Before You Fire Your Parents’ Financial Advisor, Do This First

Want to learn how to manage your finances in retirement? Go through a financial planning engagement with your parents.

I’ve had several prospective clients reach out lately, not about their own situation, but because they’re worried about their parents’ finances. Sometimes it’s a son or daughter who’s been reading about high investment fees and wants to help mom and dad save money. They discover their parents are still paying 2% or more on a large portfolio, and they’re horrified.

The solution seems obvious: move everything into a few low-cost ETFs and call it a day. That’s when I stop them.

Managing your own investments at 30, 40, or even 50 can be straightforward. You pick a globally diversified ETF like VGRO or XGRO, set up automatic contributions, and forget about it. The goal is accumulation, not withdrawals, and taxes aren’t much of a concern.

But a retiree over 65 with a RRIF, a LIF, a TFSA, and a non-registered account full of GICs and dividend-paying stocks? That’s a very different puzzle. Managing money in the drawdown stage isn’t easy. In fact, it’s one of the most complex parts of personal finance.

Related: Putting together your retirement income puzzle pieces

There’s the investment side, of course, but tax planning quickly takes centre stage. You need to know how much room there is within your parents’ top marginal tax bracket to withdraw from their RRIF without pushing them into the next one. Maybe they could take a bit more now to avoid higher taxes later, or even to top up the TFSA each January.

There might even be room to trigger a small capital gain in the non-registered account while they’re in a lower bracket.

At the same time, too much interest income from stacked GICs and high interest savings could push their taxable income higher than necessary. And that seemingly smart “dividend-focused” strategy? It might actually cause their Old Age Security to be clawed back.

Here’s what I mean. I once saw a retiree with $500,000 in a non-registered account invested entirely in Canadian dividend stocks. On paper, the portfolio looked great: strong blue-chip companies and a healthy stream of income. But those dividends are grossed up for tax purposes, meaning that the income reported on their tax return is higher than the cash they actually received.

When you combine that inflated income with RRIF withdrawals, pensions, and government benefits, it can push you over the OAS clawback threshold. In her case, she was effectively paying a marginal tax rate north of 40%, even though her “taxable income” didn’t look that high. We restructured the portfolio to take a total return approach (more capital appreciation and less reliance on dividends) and the clawback disappeared.

Another example: a couple who took the opposite approach. They were terrified of running out of money and drew as little as possible from their RRIFs. The accounts kept growing, and by their late 70s they were forced to take large minimum withdrawals that pushed them into higher tax brackets. They would have been better off withdrawing a bit more in their 60s, perhaps to fund some travel or early gifts to their kids and grandkids, while keeping their tax rate lower and smoother over time.

Related: Don't wait until 70 – The costly retirement planning trap

I’ve also seen clients sitting on several years’ worth of spending in cash or GICs because “the market looks risky.” The problem is, all that interest income is fully taxable at their marginal rate, which can bump them into a higher bracket unnecessarily.

A better approach is to keep a modest cash wedge inside the RRIF – enough to cover a year or two of withdrawals – so they can ride out short-term market turbulence without selling investments at a loss. Beyond that, capital gains can often be deferred for years and, when realized, only 50% of the gain is taxable. Holding excess cash inside a TFSA, or using a mix of investment income sources, can make the entire plan more tax-efficient.

If you go through a planning exercise with your parents, you’ll also get familiar with the different types of tax slips that come with retirement.

Instead of a single T4, they might receive T4A slips for pensions and annuities, T5s for interest and dividends, T3s for income from mutual funds or ETFs, and T5008s for realized capital gains. You’ll learn how dividends, interest, and capital gains are taxed differently, and which types of income can be split between spouses to reduce the household tax bill.

It’s a real-world tax education that most people don’t get until they’re already retired.

Related: So you're about to retire – The first year financial timeline

And then there’s the big-picture stuff: do your parents even know how much they can safely spend each year without jeopardizing their long-term plan? Do they want to leave an inheritance, or would they rather give while they’re alive?

Many retirees underspend because they don’t know what they can afford. They could be living a richer life, taking that bucket-list trip, or helping their children with a down payment, but they hesitate because no one has shown them the numbers.

When I meet with families in this situation, I often ask about the parents’ relationship with their advisor. Are they getting tax-efficient withdrawal advice, or does it feel like they’re asking for permission every time they want to make a withdrawal? Are their wills and beneficiaries up to date? Is there a clear estate plan, or will the kids be left sorting it out later? These questions are often met with silence, followed by, “We’re not really sure.”

In many cases, I actually recommend that the parents stay with their existing full-service advisor. That surprises the adult children who reached out to me in the first place. But if the advisor is providing real planning (coordinating taxes, withdrawals, and estate issues) then the value is there, even if the fees are higher than what a do-it-yourself investor would pay. The parents are in good hands, and their plan doesn’t depend on saving one or even two percent in fees.

Of course, there are times when change makes sense. Some advisors still operate on an outdated “set and forget” model where they manage the portfolio but don’t offer much in the way of planning. In those cases, a hybrid option like a robo-advisor can work well. Fees drop dramatically, the retiree still has access to human advice, and most transactions – RRIF withdrawals, TFSA contributions, rebalancing – can be automated and linked to their external bank accounts.

It can be a nice middle ground for both generations.

So here’s a challenge for my younger and middle-aged readers: think you’ve got this investing and retirement planning thing figured out? Go through a financial planning exercise with your parents. Look at all the moving parts – government benefits, pensions, RRIFs, TFSAs, non-registered accounts, annual spending needs, one-time goals, and estate wishes. You’ll quickly see this is not just about switching to VBAL and calling it a day. It’s about building a flexible, tax-efficient plan that supports the life your parents want to live.

And if you do it right, you’ll not only help your parents make better financial decisions, but you’ll get a head start on understanding what your own retirement will look like someday. After all, the best way to prepare for your future is to learn from theirs.