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Financial Advisors’ Advice and Strategies Altered by A.I. Revolution

Posted: September 08, 2017 By: Evelyn Jacks
Posted in: Strategic Thinking, self-employed, knowledge bureau, tax returns, relationship management, Evelyn Jacks, income tax, retirement planning, distinguished advisor conference, financial advisors, wealth management, tax education, financial education, tax reform, entrepreneur, post-secondary education, CE summits, artificial intelligence, AI, industries, iron and ore, Malcolm McRae, tax planners, family wealth, intergenerational issues, job elimination, obsolete jobs, severance packages

From cell phones to airplanes, building and coins, ore is indispensable in modern life; but, like many other outputs, the work people do to bring it to market is being impacted by the A.I. Revolution. Similar disruptive changes affect the advice tax and financial advisors give their clients.

One of the most interesting topics at the Distinguished Advisor Conference, Nov. 5-8 in Kelowna, will be discussed by Malcolm McRae, IT Director with Vale, the world’s largest iron ore and nickel producer, headquartered in Brazil.

Unlike the Industrial Revolution and the computer revolution, the A.I. (Artificial Intelligence) Revolution is not just taking certain jobs (artisans, personal assistants who use paper and typewriters) and replacing them with other jobs (assembly-line workers, personal assistants conversant with computers). Instead, it is poised to bring about a wide-scale decimation of jobs — mostly lower-paying jobs, but some higher-paying ones, too, Mr. McRae will explain.

These changes will dramatically affect the demand for the advice tax and financial advisors give to their clients in the near term — from investment choices and the tax impact of severance packages, for example, to retirement planning and the stewardship of family wealth from one generation to the next.

What happens to people and their incomes in these times? What’s their new role when robots take over the transactional work of the past? Considering how these changes are affecting the economy is important, too. How do families make money, invest and save for their future? The quality of advice professionals give and, in the process, their value proposition, will help their clients navigate an uncertain future.

So what is controllable? The taxes people pay should be certain against these changing times; unfortunately Canada is in the midst of a controversial tax reform. The crux of this whole matter, which has so outraged Canadian family businesses, is something that is not as transparent as it should be: the increased use of private corporations in a modern service economy appears to be shifting tax revenues available to governments from the personal to the corporate tax base. That means that the new economy is giving governments a headache too, as their number-one revenue line — personal tax revenues — is eroding.

Thinking through what a sustainable modern tax system should look like against dramatic changes to global industries, the work that people do, and how they get paid is important. People need to understand what their after-tax returns will be and adjust their investment strategies accordingly.

The March 22, 2017, budget espoused the potential of new innovations that will transform lives: “Self-driving cars, artificial intelligence, genomics, quantum computing, mobile payments, the sharing economy…these ideas are changing our world for the better,” the Finance Minister said as he announced, “Budget 2017 is about creating good middle class jobs — now, and in the years to come.”

Private enterprises, along with governments, hire people. What happens when they must lay off staff, close their doors or leave for more tax-friendly jurisdictions when profits erode?  How do governments hire more people and provide increased services when revenues erode?

As a shift occurs in the definition of “work” structures, and from employment to self-employment in a new economy, tax reform may need to focus on a more holistic approach: progressive tax rates whether workers are employed or self-employed, male or female; and increases in tax rates that take discretionary income into account, after planning for education, retirement and potential illness.

As the current tax reform proposals work through a consultative process ending October 2, further consideration may need to be given to the opportunity for families to pay an adequate “average tax” without a harsh tax penalty when windfalls occur.  

Reinvestment of discretionary incomes in education, retraining and new technology is critical, as the world moves into the A.I. Revolution. Mr. McRae will explain the effects of change from his vantage point. In the meantime, against the backdrop of such dramatic change, tax reform proposals are an opportunity to improve tax literacy and discuss tax fairness for modern families as a whole. Be sure to take in several opportunities to do so.

Proposals on Taxation of Private Corporations

Distinguished Advisor Conference:  DAC addresses today’s key technical trends and business issues from an academic perspective.  Its delegates and speakers reflect on the outcomes of change in private sector forecasting, domestic and international tax law and economic policy making, as well as the regulations that affect the work that professional advisors do.

November CE Summits: Learn about the most recent advanced updates from CRA, Finance Canada and Statistics Canada, as well as strategies for applying new rules and interpretations to compliance and planning scenarios for clients using cutting-edge technology.  

Evelyn Jacks is President of Knowledge Bureau, a national educational institute, and the author of 52 books on personal tax preparation and planning and family wealth management.

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