Advisor questions proposed financial planning tax credit

Financial planner speaks out against deduction for first-time advice users

Advisor questions proposed financial planning tax credit

Shortly after FP Canada proposed a federal tax incentive for low- and middle-income Canadians to access financial planning advice, one financial planner is asking questions about the suggested measure.

“At first glance, you’d think ‘That sounds nice,’ especially for someone whose life's work is dedicated to the value of advice,” says David McGruer, a CFP and financial advisor with Investia Financial Services in Ottawa. “But when I look at it a little more deeply, I have to ask myself ‘Where does this come from? What does it mean? Does it treat people differently? And who’s paying for it?”

That’s his reaction to a paper published last month by the StrategyCorp Institute of Public Policy and Economy. StrategyCorp is a lobbying group that’s registered to advocate for FP Canada’s priorities to the federal government. The paper, titled “Planning for Resilience,” lays out the case for promoting increased financial resilience among Canadians through the use of a financial planning tax credit.

Among other aspects, McGruer takes issue with the proposal’s treatment of high-income earners. According to the policy paper prepared by StrategyCorp: “The credit would be modeled after the CTC [Canada Training Credit] and be specifically targeted to low- and middle-income households to prevent high-income earners to access it.”

As the paper noted, the tax credit is meant to alleviate any perceptions of cost that may hold many Canadians back from seeking financial planning services. Excluding Canadians with high incomes, it said, would ensure fairness by “[preventing] people who already have the money to pay for planning advice from claiming the credit.”

But that’s not how McGruer sees it. “Every time someone gets something for free, where they get value without paying for it, someone else is paying and getting no value,” he says. “I think it’s one more example of government tinkering with our behaviours, and manipulating what we do … it sets one group of citizens against another.”

He also sees parallels between the proposed financial planning credit and the now-defunct children’s fitness and arts tax credits. At his practice, he says he prepares about 200 tax returns per year, which gives him insight into the amount of administrative work that goes into tax filings.

“When I look back, there used to be millions of Canadians collecting paperwork for something they had their kids doing, then giving it to their tax preparer to enter into a tax return. Then an army of CRA employees would audit and check on people’s behaviours from time to time, to see if they actually did what they said,” McGruer says. “Every minute of it was wasted, non-productive time that people could have spent doing things to actually improve their life.”

Citing the results of FP Canada’s 2022 Financial Stress Index survey, the planning tax credit policy paper from StrategyCorp said only 4% of Canadians work with a financial planner. The stress index survey also found 16% of Canadians say they work with a financial advisor, 8% work with an investment advisor, 5% with an insurance agent, and 2% work with a different type of financial professional.

“It’s probably more accurate to say only 4% of Canadians work with a financial planner who charges only a fee for tasks or by the time worked. I don’t charge that way with my work, and nor do the vast majority of financial advisors,” McGruer says. “This initiative would qualify only a specific type of advice for the credit, and effectively discriminate against Canadians who choose other types of advice.”

To promote financial resilience across the country, the paper also suggests that the federal tax credit be geared towards Canadians who are using financial planning advice for the first time. The proposed credit would only be applicable to plans covering advice across multiple areas, to reflect “the comprehensive approach of financial planners and the multifaceted character of financial resilience.”

“Who decides what qualifies as a first-time user? Is that when they need it, or when they just want to use it? Is it when they feel like it, or when they get marketed?” McGruer says. “If an advisor wanted to help their clients access the credit, they could game the system by giving more advice than they actually need or want, so their clients could get invoiced and become qualified. … Not everybody is going to be honest about this.

“A core part of FP Canada’s mission is to promote the value of financial advice, and I support that,” McGruer adds. “But when you step into using the force of government to have some people’s financial advice paid for by others, I think that goes well beyond any kind of mandate that a voluntary association like FP Canada has.”