The manager should state their attitudes towards taxation, how their strategies will aim to minimise this and when significant taxation arises as a result of recommendations and transactions that these be justified.

For example, there may be some very large allocations to securities with very large accumulated capital gains. The risks of retaining these investments may be more than the taxation costs of realisation.

It should also state how the individual’s attitudes towards taxation and registration of investments will affect their investment strategy.

Indeed if the advisor is taking over a portfolio which has never been properly managed, this will be an important section and will occupy much of the advisor’s time in terms of managing the transition of the portfolio.  Planning this transition will be important and this will need to be communicated to the client.

Investors need to understand that taxation is a fact of life and that managers need to focus primarily on valuation, risk and return when managing investments.  Tax considerations, though important, should be secondary issues unless the client wishes to place them at the fore.

An investment with large accumulated gains is more likely to represent a larger part of a portfolio as well as a more highly valued part of a portfolio.  Selling an investment which is over valued and buying an under valued investment reduces risk and increases the potential for future gains. 

The tax consequences of taking on a new portfolio should always be communicated to the client before change is made and where a portfolio is managed on a discretionary basis, tax due from sales should always be reported to the client.  Investors should not have to wait for their accountant to tell them what they owe in capital gains tax.