Fundamentals of Financial Planning Flashcards
What is the FP Process?
- Establish engagement
- Gather client data (goals / expectations)
- Clarify financial status (identify areas and opportunities)
- Develop and Present Financial Plan
- Implement
- Monitor and Review
What is a personal Net Worth Statement?
Summarizes a clients assets and debts of a specific date
What is a Statement Of Cash Flow?
Tallies clients income and expenses over a period of time
What is Solvency Ratio?
= Net Worth / Total Assets
What is Savings Ratio?
Cash Surplus / After - Tax Income
How much to have for Emergency Fund?
3-6 months of SALARY (MMF, CSBs & cashable GICs are acceptable)
Strategy Recommendations for low Cash Flow
- Reduce discretionary expenses (refinance high interest debt)
- Reorganize Investments
- Seek to increase income
What is a conventional Mortgage?
Mortgage loan does not exceed 80% of purchase price, mortgage that exceeds this must be insured
Closed Mortgage
Provides lower rates, remains unchanged and allows small prepayments of 10-15% annually
Open Mortgage
May be repaid at any time without penalty, provides flexibility without penalty
How do lenders determine a clients capacity to repay a loan?
GDSR (32-35%) or TDSR (40-42%)
Gross Debt Service Ratio
(Mortgage pmts +
EAP Max for full time students
$5,000 for first 13 consecutive weeks, once 13 weeks up no limit, unless there is 12 month period student is not enrolled… then 13 weeks $5K max applies again and starts process over
EAP for part time students
$2,500 for 13 weeks
RESP max lifetime contribution limit
$50,000
What is the CESG?
RESP Government Grants
For example, with the Canada Education Savings Grant (CESG), the government matches 20% of your contributions, up to $2,500 (max $500 on $2,500) each year – and up to a lifetime maximum grant amount of $7,200 per beneficiary
What is maximum term for RESP?
36 years and withdrawals are taxed in students lower tax bracket
How are EAPs taxed?
Contributions are paid tax free to beneficiaries (they include the EAPS in the year they use them on t4)
What is a Canada Learning Bond
Savings grant from low income families (under $36K) - gov’t adds to childs RESP. Lifetime limit is $2,000. Can be used for full or part time students. CLB cannot be used by another child and must be returned if not used by specified child. CLB and CESG received tax free and do not require repayment.
Home Buyers Plan facts
-$35,000 each or ($70,000 per couple)
- you or your spouse can not have owned a home in last 4 years
-must acquire home by October of year following
-you can withdraw money tax free as long as it was deposited 90 days prior minimum
-RRSP must be repaid equally over 15 years annually
Repayments begin 2nd year after withdrawal was made
RESP extra facts
- Estate of deceased subscriber can continue to make contributions
- CESGs do not take away from lifetime contribution limits
- EAPs are taxable to plan bene’s names (aka student)
- RESP INCOME ONLY , not the balance, can be transferred to the SUBSCRIBERS RRSP, within limits, NOT the BENE’s RESP.
Engagement Letter
CLient needs to:
- Fully disclose their situation
- Outline all parties involved
- Agree with respect to compensation to financial planner
Advisor:
- Any conflicts of interest
- All fees / compensation structure / referral etc
- Timelines
- Full disclosure of services
