RBC client says he lost $30,000 in capital-gains tax savings after the firm was unable to sell his holdings

A former client of RBC Dominion Securities, the wealth management subsidiary of Royal Bank of Canada, estimates he lost tens of thousands of dollars in tax savings after the firm was unable to sell some of his holdings before new, higher taxes on capital gains came into effect.

Barry Senensky, a retired actuary and entrepreneur, decided to request the sale of a particular investment in late May before the new tax regime came into force on June 25. But he was surprised to learn, after a lengthy back and forth with RBC, that he was already too late, owing to strict redemption rules. His portfolio manager never warned him about the long lead times necessary to sell some of his holdings even after Ottawa announced plans in its April federal budget to quickly raise the tax on capital gains – the profit on the sale of an asset such as a stock.

“I would have thought, for all the fees that they charge, that there should have been some communication,” he said, adding that the fees amount to roughly $25,000 per year. He estimates the inability to sell the fund by the June cut-off date and pay lower taxes on the profit realized by the investment cost him around $30,000.

Mr. Senensky’s story highlights the value for retail investors of proactive and prompt guidance from money managers as the federal government quickly rolled out the capital gains tax changes that have significant financial consequences for swathes of Canadians.

There is no regulation that explicitly requires advisers to contact their clients about tax changes that could affect their investments, Jean-Paul Bureaud, executive director at investor advocate group Fair Canada, said via e-mail. Speaking in general terms and not specifically about Mr. Senensky’s case, he also said, “one would hope that the advisor would do so proactively.”

It is also important for advisers to clearly communicate to their clients the risk that alternative investments may be less liquid, Mr. Bureaud said.

E-mails viewed by the Globe and Mail show Mr. Senensky reached out to his portfolio manager on May 29 asking that he sell and then immediately buy back his holdings in the BBFS-Cash A+ fund, an alternative investment fund managed by private-equity firm Onex and distributed through the wealth management arm of RBC.

Mr. Senensky wanted to get ahead of the changes outlined by Ottawa that raised the portion of capital gains that is included in calculating a taxpayer’s income from one-half to two-thirds. While the higher rate only applies to annual profits above $250,000 for individuals, there is no such threshold for corporations and most trusts.

Mr. Senensky was eager to trigger capital gains on the BBFS Cash fund because he held it inside his corporation, he said.

A long e-mail exchange ensued. At first, Mr. Senensky had to wait two days for a response from the portfolio manager, who informed him that it was too late to implement it because of the fund’s redemption rules.

Mr. Senensky was skeptical of that answer, he said, believing that selling and immediately buying back his stake in the fund allowed more flexibility around the investment’s redemption policy. Though he followed up via e-mail, it wasn’t until nearly a week later that he heard back.

In the following days, as the cut-off date on the tax changes neared and Mr. Senensky expressed increasing dissatisfaction with how his request was being handled, RBC repeatedly communicated with staff at Onex to explore ways to trigger capital gains on the fund on short notice. Ultimately, however, Onex told RBC it was unable to fulfill the request in that timeframe, according to the e-mails.

Onex spokesperson Jill Homenuk declined to comment when contacted by the Globe.

Unlike a traditional mutual fund, which allows investors to redeem their assets on a daily basis, the Onex BBFS Cash account calculates its net asset value monthly. That means an investor has a window each month during which they can request to cash out of the fund. These funds typically have more complex redemption rules. For the BBFS Cash account, to make a withdrawal, an investor must provide at least 20 business days’ notice prior to the last day of the month, according to the fund’s prospectus.

Even with a “notional buy and sell” – where an investor redeems an amount in a fund and then repurchases the fund – Onex would require the request to be submitted at least 20 business days’ prior to May 31 to avoid any operational constraints and investor fairness issues.

Greg Skinner, director of communications for RBC wealth management, declined to respond to a list of questions sent by The Globe, saying RBC Dominion Securities does not publicly discuss client matters. He added that the firm has a formal and confidential process to address client concerns.

Mr. Senensky, for his part, said he has cut ties with the adviser and moved all of his private and corporate holdings to RBC Direct Investing, the bank’s online brokerage for do-it-yourself investors.

“This really gets me,” he said of the experience. “This is just not right.”