Fundamentals of Financial Planning

This chapter provides an introduction to wealth management as a distinct practice in today’s financial services environment. You will learn about the key trends in the industry and the skills and traits you need to be a successful wealth advisor. We also explain how changes in the regulatory environment are likely to affect advisors in the wealth management industry. Furthermore, we provide a process with which you can create a financial plan and manage the diverse wealth management needs of your clients. Finally, we explain the importance of assembling a team of specialists you can rely on to help provide holistic wealth management services to your clients.

Topics covered in this chapter are:

• Wealth Management in Canada

• Wealth Management Services in Canada

• Key Trends Shaping the Future of Wealth Management

• Regulatory Environment

• Competencies of Successful Wealth Advisors

• The Wealth Management Process

• Building a Team of Specialists

In the previous chapter, we provided an overview of the shifting dynamics in the wealth management industry. In this chapter, we discuss ethics in the context of that industry. We explain the concept of ethics and describe the different types of ethical dilemmas. We also provide a framework for ethical decision-making in an industry where unethical behaviour can destroy careers and harm the reputation of financial institutions and the industry as a whole. We discuss regulatory infractions and the potential consequences of regulatory non-compliance.

Topics covered in this chapter are:

• Ethics in the Financial Services Industry

• Types of Ethical Dilemmas

• Resolving Ethical Dilemmas

• Code of Ethics

• Trust, Agency, and Fiduciary Duty

• What Can Happen when an Advisor Ignores Ethics

In this chapter, we provide a process for getting to know everything necessary about your clients. You will learn the federal legal requirements regarding business conduct and the collection and sharing of client information. We also discuss the account-opening requirements of the regulators. Finally, we explain how to engage in a probing dialogue with clients to collect and document information beyond the minimum required by law.

Topics covered in this chapter are:

• Information Required by Regulation and Law

• Going Beyond the Regulatory and Legal Minimum

• The Client Discovery Process

Once you have collected all necessary financial and non-financial data, you must use that information to assess your clients' wealth planning needs. In this chapter, you will learn how to create a budget and savings plan based on the client's net worth and available cash flow. Every plan should incorporate savings strategies that suit the individual client. It should also incorporate funding strategies for any emergencies that might arise. Finally, we highlight the importance of the time value of money for wealth managers.

Topics covered in this chapter are:

• Analyzing Personal Financial Statements and Savings Plan

• Time Value of Money

In this chapter, we discuss various forms of credit and describe the steps taken to evaluate a client's creditworthiness. We discuss the two different mortgage markets - the primary and secondary markets. We also explain the financial factors used to qualify a client for a residential mortgage. To further help you work with clients seeking credit, we explain the methods used to reduce interest costs and penalties. We also provide some general strategies they can use to manage their credit. Finally, we discuss several mortgage-related topics, including real estate investing, reverse mortgages, self-directed mortgages, and the use of funds in registered retirement savings plans to purchase a home.

Topics covered in this chapter are:

• Credit Planning

• Residential Mortgages

• Key Financial Factors to Consider When Purchasing a Home

• Methods of Reducing Interest Costs and Penalties

• Related Mortgage Topics and Financial Planning Issues

In this chapter, we introduce the various family-related dynamics that may be revealed when you are dealing with a client's finances. We also consider the fragility of the family unit and the issues related to marital breakdown. You will learn about aspects of family law in Canada relating to rights arising from cohabitation, marriage, separation, and divorce. This chapter will acquaint you with family law rights and obligations arising from relationship breakdown. We focus on both federally and provincially governed aspects of family law. Federal areas of the law for married spouses include divorce, child custody and access, spousal support, and child support. The provinces and territories govern issues around marital property division in their separate jurisdictions. For unmarried spouses, issues relating to child custody, access, and support also fall under provincial and territorial property legislation.

Topics covered in this chapter are:

• Family-Related Issues

• Fundamental Aspects of Family Law

• Domestic Contracts

• Property Issues on Relationship Breakdown

• Impact of Divorce on a Client’s Financial Plan

In this chapter, we explain the concept of personal risk management as part of a fully integrated wealth management plan. We describe the different characterizations of risk and what they mean to both advisors and clients. We also explain the different methods that analysts use to measure risk. Finally, we provide a process for creating a personal risk management plan that can be used throughout the client's life cycle.

Topics covered in this chapter are:

• Strategic Wealth Preservation: The Big Picture

• Risk in the Context of Strategic Wealth Management

• Measuring Risk

• Identifying Risk within a Client’s Net Worth

• The Family Life Cycle

• The Personal Risk Management Process

In this chapter, you will learn about the importance of addressing income tax issues in financial planning. We explain three tax planning strategies: eliminate, reduce, and defer taxes payable by clients. We also explain how income taxes are calculated on personal income tax returns, including the deductions and non-refundable tax credits that can reduce a client's tax bill. You will also learn about the rules that apply to taxation of investment income. We also explain how some employee benefits are taxable and others are not.

Topics covered in this chapter are:

• Financial Planning and Taxation

• Personal Income Tax Returns

• Taxation of Investment Income

• Taxable and Non-Taxable Employee Benefits

In this chapter, we discuss various techniques that can be used to minimize taxes. You will learn about the features and tax advantages of different types of registered accounts used mainly for non-retirement purposes. You will also learn how the different types of business structures are taxed differently and what the advantages are of certain types of structures.

Topics covered in this chapter are:

• Techniques to Minimize Taxes

• Tax-Free Savings Accounts and other Registered Plans Used for Non-Retirement Goals

• Incorporation

In this chapter, we discuss all aspects of registered retirement savings plans that are set up as savings vehicles for retirement. Registered accounts for other purposes, such as saving for post-secondary education or for a disabled dependant, are covered in Chapter 9.

Topics covered in this chapter are:

• Preparing to Fund Retirement

• An Overview of Registered Retirement Savings Plans

• Registered Retirement Savings Plan Contribution Rules

• Management of RRSP Accounts

• What Clients Should Know About their Registered Retirement Savings Plans

In this chapter, we discuss all aspects of employer-sponsored registered pension plans, which are a form of savings vehicles for retirement. We also look at the very important matter of funding retirement using registered retirement income funds and locked-in accounts.

Topics covered in this chapter are:

• Employer-Sponsored Registered Retirement Plans

• Funding Retirement

In this chapter we discuss the main government pension programs – Canada Pension Plan/Quebec Pension Plan and Old Age Security – set up to provide pension income and other benefits to Canadians during their retirement.

Topics covered in this chapter are:

• Canada and Quebec Pension Plans

• Old Age Security Program

In this chapter we discuss a holistic approach to the retirement planning process that factors in all sources of retirement income. We explain how to determine a client's retirement income needs and suggest some strategies to manage an income shortfall. Finally, we provide some general strategies that clients can use to reduce their taxes in retirement and increase their retirement income.

Topics covered in this chapter are:

• Planning for Financial Security in Retirement

• Retirement Income Needs Analysis

• Tax-Minimization Strategies

• Questions to Consider When Advising Clients on Retirement Planning Process

In this chapter, we discuss several annuity-based products that are designed to provide an income stream for clients in their retirement years. We explain how the various types of annuities work, including products that have annuitytype features and benefits. We also describe some strategies for putting these products to work for suitable clients.

Topics covered in this chapter are:

• Understanding Annuities

• Types of Annuities

• Segregated Funds

• Guaranteed Minimum Withdrawal Benefit Contracts

In this chapter, you will learn about estate planning more specifically, will planning under Canadian law, including common law in most of Canada and the Civil Code of Quebec. We explain how the probate process works and provide some strategies that clients can use to reduce the costs associated with the probate process and probate fees, if payable. Later in the chapter, you will learn why clients should arrange a power of attorney for personal care (or a living will) and an enduring power of attorney for property as a substitute decision maker in the event of incapacity. Finally, you should keep in mind certain compliance considerations when dealing with vulnerable senior clients who may be exposed to elder abuse.

Topics covered in this chapter are:

• Passing on the Estate

• Other Factors to Consider when Making a Will

• Probate Procedures to Validate a Will

• Powers of Attorney and Living Wills (Advance Health Care Directives)

• Considerations when Dealing with Vulnerable Clients

In this chapter, you will learn about the different types of trusts and their specific roles in estate planning. We also explain how to reduce an estate's income tax burden, both before and after death. Later in the chapter, we end by providing a checklist of issues you and your clients should consider when preparing an estate plan.

Topics covered in this chapter are:

• Trusts

• Taxation

• General Issues to Consider for Estate Planning