The Manitoba Securities Commission has issued an order allowing the private corporations of financial advisors to receive fees and commissions from their registered dealers.

The move effectively puts registered financial services professionals on the same footing as their counterparts in the accounting and legal fields, and presents a host of benefits, including capital gains exemptions, tax savings and the potential for income-splitting with their spouses.

The new rules will not, however, change advisors’ responsibilities to clients or shield them from liability. Doug Brown, director of legal and enforcement at the MSC in Winnipeg, says the new arrangement will not pose any disadvantage to clients.

“The idea is to permit the payment to a corporation,” he says. “But if something goes wrong, an advisor can’t use the corporation to avoid responsibility for something that happened with a client.”

The MSC has taken steps to ensure an advisor’s corporation isn’t separate from his or her professional registration. “The corporation isn’t registered to do trading activity,” Brown adds. “The dealer and the corporation have to have a contract saying if something goes wrong, [the dealer] can’t hide behind the corporation.”

Steve Howard, president and CEO ofAdvocis in Toronto, says the MSC decision will be welcomed by Manitoba advisors, who number more than 2,000.

Manitoba is following in the footsteps of several provinces, including Ontario, British Columbia, Saskatchewan and Nova Scotia.

“Incorporation is a modern and efficient business structure that offers many practical advantages, such as tax planning,” says Howard, “and provides more efficient succession planning and business expansion by easing administrative costs.”

The MSC’s move stands to benefit advisors, clients and the community, says Paul Krestanowich, president of the Winnipeg chapter of Advocis and a partner at Winnipeg-based Holland Financial. On the tax side, he says, advisors who incorporate will benefit when they leave profits in their companies, where it will be taxed at the corporate rate, which is about 25% in Manitoba. Individual tax rates, on the other hand, range from 25% to 46%.

SUCCESSION PLANNING

Incorporation can also play a role in legacy planning for advi-sors. “The corporation is an entity unto itself,” he says. “Somebody could buy the company from you, or your kids could take it over. There might be some goodwill in the name, for example.”

Krestanowich also notes that, as professionals become more successful in their incorporated practices, they’ll have more time to consider volunteering more of their time to worthwhile causes.

“They’ll able to do pro bono work and take on smaller clients,” he sways. “You can do that once you get to a certain point in your career.”

Brown says the MSC is not offering advice about whether advisors should incorporate but it is recommending they obtain legal, accounting and tax advice prior to making a decision. The MSC is giving advisors the flexibility to decide which business structure works best, he says.

Previously, people who sold both insurance and mutual funds were able to incorporate for the former activity but not for the latter.

“That was one of the biggest complaints we would get: ‘Why are you treating us differently than we’re treated under a different licence?’” he says.

According to Raymond James Ltd. , there are other benefits to incorporating. They include:

> Fewer taxes payable on up to $300,000 of income a year because of the difference between personal and corporate tax rates.

> Access to the $500,000 lifetime capital gains exemption on qualified small-business corporation shares.

> The potential for placing $245,000 or more a year into the corporation’s retained earnings.

> The possibility of recognizing some costs as deductible business expenses, which would have been after-tax expenses in an unincorporated structure. IE