QAFP Exam 1 review

Question 1

CPP OAS delay

Answer 1

don’t reduce back to base year, just use multiplier based on amount quoted. ex if cpp at age 66 is 1000, don’t discount back to 65 before calculating at 70.

Question 2

Seg funds

Answer 2

they don;t reduce market risk, the risk still exists

Question 3

CPP Enhancement, who’s most effected

Answer 3

young people with income at or in excess of enhanced ympe level

Question 4

Residual Benefits, what is it and who is it important for?

Answer 4

residual benefits allow you to receive a disability benefit even if you are earning some form of reduced income. important for business owners. most group disability policies dont allow conversion to individual policies

Question 5

group disability max coverage vs individual

Answer 5

group can be as high as 8k while personal can be as high as 25k

Question 6

Pre-existing conditions

Answer 6

either have an exclusion or increased premium, no stability period

Question 7

Severance, taxable benefits, excess commuted value and earned income calculation

Answer 7

doesnt count as earned income 1996 or after. before is 2k each year prior to 1996 + 1 and 1500 each year prior to 1989 and not a member of pension plan. taxable benefits count as earned income for rrsp (except union and professional dues and employment expenses claimed as deductions). excess commuted value isnt earned income (amount hat can’t go into lira

Question 8

credit report issues

Answer 8

having only one credit product and limited employment history can be problematic

Question 9

oas clawback determination dates

Answer 9

clawback based on last years return. affects july-june cycle

Question 10

cheapest time to hire staff

Answer 10

low point in economic cycle

Question 11

boe and disability insurance

Answer 11

own boe under the business for an amount equal to expenses (taxable as income but expenses are deductible). own disability personally

Question 12

transportation costs in retirement

Answer 12

likely to be reduced in retirement

Question 13

when you can take on risk beyond investor profile reocmmendation

Answer 13

long term objectives and previous experience with volatility at a given asset allocation

Question 14

shared custody support obligation

Answer 14

based on income differential. based only on one persons income in their province of residency in sole custody arrangement

Question 15

prospect theory

Answer 15

doesn’t want to sell something they’ve put work/money into

Question 16

pensions and inflation

Answer 16

inflation won’t increase pension value directly. pension will grow based on service and income increases (if applicable). hospital shutdown doesnt impact pension. it’s important to consider whether or not inflation shows up in the estimate. if not, don;t include impact.

Question 17

give an example of something strongly correlated to inflation

Answer 17

health care costs, not insurance (home and auto-somewhat), not things related to commodities, not mortgage payments

Question 18

number one thing regarding estates

Answer 18

ensure that the client contacts those involved to inform them and ensure they are aware of their responsibilities

Question 19

disability benefit taxation

Answer 19

cpp is taxable, employer paid disability also taxable, ei taxable (now 26 weeks)

Question 20

dependent income level

Answer 20

must earn less than basic personal amount

Question 21

Lira with minor beneficiary

Answer 21

can be annuitized and must be paid by 19th birthday (18-age when funds received). term certain annuity

Question 22

home valuation

Answer 22

based on similar homes in area. not municipal assessment, appraisal, home insurance.

Question 23

Is the question asking you about how to encourage behaviour? If so, don’t think about the technical aspect, think of the clients personality and human behaviour. a technical approach may make sense if that is what the client is responsive to.

Question 24

attribution on separation end date

Answer 24

attribution stops on separation (spousal rrsp,etc)

Question 25

When client has to cut spending in an area to meet their objective, how do you answer?

Answer 25

cutting spending on the core things they enjoy is usually not the answer. if a client forgoes an option, can they still benefit from it in the future (ie, carry forward of RESP grants)

Question 26

sharpe ratio

Answer 26

think of % difference between the returns vs % difference between the ratios. A 7% return is 16% higher than a 6% return. If the 7% return has a 1.2% sharpe and the 6% return has a 1.1% sharpe, 7% return is the better option.

Question 27

whole life policy for education

Answer 27

can be used.

Question 28

rrsp vs tfsa in bottom tax bracket

Answer 28

rrsp will be the better option, tax savings and increased ccb for people with children.

Question 29

pay attention to how the clients feel about what they’ve done in the past

Answer 29

if a client has paid down debt aggressively, they probably don;t want to leverage themselves to invest

Question 30

diversify concentrated stocks or allocate to bonds

Answer 30

often answer is to allocate to bonds over diversifying among equities

Question 31

leave money in savings when going through life transition, especially if cash flow is tight

Question 32

when diagnosing an estate planning need, focus on what could cause the most harm if not completed

Question 33

What will business owner have available upon disability?

Answer 33

ei only if they paid into it,

Question 34

when it asks how much additional income is needed in event of disability, don;t forget about creditor protection coverage

Question 35

term makes sense with weak cash flow, insuring children

Question 36

db plan more expensive for the employer closer to retirement, high funding obligations. more expensive for employee earlier in career

Question 37

enhanced cesg can bring grant total to $600 (no carry forward). bond is $500 in first year and up to 100 in years after.

Question 38

emergency funds should include discretionary and non discretionary but not investments (3 months is standard)

Question 39

does the client need disability? is their income meaningful to the household?

Question 40

exempt test, 250% test, and passive income in corp are all things to consider when contributing to a universal life policy (personally owned with corp dollars)

Question 41

corp low tax rate on active income helps most people in terms of taxes. due to section 85 rollovers, incorporating is relatively easy and flexible

Question 42

winnings from gambling not taxable, unless its your business. life insurance premiums are reported on t4

Question 43

income from exchange services for one another needs to be reported

Question 44

life insurance through employer is likely inadequate. contractual terms on disability through mortgage are important, often end after 2 years, moving to any occupation definition. disability through employer is often adequate, but depends on personal expenses. geography of liability insurance probably fine,

Question 45

gifting appreciated assets from rrif doesnt matter because tax implications are the same. moving registered investments into alter ego trust result sin deemed disposition as trust cant hold registered investments. insurance doesnt reduce tax bill, just pays it.

Question 46

seg funds are still risky due to liquidity restrictions, especially when close to retirement. should not be considered principal protected for clients with very low risk tolerances. does the client need a guarantee? directly owned real estate cant be held in reg account, also has concentration risk.

Question 47

collateral assignments are only available for institutions, not individuals. putting insurance in a trust for wifr and kids isnt acceptable if spouse must be a beneficiary as part of a divorce.

Question 48

does death benefit cover needs? If question gives no indication, dont pick an answer saying it could be inadequate. most term is renewable so it expiring while they still have an insurance need is not a big deal. joint coverage can be an issue if the couple underwent a separation. assume needs analysis was done. having a joint policy paying only one death benefit isnt a problem.

Question 49

poa powers, can make gifts that are established (giving to the church) but not new gifts. testamentary docs can;t be changed but insurance can be amended/cancelled. can change risk tolerance and pay yourself a reasonable fee.

Question 50

dont use leverage if client is older and doesnt require higher returns. whole life doesnt reduce tax. naming grandkids as beneficiaries will only work if they are dependent on them, even then, they could become age of majority prior to the death of the account holder

Question 51

paid for education must contribute to company profitability. whole life doesnt make sense for first 8-10 years due to surrender charges and little -no value.

Question 52

what are pension values based on (DB)

Answer 52

long term interest rates, commuted value also dependent on years at or over ympe. cpp bridge benefit is included in calculation of pv.