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FPSU
®
Study Guide
Chapter 1: Financial Planning Process
To be used in conjunction with the money back guaranteed
Online FPSU
®
Exam Preparation Tools
available at
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SeeWhy Financial Learning
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2.
Liquidity Needs
Liquidity means being invested in assets that can be sold quickly without a significant
loss of capital. Client's reasons for liquidity generally fall in the following categories:
i.
Emergencies. The rule of thumb is a client should have
3 months gross salary
set aside for emergencies.
ii.
To fulfill any financial goal within the next 2 years. For example, purchasing a
home, car, sending a child to university, etc.
iii. To pay known, pending expenses. This could include income or capital gains
tax.
iv. To take advantage of investment opportunities.
3.
Income versus Growth
The primary investment objective for most clients is either income
or
growth. This is
often influenced by what stage of the life cycle they are in (discussed later).
4.
Goal Achievement
A concern of many Canadians is "Will I have enough to meet my goals?" This is not an
easy question to answer due to the large number of variables at play. For
example, when deciding on the savings and investment options suitable for a retirement
savings plan, six items should be considered
i.
The years until retirement (how long you have to save).
ii.
The annual income required in retirement.
iii.
The amount of money the client can save each year.
iv.
The expected return on the client's savings over the years.
v.
The amount of savings already in place.
vi.
The inflation rate prior to retirement and in retirement
Exam tip
: Of the six variables above, the client has no control over the amount of
savings already in place or the inflation rate prior to and after inflation.
5.
Canada Revenue Agency
(Taxes)
Taxes are an emotional issue for many Canadians and cannot be ignored. The intent
behind recent tax reform is to remove the tax distortions out of investment decisions. In
other words, tax reform is trying to make it possible for the client to focus on the merits
of the investment alone and not the tax consequences of one investment over another.
However, despite recent tax reform the tax consequences cannot be ignored.
Note: The client has no
control over these two!