John De Goey sees 'virtue signalling' in advisors’ rage about budget impacts
John De Goey says most Canadians, and most advisors’ clients, won’t be significantly impacted by the proposed capital gains inclusion rate increase in the 2024 federal budget. The portfolio manager at Designed Wealth Management notes that because capital gains will remain 50 per cent taxable below a $250,000 limit for personal accounts, the impacted clients will be from the very wealthiest echelons. Some professionals who incorporate as part of their financial plan, like doctors and dentists, may face a more immediate impact. Nevertheless, De Goey says that the size of the impact on ordinary Canadians is being overstated in the media and by advisors.
“To my mind, the budget has been a bit of a yawn…The reality is that the very, very, very large majority of Canadians are totally unaffected,” De Goey says. “So part of what I find is that the advisors who are making a big deal of it are almost like virtue signalling, saying ‘look at me, I'm such a big shot advisor, because I work with all these doctors and dentists.’”
De Goey says he doesn’t want to minimize the impact of the budget on those professionals and wealthier Canadians who are being affected. He is already working with his own clients who fall into those categories on planning solutions. He says, though, that even among his own clients who will be impacted because they are incorporated, there hasn’t been an immediate push to liquidate assets or alter the strategy. Incorporating is an inherently long-term strategy and making a panicked move over a change like this may undermine the value of that strategy.
De Goey contrasts the potential negative impacts on some Canadians from the budget with what he sees as a positive long-term economic investment: a school food program. Canada, he says, is the last country in the G7 to offer children a free school meal. While this program will only really impact the poorest members of society, he sees a positive knock-on economic impact of proper childhood nutrition that should be realized in 15-20 years as kids who might have struggled due to poor nutrition are able to perform better in school and play more productive roles in the workforce.
Despite what he characterizes as “very minor and extremely targeted” policy decisions in the budget that impact only the wealthiest and poorest Canadians, De Goey accepts that the noise generated by this budget and its resulting slew of op-eds and social media posts has convinced many clients that they will be negatively impacted when they likely won’t be.
“It becomes a question that is so prevalent in 2024: how do you deal with misinformation?” De Goey says.
A perception, he says, can be real in the mind of a client and therefore must be addressed directly by their advisor by laying out the facts of the tax increase and the client’s situation. De Goey also sees a risk where advisors may use their clients’ concerns about a tax hike that won’t impact them to get the client to save more. Some may call that behavioural coaching, but to De Goey that kind of practice approaches manipulation.
De Goey sees the initial the initial reaction to the inclusion rate hike as somewhat like Americans’ reaction to the 2016 election of Donald Trump. So many initially google searched Canadian immigration that they crashed the Government of Canada website. Not nearly that many actually moved North of the border. He says that the noise from some entrepreneurs and advisors about moving to the US now may also be “sabre rattling.”
One factor going into many advisors’ reactions, De Goey posits, is some degree of projection. Formerly MFDA and insurance registrants can incorporate, meaning some of them are feeling potentially more pain from this budget than their clients are.
Recency bias also plays a role. While the inclusion rate is going to be higher above that $250,000 exemption, it will still be lower than the 75 per cent inclusion rate it was at before 2000. If clients who might be impacted through the potential sale of an investment or vacation property have a long enough time horizon, De Goey says they may be able to wait for a lower inclusion rate in the future.
In financial planning conversations with his clients, De Goey says he will be talking about any potential impacts on their retirement income and timelines. Nevertheless, he sees this as one small marginal factor that advisors should be able to plan around, rather than a catastrophe for clients’ ability to retire.
“For most people the plan doesn’t really change so much as that on the margin you have to expect that on the margin you’ll maybe be earning one to two per cent,” De Goey says. “If you’re retiring now the impact is immediate, but if you’re a doctor who’s 40 or 45 and mid-career, it’s so far down the road that if you just update your financial plans every three years the impact would be extremely modest.”
