an inheritance, that’s the simplest way to open new accounts, says Wes Ashton, co-founder, director of growth strategy and portfolio manager at Harbourfront Wealth Management Inc. in Vancouver.
However, he notes that this scenario is less common. More likely, clients have accumulated the bulk of their investible assets in non-registered and/or registered accounts, notably registered retirement savings plans (RRSPs), registered retirement income funds, tax-free savings accounts (TFSAs), and registered education savings plans.
“Registered accounts can be transferred in-kind from one institution to another with no tax consequences when doing any rebalancing to the allocation,” he says.
Non-registered accounts can also be transferred in kind, but can bring a different host of challenges, says Darcie Crowe, senior wealth advisor and senior portfolio manager with Crowe Private Wealth Group at Canaccord Genuity Wealth Management in Vancouver.
That’s because any investment changes to non-registered accounts may trigger a tax liability. And some clients who have been investing for years may have built up substantial unrealized capital gains.
“They will be required to pay capital gains upon disposition of assets that have increased in value over time,” Ms. Crowe says. “We typically see this issue in higher-net-worth clients with $2-million or more in investible assets in which significant non-registered assets have accumulated.”
In those situations, Ms. Crowe takes an individualized approach to manage the potential tax liability.
In situations in which she sees significant risk within the portfolio, such as unsuitable investments or a heavy concentration of specific securities or asset classes, she may recommend that clients address the tax issue right away. The goal is to bring their portfolios in line with their goals, objectives and risk tolerance, she says.
Julie Shipley-Strickland, principal, founder and senior wealth advisor with Julie Shipley-Strickland Wealth & Risk Management at Wellington-Altus Private Wealth Inc. in Calgary, takes a similar approach to new clients with non-registered accounts. She notes that some clients may be able to offset their significant gains with previous losses.
“Sometimes, the portfolio needs to be rebalanced anyway, so they’re willing to take some of those gains and pay taxes,” she says.
“When clients move from one advisor to another, they’re moving because of the relationship and value [the new advisor] offers, and what they hope to obtain from working with someone else.”
Ms. Shipley-Strickland finds clients are willing to work through the tax planning to transfer the assets over appropriately.
Mr. Ashton notes that depending on a client’s tax situation, they may need to realign the assets over a few taxation years.
“Managing taxes is critical for the families we work with, so we come up with a game plan on how best to trigger those gains,” he says. “Are they going to retire this year or have a lower income next year? We want to be strategic to minimize the amount of taxes [they need to pay].”
When clients have assets elsewhere
Some new clients may decide to manage a small portion of their investments on their own, often their TFSA.
In those cases, Ms. Crowe still reviews the asset allocation to ensure it lines up with the client’s overall financial plan.
“Having the full financial picture is incredibly important for advisors to make the most effective recommendations to clients,” she says. “We typically request ongoing updates and statements from any outside or self-managed portfolios so we can ensure their positioning is suitable, effective, and consistent with their investment policy statement and long-term goals.”
Mr. Ashton adds that while having assets elsewhere can make the planning process more challenging, it’s not uncommon.
For example, clients may have a significant portion of their portfolio in employer group plans, which includes defined-benefit or defined-contribution pension plans, group RRSP matching programs, and stock options.
“We manage our client’s wealth and provide comments on their overall financial situation, including those other accounts,” he says.
“You can’t compartmentalize what you counsel them on and although there are assets elsewhere, it’s important to take them into consideration as it’s what’s best for them. We have a responsibility to do so.”
Sometimes, clients who have self-directed investments will come to understand the value an advisor brings to the table better.
For instance, Ms. Shipley-Strickland says one of her clients decided to manage his own TFSA in December 2019, but by April 2020, during the pandemic market volatility, he handed it back.
“In good times, it’s easy for our clients to say, ‘I can buy this stock on my own,’ but they often don’t think about the downside protection should the market turn for an unforeseen event,” she says. “That’s a key lesson for clients.”
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