AJAG Blog

What the Pandemic Has Taught Us About Financial and Tax Planning

Everyone has been affected by the pandemic in one way or another. According to FP Canada, nearly 40% of Canadians say COVID has had a negative impact on their work lives:

  • 16% say they have been forced out of the labour market
  • 15% had to reduce the number of work hours
  • 7% had to take a pay cut

Rising inflation, employment concerns, stock market volatility make for a challenging time for investors, retirees, financial planners, and tax professionals. It’s caused considerable anxiety for clients, who fear losses and need reassurance from their advisors.

There is so much access to information online these days and much of it is potentially dangerous advice. People may be more susceptible to bad information in uncertain times and make poor decisions. In behavioural finance terms, this sensitivity to noise creates memory bias. People tend to overreact to bad news and emphasize recent events.

Clients need professional advice from a trusted expert now more than ever.

The data from the FP Canada study also showed the importance of working with a financial planner or tax consultant. Canadians getting professional advice were more than twice as likely to have a year’s worth of expenses saved and saw less need to reduce expenses. Those working with a financial planner also report being 50% more likely to cut costs and put aside emergency funds because they were better prepared.

So, financial planners and tax professionals have an important role to play. This creates an opportunity for those willing to face current and potential clients’ fears head-on. While 30% of Canadians already work with a tax advisor or financial planner, another 12% say they would be interested in working with an advisor.

For financial planners and tax professionals, proactive steps can help provide reassurance and guidance.

Calm Their Fears

While investors haven’t experienced a pandemic of the magnitude of COVID before, they have seen market volatility in the past. Remind clients that buying and holding long-term is still the best strategy to weather the ups and downs.

The Bank of Canada removed its exceptional forward guidance on its policy interest rate in January 2022 and said it is continuing its reinvestment phase. Analysts at the bank project global DSP to be 3.5% in 2022 and 2023. Even though the Omicron variant is impacting Q1 growth, The Bank predicts Canada’s economy will grow by 4% in 2022 and 3.5% in 2023.

At the same time, however, you must ensure investments are in line with the client’s risk profile. Client risk tolerances may have changed significantly since before the pandemic.

Evaluate Tax Liabilities

The pandemic created significant economic challenges for businesses and individuals. Government support programs helped fill in some of the income gaps and created some tax liabilities. A professional tax advisor can help with tax planning for income resulting from programs, such as:

  • Canada Emergency Response Benefit (CERB)
  • Canada Emergency Wage Subsidy (CEWS)
  • Canada Emergency Business Account (CEBA)

Advise New Entrepreneurs and Self-Employed

The entrepreneurial spirit is alive and well in Canada. More than two million Canadians launched a business despite the pandemic, many due to economic hardships or layoffs.

These new entrepreneurs need a solid business and tax framework to operate, so they need help planning for corporate, payroll, and income taxes. They’ll also need some advice on whether incorporating is a smart move. While it may limit liability and protect assets from creditors, not every small business needs to incorporate.

Revisit Tax Instalment Payments

Many companies and self-employed individuals saw their income drop over the past year. That may mean a reduction in the tax owed, so recalculating tax liability for monthly or quarterly taxes may be appropriate.

Offset Capital Losses with Capital Gains

Capital losses realized can be used to offset capital gains. They may also be carried back to offset gains in prior years or carried forward to offset capital gains in the future.

Revisit Investment Strategies

A survey by CIBC revealed that 58% of Canadian citizens have reassessed their plans since COVID began and reprioritized on what is really important in their lives.

With that in mind, it’s time to sit down with clients to reassess investment strategies. Especially for retirees, asset protection may be top of mind to ensure their savings will sustain them through retirement.

According to a study by Deloitte, 59% of advisors are conducting final plan reviews or updates once a year or longer. However, in light of increasing anxiety levels around the economy, it may be worth recommending that your clients approach their investment advisors for such a review now, regardless of how recently this has been done.

Invest Time in Additional Client Education

While investors are concerned, this is a great time for client education. Clients are looking for solutions and may be more open to a frank discussion about risk and life goals. When Canadians have a comprehensive plan from a tax professional or financial planner, they will feel more confident making smarter decisions.

Your work as a trusted advisor takes a logical approach to plotting a course. Yet many of your clients and prospective clients are on an emotional journey. So not only do you need to be precise in your analysis and recommendations, but you also must be adept at allaying fears and inspiring confidence.

When Canadians are confident in their financial plan, they are:

  • More on track to reach financial goals or retirement goals
  • Better able to deal with financial setbacks
  • Able to save more money
  • Manage discretionary spending goals

Invest in Your Continuing Education

AJAG Professional Development has provided the most relevant and comprehensive professional development courses in Canada for CPAs, tax advisors, financial planners, and investment advisors for nearly 20 years. We now feature a completely online, interactive format of up-to-date course material presented by a roster of highly-qualified instructors.

For more information or to review our course offerings, contact AJAG Professional Development today.