2017 was a year of big change in the financial services industry. From new taxation rules for life insurance to CRM2 reporting requirements for mutual funds and proposed changes to small business taxation, financial advisors faced a number of changes and challenges in 2017. Throughout it all, your clients continued to rely on you for sound advice.
Here’s a quick overview of the events that shaped 2017 and how you can continue to help clients respond to challenges and position yourself as the trusted advisor they need.
Changes to life insurance policy taxation – and new products to meet changing needs
In 2017, the new rules for life insurance took effect. These rules modernized the tax-exempt rules for all life insurance products, with a significant impact on the fund accumulation available with universal life products, particularly for policies with Level Cost of Insurance and a Face plus Fund death benefit.
While the rules may have changed, the need for life insurance has not. Canadians want life insurance, and Canadians need the basic benefits life insurance policies provide:
- Over 6 million Canadian households believe they need more life insurance.
- 2 in 3 Canadian households would have difficulty meeting everyday living expenses within a few months if the primary wage earner were to die.1
Check out these resources for additional information about the federal government’s plans:
With so many Canadians expressing the need for more life insurance, the opportunity exists for you to explain to clients and prospects how they can purchase coverage to protect themselves and their families. In addition, new products continue to emerge to meet the evolving needs of your clients, including products with faster premium payoff times, new death benefit options and lower investment volatility.
Proposed changes to small business taxation
The tax proposals released in July and the subsequent announcements presented several potential challenges for advisors and their small business clients. The government announced its intention to review and ultimately limit certain tax planning strategies used by private corporations, specifically:
- income sprinkling to family members
- accumulating and passively investing earnings within a corporation, and
- converting a private corporation’s regular income into capital gains.
The government faced a wave of opposition to these proposed measures and recently announced plans to focus its tax reform efforts on limiting the ability of owners of private corporations to sprinkle income to family members who don’t contribute to the business. It also announced a $50,000 threshold for annual passive investment income earned in a Canadian small business before it would be affected by the new taxation rules.
With greater certainty now emerging about the changes, you can play a pivotal role in helping clients adjust their wealth strategies as needed to limit any negative impacts.
Changes to disclosure requirements on client reports
The Client Relationship Management — Phase 2 (CRM2) reporting requirements went into effect in January. These new disclosure requirements mean that mutual fund clients now receive enhanced mutual fund statements that include cost and compensation information and investment performance reports.
CRM2 came with plenty of notice, and many advisors used the new disclosure requirements as an opportunity to have conversations with clients and demonstrate the value of retirement planning and financial advice.
Read more: How to answer clients’ top 10 questions about CRM2
As an advisor, you provide much more than investment advice when helping your clients meet their financial goals. Clients may still have questions about their mutual fund statements. Be transparent about how their mutual fund statements have changed in 2017.
Changes to the way we do business – technology and innovation
The Financial Services Evolution: 2017 Predictions Report identifies several trends the financial services industry will face in coming years. These include:
- Global partnerships: Forging connections with external partners – both at home and abroad – will become critical to growing market share. And it will involve the big and the small. As LIMRA noted in its report: “Throughout the world, we see opportunities for incumbents to collaborate with startups to foster innovation.” The companies that win will be those that can best form an ecosystem of partners and integrate external solutions and internal solutions.
- Data analytics: The use of data to better serve clients – and identify unmet needs – is finally coming of age in financial services and in business more generally. For the insurance industry specifically, data analytics will create a much more dynamic, responsive and productive business, according to LIMRA.
- Reaching new markets: With increasing globalization and access to information, companies will begin experimenting with product and distribution concepts that exist elsewhere but that may not yet exist in their own markets. Companies will increasingly learn how to identify and engage markets that traditional distribution channels haven’t reached.
- Cybersecurity: This is an area of concern for every industry, but especially for financial services. As LIMRA noted, “Cybersecurity threats and the possibility of data breaches will only rise with the growing use of connected objects and the expanded collection of consumer data.” There will be an even greater push to embed cybersecurity in every process, system, and activity – and not think of it as an independent, separate discipline.
Whether it’s changes to products, tax laws or technologies, advisors need to continue looking optimistically at future changes and identify the opportunities that emerge. One consistent opportunity is the key role you play in educating your clients about the changes and letting them know that you’ll be there to help them meet any challenge.
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