The Unexpected Annual Tax Bill
A number of years ago, a new client walked in wanting us to be their "tax person". Their insurance person had already done a retirement plan and their investment person had the investments in place. Over the ensuing years, it became my annual obligation to inform her of a rather large and unexpected tax bill, the primary cause of which was the type of investment income generated. Every spring she would leave my office with instructions to give her investment person, the goal of which was to reduce her tax bill.
And every year, she'd return with the same problems and we would make the same suggestions. Her investment person simply replied that he was no tax expert.
Furthermore, the annual tax bill was depleting her assets, jeopardizing her retirement plans.
The disconnect between the retirement plan and the investment yield and the subsequent tax bill was costing this client $7,000 to $10,000 per year.
After 5 years of conflicting advice, the client decided to employ us, not just as her "tax person", but rather as her financial planner. We redid the retirement plan, adjusting for taxes and moved her investments into more tax efficient vehicles, reducing her annual bill by several thousand dollars each year.
Financial planning is not just selling someone a mutual fund or an insurance policy or a stock or a bond... It's the integration of these products along with tax considerations and annual monitoring that create successful financial plans. Quite frankly, the reason we do our client's taxes is to ensure the annual meeting...
Call Me Maybe
More recently, one of my friends asked me to look over his "stuff", which included his taxes, investments and insurance. The advisors he had in place were colleagues or friends of mine, so I had always been respectful of those relationships. In fact, as a result of some of my conversations with my friend I had actually called the investment guy in order to have him sell some RRSPs.
What we uncovered was astounding...
When we did a retirement plan, it became evident there was a significant shortfall. So much so that my friend was angry that he hadn't been contacted more frequently by his investment guy. Furthermore, the investments in his name had performed poorly for the last 5 years, whereas his wife's investments had done somewhat better. A review may have uncovered this, but because he was doing monthly contributions, the annual meeting was missed. We also found a significant error on his tax returns that had been missed by his Chartered Accountant. The resulting correction gave the client a refund of $4,989.23.
Most accountants at tax time are overwhelmed due to the inherent deadlines. Often a real conversation isn't possible. Quite frankly, for this client, more frequent meetings could reduce the possibility of errors and ensure a more successful financial outcome. By using us as his financial planner, we can prepare his taxes in front of him, review his investments, monitor his retirement plan and make sure that he's on track.