A guide to getting value from your advisor and moving to more affordable investments


    In general, most financial institutions have done a good job of keeping track of the basic cost of your investments. It can be difficult to manually calculate these costs with mutual funds, which typically pay and reinvest dividends on a regular basis and sometimes spew out what are known as «returns on investment,» which can mess up the basic cost calculation.

    If you have reasonable confidence in the information on your statements – for example, if you’ve kept those investment accounts with the same company all along – you can use the base cost, or «book value» of your statements to calculate your capital gains. For any fund you sell, the capital gain is simply its book value subtracted from market value at the time of sale.

    If you have a number of different funds, you may find that some of them are in a losing position, which can offset profits. If you sell everything in 2021, your existing financial planner will provide you with a T5008 receipt in early 2022 listing the capital gain / loss calculations for your 2021 tax return.

    In the end, you will be taxed at half the net capital gain – your total profits minus your total losses – multiplied by your marginal tax rate. Your marginal tax rate is the rate you pay for each incremental dollar of income. If you have a lot of capital gains, it may be higher than you are used to. A good resource for determining your tax rate is that Tax calculator from the auditing company Ernst & Young.

    For example, if your marginal tax rate is 30% and you have capital gains of $ 20,000, then $ 10,000 will be added to your annual income and you will end up paying additional tax of $ 3,000 (or $ 10,000 times 30%).

    Strategies for managing your capital gains tax statement

    Depending on which mutual funds you own and whether you are willing to take a path other than a robo-advisor with your unregistered account, it may be possible to avoid or at least postpone a resulting tax burden.

    As I mentioned earlier, the funds you now have will pay a «follow-up commission» to your advisor. One way is to move your money away from your advisor and into a lower cost version of the same money that doesn’t pay an advisor a trailing commission.

    • For example, if the funds you own are also available in a «D-Series» version, you can move them unchanged to any discount broker and then switch from the more expensive versions of the funds you now have to the lower ones. cost D-series versions of the same fund. (D-series funds only contain a commission of 0.25% for the discount brokerage instead of 1% for an advisor.)
    • Alternatively, you can own the F-class versions of funds with some discount brokers, which are free of trailing commissions and typically cost 1% less annual fees than your current funds, which will cut your costs in half.

    These strategies can help you save on capital gains taxes because moving from one sales structure to another within the same mutual fund is not considered a «disposition» for tax purposes and therefore does not result in capital gains.

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