Tag Archives: cfp

The Financial Advisor Evaluation (FAE): 10 Questions—Yes or No?

Based on a past HSBC survey, nearly two-thirds of Canadians don’t have a financial plan. It didn’t make sense to me because another report showed that the majority of advisors in Canada do offer financial plans to their customers. Why, then, do so few people have it when there is such a high number of professionals who are qualified to help them prepare one?

I spoke with Alan Goldhar, a professor of Financial Planning at York University, and he informed me that the issue is that the industry offers more jobs to financial salespeople who sell investment and insurance products. As a result, most individuals choose to forgo the challenging process of finishing their Certified Financial Planner (CFP) designation. Financial planning is the number one priority on a CFP’s agenda, so it’s incredibly essential to find an exceptional financial advisor that you can work with.

In today’s blog post, I will discuss what is known as the Financial Advisor Evaluation form, a list of 10 questions that will help you assess your relationship with your financial advisor to ensure that you are receiving the best service possible. If you don’t have a CFP, go to www.fpsc.ca and check the listing, or contact us at IRONSHIELD to find out more.

1. Did you receive a copy of a Letter of Engagement?

A Letter of Engagement is a document that is reviewed and signed by your advisor, and outlines all of the details of the work they will do for you and how they will receive their compensation.

2. Are you charged fees that are not tied to the value of your investments?

Advisors charge fees for their financial planning work and these fees should not be tied to the value of your investments in any way.

3. Did your advisor provide you with a retirement income plan?

The worst thing that can ever happen is when we outlive our money. Your advisor should provide you with a retirement income plan at one of your progress report review meetings during the year to ensure that your money will outlive you.

4. Did your advisor provide you with an updated Estate Plan?

At the time of your death and your spouse’s, there will be an ultimate tax bill, which will state the amount of estate erosion when your assets are transferred to your beneficiaries. One of those beneficiaries is the government, so you must be aware of how much money will go towards them in order to preserve the value of your estate from the estate erosion that will take place.

5. Has your advisor reviewed your Will?

You should look at all your investments and other financial affairs in order to make sure that they are set up properly in line with the execution of your will. Your advisor should check to see that your affairs follow the will’s instructions when they are transferred to the next generation.

6. Are you provided with a written document as a record of your discussion with your CFP?

It is hugely important to have a written outline of everything that you and your advisor have discussed. You may have receipts as proof of any transactions that were done, but you need to have a full record of the strategy employed and what is being implemented for you by your advisor.

7. During a bi-annual insurance review, did your advisor provide you with an overview of your insurance portfolio?

Financial planning constantly changes due to life circumstances. Adjustments may need to be made if there is a change in objectives. Your advisor should review your insurance plan with you every couple of years to ensure that you are still on the right track.

8. Does your advisor offer investment or insurance solutions from third-party providers?

Investment and insurance solutions are always provided from firms other than the one your advisor represents, so you would want to see if your advisor is what’s called a captive agent, someone who only offers solutions from their company. You want to make sure that there is a degree of separation between your advisor and the solutions that are being implemented, to show that there is an unbiasedness.

9. Does your advisor review your tax return annually to ensure you are paying the least amount of taxes possible?

This is extremely important because your advisor should review your tax returns annually to ensure that changes are being factored in. Whenever there are major tax changes, have your financial advisor re-calibrate your plan and make sure that all their work is being recorded properly by your accountant.

10. Does your advisor provide you with clear options relating to your retirement plan?

A retirement plan is mostly based on assumptions; it is never set in stone. However, your advisor should give you a general framework when discussing retirement. Here are four elements that you should discuss with your advisor:

  • What is my attainable income?
  • When is the earliest point I could retire?
  • What is the required rate of return for my portfolio for me to attain my goals?
  • How much do I need to invest on a regular basis in order to properly fund my retirement goals?

If you answered “yes” to these 10 questions, be sure to thank your financial advisor next time because you have a great relationship with them! If you had a few “no” responses, it may be time to consider a second opinion. Creating a comprehensive financial plan is crucial and you deserve the best help available to assist you with your planning. Check out our guide for more details because finding an excellent financial planner could be a real confidence boost for you to live the life you want.

Related Links
Financial Advisor Evaluation Form
https://www.ironshield.ca/questionnaire/

The KAIZEN Financial Planning Process
https://www.ironshield.ca/our-programs/

Finding a CFP
http://www.fpsc.ca/find-a-planner-certificant

The Canada Pension Plan—When Is the Right Time for You?

When it comes to the Canada Pension Plan (CPP), it really is a matter of deciding when to take it. While there is no rule of thumb, there is a specific answer for each person. In today’s blog post, I will give a quick overview of what the Canada Pension Plan is, and show you how to find the right time to collect this retirement pension.

What is the Canada Pension Plan and who is eligible?

The Canada Pension Plan is a retirement pension that provides a monthly taxable benefit to retired contributors.

To be eligible for the CPP, there are three qualifications:

1. You must have worked in Canada
2. You must have made at least one contribution to the CPP
3. You must be at least 60 years of age



When can you begin to receive your Canada Pension Plan?

The earliest you can begin to receive your CPP is at the age of 60. However, the standard age to start is 65, and there are definite advantages if you choose to defer collecting your pension. From 2012 to 2016, new rules in the Canadian government state that the early pension reduction will gradually be increased from 0.5% to 0.6% per month if you take it before the age of 65. This means that by 2016, if you are at the age of 60 and decide to collect your pension, you will be penalized and your pension amount would be 36% less overall than it would have been if you had taken it at the age of 65.

If you choose to delay receiving your CPP, the latest you can defer taking it is at the age of 70. Under the new rules, for every month you elect to wait past the age of 65, you will receive an enhancement of 0.7% per month. This means that if you choose to collect your CPP at the age of 70, you will receive an overall enhancement of 42% enhancement to your pension.

Tips

1) Get an estimate of what your pension is going to be.

If you are approaching retirement, it is important to obtain an estimate for your pension. Try using the Canada Retirement Income Calculator to help you get started.

2) Consider all the factors before deciding to take your pension.

  1. Are you still working and contributing to the CPP? Continued contributions will enhance your CPP when you decide to collect.
  2. How long have you contributed for? The longer you contribute, the more you will receive.
  3. What are your other sources of retirement income? CPP income is taxable income. By collecting your pension early, this means that adding more income to your plan could push you into a higher tax bracket. If you don’t need the extra income, avoid this step.

3) Recognize that your health may play a role in helping you decide to collect your CPP.

If your health is poor, you may want to start collecting early to ensure you receive as much benefits throughout your lifetime as possible. Remember that the earliest you can start to receive your CPP is at the age of 60. Sometimes, this may be a better option for you.

4) Be very, very clear on what your retirement plans are.

Ask yourself: do I want to retire? Do I need to retire? Just because there is money available to you, it doesn’t mean you have to accept it. You can wait and defer it until you are 70. Knowing what your retirement plans are is very important because it will help you get a better idea of when the right time to collect is for you.

5) Find out if it is better or worse for you if you delay receiving your pension.

If you stop working at the age of 60, but defer collecting your pension until 65, you must take into account the extra five years of no income. In essence, you are lowering your average wage over the life of the plan by including these zero income years, which will likely reduce your overall CPP benefit.

As I said in the beginning, there is no rule of thumb when it comes to knowing when to apply for your Canada Pension Plan, but there is a right answer for you. You can begin by collecting your CPP only when you need to, and not before, but the most important thing to remember is to always assess your situation in conjunction with your overall financial plan. Financial planning is key because it allows you to work with a CFP and come up with a comprehensive plan that will show you how the different scenarios in life could affect your finances in the future. For example, if you are wondering what would happen if you start collecting your CPP at the age of 65, your CFP could model that out for you so that it becomes clearer.

Financial planning is so critical to your future and a key component to making good decisions. Head over to our website to check out the different tools and resources we have to offer, including your report on the 12 Key Questions You Must Ask a Financial Planner before You Hire One, and work with your financial planner today to talk about your Canada Pension Plan.

Related Links
Choosing a Financial Planner
https://www.ironshield.ca/landing/how-to-choose-and-work-with-a-financial-planner-you-can-trust/

Mistakes in Retirement Planning
https://www.ironshield.ca/articles/four-mistakes-to-avoid-when-creating-a-retirement-income-plan/

Canada Pension Plan—Changes to the Rules
http://www.servicecanada.gc.ca/eng/services/pensions/cpp/retirement/age.shtml