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SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) > INVESTOR PROFILE (Chapter 4) > Flashcards

INVESTOR PROFILE (Chapter 4) Flashcards

1
Q

Chapter 4 - Investor Profile

In regards to Seg-fund contract, to develop the knowledge needed to create the investor profile, the agent must review…

A
  • The assets and liabilities of the client to determine his overall financial situation;
  • Personal factors that may affect the client’s investment decisions;
  • Client needs and objectives;
  • Sources of income during retirement;
  • Programs and savings plans that can help the client to save and meet his needs
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2
Q

In regards to the financial situation of the investor, an analysis of personal finances begins with…

A

information about assets and liabilities.

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3
Q

Anything a person owns that has cash value is considered as….

A

an asset

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4
Q

What are some documents that provide information about an investor’s personal assets? (name at least three)

A
  • Income tax return;
  • Registered retirement savings plan (RRSP) statements;
  • Non-registered investment account statements;
  • Employer-provided pension plan statements;
  • Bank statements;
  • Life insurance policies;
  • Other asset sources
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5
Q

The Notice of Assessment on an annual income tax return summarizes a list of things, name at least three.

A
  • Total income;
  • Amount of tax paid;
  • Amount of tax owed;
  • Tax credits received;
  • Deduction room available for an RRSP;
  • Unused net capital losses;
  • Tax-free savings account (TFSA) contributions, withdrawals and unused contribution room;
  • Other necessary repayments, carry-forwards and rebate information
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6
Q

The deduction limit for RRSPs is calculated based on what?

A

Earned income

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7
Q

TRUE OR FALSE?

Tax credits and other deductions increase income tax

A

FALSE

Tax credits and other deductions reduce income tax

[Ref. 4.1.1.1]

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8
Q

TRUE OR FALSE?

Pension income tax credit can show whether a strategy for splitting retirement income could be implemented

A

TRUE

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9
Q

TRUE OR FALSE?

Annual contributions to all RRSP accounts, (including a person’s own RRSP and a spousal RRSP), are limited to the annual individual maximum.

A

TRUE

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10
Q

FILL IN THE BLANK!

RRSPs accounts includes the carry-forward of unused deductions from _________ year. An over-contribution of $________over and above this amount is permitted before penalties are incurred however this sum is not tax deductible.

A

RRSPs accounts includes the carry-forward of unused deductions from previous year. An over-contribution of $2,000 over and above this amount is permitted before penalties are incurred however this sum is not tax deductible.

[Ref. 4.1.1.1]

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11
Q

TRUE OR FALSE?

An employer pension is a valuable asset to members of the pension plan since the savings in the plan can provide a source of retirement income.

A

TRUE

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12
Q

TRUE OR FALSE?

Contributions made to an RPP by a member as well as pension adjustments (PAs) increases his RRSP deduction limit.

A

FALSE

Contributions made to Retirement Pension Plan (RPP) by a member as well as pension adjustments (PAs) reduce his RRSP deduction limit.

[Ref. 4.1.1.4]

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13
Q

Other than bank statements and life insurance policies, what are other assets that have worth, or contribute to worth?

A
  • A business owner has asset value in his business in proportion to his share of ownership;
  • An inventor or designer may have an asset in a patent or intellectual property and receive royalty
    income;
  • A real estate investor may have income properties with equity and receive rental income;
  • Both CPP/QPP and OAS can be significant assets to their recipients.
    (An online resource called the Canadian Retirement Income Calculator can help determine the contribution made by these plans.)

All possible assets should be compiled in the financial review.

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14
Q

What are the documents, (among others), that provide information about an investor’s personal liabilities?

A
  • Mortgage statement;
  • Line of credit statement;
  • Credit card statements
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15
Q

TRUE OR FALSE?

A mortgage statement is issued monthly by the financial institution that holds the mortgage on the property.

A

FALSE

A mortgage statement is issued annually by the financial institution that holds the mortgage on the property.

[Ref. 4.1.2.1]

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16
Q

Seg-Funds Terminology

Reverse Mortgage

A
  • A reverse mortgage is a type of loan for homeowners, usually aged 55 or older.
  • It allows you to borrow money from your home equity without selling your home.
  • You may do so by converting a portion of your home equity into tax-free money.
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17
Q

Seg-Funds Terminology

Home Equity Line of Credit (HELOC).

A

When a line of credit is based on the home

  • A line of credit may be extended by a financial institution to an individual based on his creditworthiness or to homeowners based on the equity in their home
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18
Q

How do you increase net worth?

A

Acquiring more assets, by increasing the value of existing assets (for instance, through a home renovation) and by decreasing liabilities.

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19
Q

There are many personal factors and preferences that motivate investing decisions. What are some valid considerations in the development of the investor profile?

A
  • Personal values;
  • Health concerns;
  • Legal considerations;
  • Personal risks.
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20
Q

TRUE OR FALSE?

Personal values only affect an approach to investing rather than the choice of investments.

A

FALSE

Personal values affect both an approach to investing and the choice of investments.

For instance;

  • Although saving for retirement dominates financial planning, it is not equally important to all people.
  • Some may value saving for education over saving for retirement.
  • Others again may value charitable giving over enlarging investment portfolios.
  • Some will exercise their beliefs about values
    by choosing socially responsible investments.
  • The agent must learn if values will affect decisions in order to develop appropriate recommendations.

[Ref. 4.2.1]

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21
Q

The investor profile must take into consideration legal obligations to others that have financial impact, such as…

A
  • Family law considerations;
  • Will;
  • Power of attorney (POA).
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22
Q

TRUE OR FALSE?

A person in a married or common-law relationship (except in Québec, for common-law relationships), whether same sex or opposite sex, has a legal financial duty to his spouse when they separate and divorce.

A

TRUE

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23
Q

Seg-Funds Terminology

Power of attorney (POA)

A

A document that nominates a person to make decisions and act for another when specified circumstances arise.

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24
Q

FILL IN THE BLANK!

A POA may be issued to address __________or property issues.

A

A POA may be issued to address end-of-life health decisions or property issues.

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25
Q

TRUE OR FALSE?

In regards to POA designations, an agent should accept being named as an attorney to ensure to act in the client’s best interest.

A

FALSE

An agent should decline being named as an attorney and must exercise caution when confronted with an individual who is presenting himself as an attorney for property.

[Ref. 4.2.3.3]

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26
Q

Each investor faces personal risks that can affect his plans for savings and investing. Name at least three

A
  • Low level of financial literacy;
  • Risk of job loss;
  • Longevity risk;
  • Risk of bankruptcy;
  • Risk of leveraging;
  • Unforeseen expenses.
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27
Q

Question to ask a client / prospect

Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

A. More than $102
B. Exactly $102
C. Less than $102

(tests knowledge of compounding)

A

A. More than $102

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28
Q

Question to ask a client / prospect

Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?

A. More than today.
B. Exactly the same as today.
C. Less than today.

(tests knowledge of inflation risk)

A

B. Exactly the same as today.

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29
Q

Question to ask a client / prospect

If you buy a single company’s stock, does it provide a safer return than a stock mutual fund?

A. True.
B. False.

(tests knowledge of diversification)

A

B. False.

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30
Q

Seg-Funds Terminology

Longevity Risk

A

The risk that a person continues to live past the point in time that savings are depleted.

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31
Q

Longevity risk can be diminished by investments that provide lifelong income, such as….

A

Life annuity or a Guaranteed Lifetime Withdrawal Benefit.

32
Q

Seg-Funds Terminology

Bankruptcy

A

The inability to meet financial
obligations to creditors.

33
Q

Seg-Funds Terminology

Leveraging

A

Leveraging uses borrowed money to try and achieve a financial goal.

  • (Example) Acquiring a mortgage in order to buy a home and develop the equity in the home
34
Q

What are the risks associated with Leveraging?

A
  • When leveraging is used to invest in non-guaranteed investments.
  • If the investment loses value, he can lose principal plus the amount of loan invested. However, the loan must still be repaid adding even more to the losses of the investor.
35
Q

In regards to the investors need, the agent’s role is to identify and understand needs that affect plans and decision-making. Name at least three.

A
  • Need for income;
  • Need for retirement income;
  • Need for tax efficiency;
  • Need for emergency fund;
  • Need for creditor proofing;
  • Need for liquidity;
  • Need for estate planning;
  • Need for diversification;
  • Need for investment management;
  • Need for suitability;
  • Other specific investment needs.
36
Q

Name at least three Income sources during retirement

A
  • Government retirement pension income
  • Private pension income
  • Investment income
  • Personal savings for retirement
  • Employment income some retirees choose to continue work or to re-enter the workforce after retiring
  • Business Income
37
Q

TRUE OR FALSE?

Income splitting is a strategy that can be explored to take advantage of the different marginal tax rates of spouses.

A

TRUE

38
Q

Explain the process of income splitting.

A

When income splitting occurs, income is apportioned between spouses so that some of the income is moved to a spouse who pays tax at a lower marginal tax rate than the other.

By putting income into the hands of a spouse who pays tax at a lower rate, money is saved.

39
Q

What are some examples (including accounts) of effective income splitting?

A
  • Opening a spousal or common-law partner registered retirement savings plan (RRSP)
  • Splitting pension income for those 65 and older
  • Assigning Canada Pension Plan (CPP) benefits
40
Q

Explain Income splitting in Opening a spousal or common-law partner registered retirement savings plan (RRSP)

A

This is called a spousal or common-law partner plan.

The higher-income spouse contributes
to the plan for the other spouse.

This works for income splitting if the spouse receiving the contributions is in a lower tax bracket than the contributing spouse when withdrawals are made.

41
Q

FILL IN THE BLANK!

In regards to Splitting pension income for those 65 and older, up to ______ of the annual income received from a lifetime annuity, registered pension plan, RRSP annuity, registered retirement income fund (RRIF) or deferred profit sharing plan (DPSP) annuity can be allocated to a spouse.

A

50%

42
Q

Explain Income splitting for Assigning Canada Pension Plan (CPP) benefits.

A

CPP can be shared between spouses who were contributors, or between spouses when only one was a contributor.

[Ref. 4.3.2.1]

43
Q

TRUE OR FALSE?

When income is split, there can be an additional advantage for the retiree who must repay Old Age Security (OAS) pension benefits.

A

TRUE

44
Q

TRUE OR FALSE?

In regards to income splitting between spouses, OAS pension cannot be forfeited by the pensioner when net income reaches a specified level.

A

FALSE

The OAS pension is entirely forfeited by the pensioner when net income reaches a specified level and partly repaid when income exceeds a threshold level.

[Ref. 4.3.2.1]

45
Q

What are some ways to reduce income tax?

A
  • Income splitting & Using tax credits
46
Q

Explain creditor proofing

A

Protects your personal or corporate assets from potential creditors.

  • An example of a credit-proofing transaction would be the transfer of corporate assets to a holding company, so that those assets would not be available to those who may have a claim against the business.
47
Q

TRUE OR FALSE?

An asset is creditor proofed when a creditor cannot legally obtain a debtor’s asset or its value for repayment.

A

TRUE

48
Q

Seg-Funds Terminology

Liquidity

A

A measure of how easily a person or company can access cash at the lowest cost, including converting assets into cash. (similar with the need for an emergency fund.)

49
Q

FILL IN THE BLANK!

In regards to charitable giving, a taxpayer can deduct up to _____ of his net income as a donation and receive the tax credit corresponding to the amount of donation and his marginal tax rate.

In the year of death or year preceding death, up to _____ of net income can be claimed as a donation.

A

A taxpayer can deduct up to 75% of his net income as a donation and receive the tax credit corresponding to the amount of donation and his marginal tax rate. In the year of death or year preceding death, up to 100% of net income can be claimed as a donation.

[Ref. 4.3.7.1]

50
Q

TRUE OR FALSE?

Suitability is established at the time an investment is made and it should be re-examined if there are significant changes in the life of the investor, such as retirement.

A

TRUE

51
Q

What are some government plans that offer retirement pensions?

A
  • Old Age Security (OAS);
  • Canada and Québec pension plans (CPP and QPP);
  • Guaranteed Income Supplement (GIS) and Allowance
52
Q

FILL IN THE BLANK!

Old Age Security (OAS) is a __________
(yearly, monthly, or annual?) retirement pension available for qualifying Canadians who are _____ (years old) and older and meet the requirements for legal status and residence in Canada

A

Old Age Security (OAS) is a monthly retirement pension available for qualifying Canadians who are 65 and older and meet the requirements for legal status and residence in Canada

53
Q

OAS provides additional benefits for individuals who …

A

Are low-income earners

54
Q

TRUE OR FALSE?

OAS cannot be received by someone who continues to work.

A

FALSE

OAS can be received by someone who continues to work.

[Ref. 4.4.1.1]

55
Q

OAS pension is available to qualifying Canadians whether they live in Canada or outside the country.

If living in Canada, an applicant must….

A
  • Be 65 or older;
  • Be a Canadian citizen or a legal resident at the time the application is approved;
  • Have resided in Canada for at least 10 years after turning age 18.
56
Q

TRUE OR FALSE?

It is not possible to qualify for OAS and/or a pension from another country

A

It is possible to qualify for OAS and/or a pension from another country.

[Ref. 4.4.1.1]

57
Q

In regards to OAS Benefits, the amount of retirement pension is determined by…

A

how long the individual has lived in Canada after age 18

58
Q

In regards to OAS benefits, there are three levels, what are they?

A
  • 100% of the benefit is received when a person earns less net income than the annual minimum threshold;
  • A reduction to the benefit if he earns an amount between the minimum and the maximum threshold;
  • No benefit if he earns more than the maximum threshold.
59
Q

TRUE OR FALSE?

OAS benefits are taxable income

A

TRUE

60
Q

Seg-Funds Terminology

Canada Pension Plan (CPP)

A

A plan to which almost all workers between the ages of 18 and 70 and employers in Canada contribute.

provides a retirement pension, survivor’s pension, disability benefit and death benefit.

61
Q

FILL IN THE BLANK!

To be eligible for a retirement pension, a worker must have made one valid CPP contribution. An application must be made; it cannot be submitted until one month after turning age ______.

A

To be eligible for a retirement pension, a worker must have made one valid CPP contribution. An application must be made; it cannot be submitted until one month after turning age 59.

62
Q

The amount contributed to the CPP is based on….

A

employment income

63
Q

FILL IN THE BLANK!

Contributions to the CPP end when the pension begins, at age______.

A

Contributions to the CPP end when the pension begins, at age 70 or at death

64
Q

TRUE OR FALSE?

It is possible to begin receiving the CPP retirement pension while continuing to work.

A

TRUE

  • In that case, contributions to the CPP resume by the employee and employer, or by the self-employed, and they go towards the payment of the Post-Retirement Benefit (PRB).

[Ref. 4.4.1.1]

65
Q

Seg-Funds Terminology

Post-Retirement Benefit (PRB)

A

A supplementary pension available to contributors. It is paid for life and added to the CPP benefit.

66
Q

FILL IN THE BLANK!

It is mandatory to make contributions to the PRB between ages ____and ____ if work continues.

A

It is mandatory to make contributions to the PRB (Post Retirement Benefit) between ages 60 and 65 if work continues.

At age 65 contributions become voluntary.

67
Q

In regards to CPP benefits, the amount received as a monthly retirement pension benefit for an individual is a result of…

A
  • The number of years contributions are made;
  • The amount contributed;
  • The age at which the pension begins.
68
Q

FILL IN THE BLANK!

In regards to CPP benefits, the standard age to begin receiving the pension is ____ . It can begin as early as _____

A

The standard age to begin receiving the pension is 65. It can begin as early as age 60.

69
Q

TRUE OR FALSE?

In regards to CPP benefits, The penalty for the early pension is 0.6% per month or 7.2% per year (0.60 × 12 months)

A

TRUE

70
Q

FILL IN THE BLANK!

A pensioner who waits the maximum of _______ (years) receives a 42% increase in the amount received (8.4% × _____ ).

A

Five years

There is no further enhancement after age 70.

71
Q

TRUE OR FALSE?

In regards to CPP benefits, If a pensioner begins the pension five years early, his pension would be reduced by 36% (7.2% × 5 years)

A

TRUE

[Ref. 4.4.2.3]

72
Q

Does CPP also provide a survivor’s pension for the spouse and child (or children)?

A

YES

CPP Also pays a disability benefit

73
Q

TRUE OR FALSE?

The CPP benefit NOT a taxable income.

A

FALSE

The CPP benefit is taxable income.

[Ref. 4.4.2.4]

74
Q

The sum of all information collected in the profile provides the big picture of the financial situation of the client. That picture comes completely into focus when…

A
  • Financial results are analyzed;
  • Needs are identified;
  • Risks are determined.
75
Q

The financial review shows…

A
  • How much has been saved;
  • How much is available to meet current and future needs and objectives;
  • Income restrictions, such as for locked-in accounts;
  • Whether new plans and accounts need to be opened;
  • The performance of current investments.

SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) (20 decks)

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