Aggressive incentives, high standards needed to democratize quality planning
When it comes to implementing the proposed tax credit for first-time financial plans, Canada can’t afford to take half-measures.
That’s according to Jason Pereira, senior financial consultant at Woodgate Financial and president of the Financial Planning Association of Canada.
“One of the initial goals we spelled out at FPAC was the need for financial planning tax benefits to make sure the Canadians most in need got help,” Pereira told Wealth Professional.
“Most low-income Canadians are basically priced out of getting a financial plan done, and they’re the people who need it most,” Pereira says. “Even for people who it’s economically viable for, the lack of experience and lack of mass proliferation of financial planning in the country means the value of planning may not be perceived fully.”
In a statement, the association voiced its commitment to helping solve the issues of accessibility, including cost, that hold many Canadians back from getting financial planning services from qualified practitioners.
Aside from calling for tax incentives to promote the democratization of planning services, its founding charter includes a pledge to build out pro-bono financial services for those in need. “There’s a certain point at which it’s not going to be enough,” Pereira says.
In its white paper proposal for the financial planning tax incentive, StrategyCorp called on the government to introduce, on a pilot project basis, a refundable tax credit for first-time users of planning advice. It proposed modelling the credit after the Canada Training Credit, which helps tax filers with the cost of eligible training fees.
“Similar to the CTC, a new tax credit to make planning advice more affordable could have a set maximum amount that could be drawn from over time,” the paper suggested, noting how it would reflect the life cycle of a typical financial planning engagement, including reviews and implementation meetings. “[O]nly plans covering advice across multiple areas would be eligible for the credit.”
For Pereira, the financial planning credit should go further.
“I want to see something more aggressive [than what FP Canada’s pushing for],” he says. “I want to see something that makes financial planning basically free for any household that’s earning less than a certain cutoff.”
The threshold could be determined based on some point below the income of the average Canadian household, he suggested, which is currently just over $75,000 in a year. At a certain point, the financial situation of the household could be simple enough to make the planning service “effectively free.” Policymakers could also consider a sliding scale of clawbacks to make sure first-time planning clients receive net discounts commensurate to their income level.
“Ideally, I think by the time it’s done, we should have a structure that costs people in need nothing out of pocket,” he says.
Some critics have raised questions about the credit, suggesting that it could be gamed by errant advisors to push products, or put together plans based on cursory looks at client accounts. To make sure only sufficiently comprehensive plans make the cut, Pereira suggests using the ISO definition of financial planning as a starting point, then review which areas might not be of value to people in the lower end of the income or wealth spectrum.
“In our [FPAC’s] opinion, there are only four designations that meet the criteria: the CFP, the planification financière [in Quebec], the RFP, and the QAFP,” he says. “Those are the only ones that actually meet the international standards for financial planning. Everything else falls short.”
A tax credit for financial planning, Pereira says, would reduce the strain on Canada’s national system as people become more able to support their own financial needs. Reducing Canadians’ financial uncertainty and stress, he added, could help reduce other possible harmful consequences including poor health, violence, and crime.
“There are so many negative externalities that can come from financial uncertainty,” he says. “We’re not going to be able to solve everything, but if we can at least move the needle for some of those people at the margins and push them above that, it’s a huge benefit for people involved.
