Advocis Responds to the Ontario Consultation on Financial Planning

Advocis 390 Queens Quay West, Suite 209 Toronto, ON M5V 3A2 T 416.444.5251 1.800.563.5822 F 416.444.8031 www.advocis.ca

April 16, 2018

The Honourable Charles Sousa Minister of Finance Frost Building North, 3rd Floor 95 Grosvenor Street Toronto, ON M7A 1Z1

Sent via email: [email protected]

Dear Minister:

Re: Regulation of Financial Planners Consultation Paper

On behalf of Advocis, The Financial Advisors Association of Canada, we are pleased to provide our comments in regards to the Ontario Ministry of Finance’s Regulation of Financial Planners Consultation Paper (the “Consultation”).

1. ABOUT ADVOCIS

Advocis is the association of choice for financial advisors and planners. With more than 13,000 members across the country, Advocis is the definitive voice of the profession, advocating for professionalism and consumer protection. Our members are provincially licensed to sell life, health and accident and sickness insurance, as well as by provincial securities commissions as registrants for the sale of mutual funds or other securities. Members of Advocis are primarily owners and operators of their own small businesses and create thousands of jobs across Canada. Advocis members provide advice in a number of key areas, including estate and retirement planning, wealth management, risk management, tax planning, employee benefits, critical illness and disability insurance.

Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper

Professional financial advisors and planners are critical to the ongoing success of the economy, helping consumers to make sound financial decisions that ultimately lead to greater financial stability and independence both for the consumer and the country. No one spends more time with consumers than financial advisors, educating them about financial matters and helping them to reach their financial goals. Advocis works with decision‐makers and the public, stressing the value of financial advice and striving for an environment in which all Canadians have access to the advice they need.

2. THE VALUE OF ADVICE AND THE NEED FOR PROFESSIONAL STANDARDS

The value of professional advice and planning

Consumers need access to professional financial advice and planning. Amongst the general populace, financial literacy levels remain low – which is a problem that is not easily solved, nor one that is unique to Canada.1 Most Canadians are ill‐prepared for retirement, with recent data showing that nearly half of Canadians aged 55 to 64 without an employer pension plan have accumulated a “wholly inadequate” amount of retirement assets, with a median amount of just $250 for those earning between $25,000 and $50,000, and a median amount of $21,000 for those with incomes in the $50,000 to $100,000 range.2 Consumers are simply not able to manage their finances on their own: only 6% of Canadian investors are capable of being their own financial advisor.3

In stark contrast, working with a financial advisor or planner materially improves a client’s financial outlook. According to a recent comprehensive study, accessing advice has a positive and significant impact on wealth accumulation: households with four‐to‐six year‐long advisory relationships accumulate 69% greater assets, and households with 15+ year advisory relationships accumulate 290% more assets, relative to their non‐advised peers. 4

1 Surveys conducted in OECD countries and some non‐OECD economies show that not only do consumers have low levels of financial literacy preventing them from making good and informed financial decisions, but they also often overestimate their financial skills, knowledge and awareness. See: Financial Literacy and Consumer Protection ‐ Overlooked Aspects of the Crisis, OECD 2009. 2 Richard Shillington, An Analysis of the Economic Circumstances of Canadian Seniors, Broadbent Institute, February 2016. 3 Claude Montmarquette and Nathalie Viennot‐Briot, Econometric Models on the Value of Advice of a Financial Advisor, Le Centre interuniversitaire de recherche en analyse des organisations, July 2012 (the “2012 CIRANO Report”). Investors deemed capable to be their own financial advisor are described as those who identify themselves as their own main source of investment information and capable of self‐managing their investments by exhibiting greater levels of education, income and financial literacy. 4 Claude Montmarquette and Nathalie Viennot‐Briot, The Gamma Factor and the Value of Financial Advice, Le Centre interuniversitaire de recherche en analyse des organisations, August 2016.

Advocis® is a trademark of The Financial Advisors Association of Canada. 2 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper

While it is clear that accessing professional advice creates value, the source of this value is often misunderstood and thought to belong to one of these traditional functions:

 Seeking alpha, excess returns relative to a benchmark. Described in a layperson’s terms, this is stock picking. Outdated depictions portray individual stockbrokers as the go‐to person for insights on the next “sure thing”, but this just doesn’t happen today. The search for superior returns through active means is an incredibly complex matter, built on company research, quantitative analysis and sophisticated algorithms, with the data parsed by entire teams of analysts.

 Asset allocation and portfolio construction. This is a technical task to ensure that an investor’s portfolio is adequately diversified in line with the investor’s risk tolerance, liquidity needs and long‐term financial goals. Portfolio optimization work is largely the domain of computer automation today.

Even sophisticated financial planning, while as important as ever for clients, is no longer as dependent on a human advisor or planner’s technical skills: sophisticated software now does most of the technical planning work, such as populating historical data; calculating expected asset values based on a variety of growth scenarios; and accounting for the effects of rebalancing, reinvestment, taxation and withdrawals on plan solvency.

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So an advisor or planner’s value to their clients is not primarily about these traditional services. Instead, the key value they provide has to do with behaviour modification: working with an advisor or planner can create a real and measurable shift in client behaviour towards prudent long‐run financial planning, saving and investing that sets clients on right path towards financial security. This view is borne out by a 2015 survey of investors working with an advisor which found 88 per cent of respondents see their advisors more as advice and guidance providers than as salespeople.5

This behavioural change is called the gamma factor.6 It is not one single action, but the culmination of day‐to‐day behaviours driven by a mutually accountable relationship between the client and advisor over the course of many years. The gamma factor is not an effect that is observable instantly, but one that strengthens over the course of time as the beneficial effects of sticking to a financial plan become evident through the achievement of personal financial milestones.

Changing clients’ natural disposition from apathy towards saving and convincing them to invest in their futures is a daunting task – particularly when the benefits of doing so, from the client’s perspective, are far down the road and are not guaranteed. We note the OSC has recently published Staff Notice 11‐778 Behavioural Insights: Key Concepts, Applications and Regulatory Considerations,7 a report detailing how leading practitioners and regulators around the world are using behavioural insights to address capital markets issues and improve outcomes for investors. The report highlights how investors are prone to making irrational decisions based on emotions and other psychological factors.

This includes the common problem of recency bias, the assumption that what has occurred recently will continue to do so indefinitely. This bias causes ill‐advised investors to liquidate their portfolios at the bottom of a financial crisis, buy individual stocks at a market peak after they’ve become popularized ‘media darlings’, or assume that certain asset prices (such as housing) will rise forever. The authors of Nudge, a leading book on behavioural economics, warn that consumers by‐and‐large lack the willpower to stick to their financial plans in the face of crisis.8

Irrational emotion‐driven investing can be disastrous, and many investors never recover from mistakes made in panic. Working with a professional advisor can save consumers from making

5 Advocis, Investor Insights on the Financial Advice Industry, November 2015. Available at: http://www.advocis.ca/pdf/Consumer‐Voice‐2015.pdf. 6 See, for example, Morningstar Investment Management, Alpha, Beta and now…Gamma, 2013. 7 OSC Staff Notice 11‐778, Behavioural Insights: Key Concepts, Applications and Regulatory Considerations. Available at: https://www.osc.gov.on.ca/documents/en/Securities‐Category1/sn_20170329_11‐778_behavioural‐insights.pdf. 8 Richard H. Thaler and Cass R. Nudge: Improving Decisions about Health, Wealth, and Happiness, Sunstein, Penguin Books, 2009.

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those critical and unrecoverable errors, and with the necessary course corrections along the way, ensure clients remain on a slow but steady path towards their financial goals. That is the gamma factor.

Trust drives the gamma factor. Advisors and planners must be worthy of that trust.

What unlocks the ability of advised consumers to overcome inherent irrational tendencies and maintain their financial discipline? It is the client’s trust in the advisor’s knowledge, expertise and professionalism – a belief that the client can trust the advisor with his or her financial future. Consumers cite trust as the most important factor in seeking a financial advisor,9 with evidence showing that households with lower financial capability need to trust their financial advisor in order to invest in the risk‐bearing assets that are critical to long‐term gains.10 Further, the level of trust consumers feel about advisors increases after actually working with them by about 30%,11 demonstrating the positive outcomes that consumers experience.

Without trust, the gamma factor cannot be realized. Further, financial advisors and planners are most consumers’ sole interface with the entire financial services sector – so they are also the key consumer safeguard. It is our collective responsibility to ensure that advisors and planners are worthy of the trust that clients place in them. To us, that means ensuring that all retail‐facing advisors or planners are competent, knowledgeable, and compliant with the highest ethical standards – in other words, that they are professionals.

This also means taking an expansive approach to regulatory reform. As discussed in detail later in this submission, Ontario must recognize that financial planning is a specialization within the general practice of financial advice. So if Ontario is serious about enacting consumer protection reforms that will benefit all of its financial consumers, it must expect professional standards of all intermediaries providing planning or advisory services to the retail public. Only discrete product transactions that are clearly demarcated as such should be allowed to occur outside the context of a professional relationship, as they do not invoke the trust that is at the core of the advisor‐client relationship.

Going forward, this means protecting both the titles of “financial planner” and “financial advisor”, creating professional‐level designation requirements for use of both titles, and going beyond title restrictions to protect the scope of the respective work to duly qualified professionals. Only then

9 Jeremy Burke and Angela A. Hung, Trust and Financial Advice, RAND Corporation, January 2015. 10 Dimitris Georgarakos and Roman Inderst, Financial Advice and Stock Market Participation, Goethe University, 2014. 11 2012 CIRANO Report at p.36.

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can Ontario be assured that the qualifications of the financial planners or advisors in the province are commensurate with the impact their work can have on clients’ lives.

Advocis’ Move Towards a Professional Association

Advocis has always been a key advocate for the professionalization of advisors and planners: in 2013, we launched the Raising the Bar Professions Model initiative and we were the driving force behind The Financial Advisors Act, 2014, which was the first piece of legislation in Canada that would have professionally recognized advisors and planners. That legislation had the support of all of Ontario’s major political parties, but it died on the order paper with the call of Ontario’s 2014 election. However, Advocis’ efforts served as a call to action and a major reason the Government established its Expert Committee to study the issue.

Rather than sitting idly by as the Expert Committee process unfolded, Advocis continued the push towards professionalism. In fact, the centrepiece of Advocis’ 2018‐2022 strategic plan (the “Strategic Plan”) is to move beyond a membership association of advisors committed to professionalism and become a true professional association. This will be executed via a multi‐ faceted approach, with one of the key pillars being a new membership requirement: starting on January 1, 2019, all new members of Advocis will be required to achieve a recognized professional credential.

In conjunction with this requirement, Advocis will be launching two new designations aimed at newly‐licensed advisors who are ready to establish themselves as professionals through a deeper understanding of the skills needed to build a sustainable business that is compliant with legal, regulatory and ethical standards. More information on these new designations is detailed in our responses to the Consultation’s appendix questions.

Advocis is taking the lead to raise the professional bar for all financial advisors and planners so consumers can trust that they have the knowledge, competence and integrity to provide the high‐ quality professional service consumers deserve.

3. CONSULTATION QUESTIONS

PROPOSAL TO RESTRICT USE OF THE ‘FINANCIAL PLANNER’ TITLE IN ONTARIO

1.1. What changes, if any, would you suggest to the credential recognition standards above?

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As a condition of their continued use of the recognized designation, designation holders should be required to maintain errors & omissions insurance in order to better protect clients in case the financial intermediary fails to live up to his or her professional standards.

1.2. To what extent do specific credentials currently used in Ontario meet the credential recognition standards?

As mentioned in the Consultation Paper, there are a plethora of financial services designations in the marketplace – but not all designations are equal.

In our view, the leading designations that merit the recognition envisioned in the Consultation for the title “financial planner” include the Chartered Life Underwriter (“CLU”) and Certified Financial Planner (“CFP”).

As we detail in Question 2.3 below, we believe the title “financial advisor” must also be restricted to those holding a more generalist, but still professional‐level, designation; we believe that the Certified Health Insurance Specialist (“CHS”) and forthcoming Professional Financial Advisor (“PFA”) and Professional Insurance Advisor (“PIA”) designations satisfy this unmet need.

1.3. What impact would the requirement to hold a recognized credential have on individuals currently operating as financial planners in Ontario?

The requirement for retail‐facing intermediaries who call themselves “financial planners” despite not having a CLU or CFP designation could incent those individuals to:

 (in an optimistic world) work towards achieving a qualifying designation, thereby bringing about the policy objective behind the designation requirement; or

 (more troublingly) evade Ontario’s policy intention of enhancing consumer protection by simply altering their titles slightly so long as they do not use some permutation involving the word “planner” (as currently envisioned in the Consultation).

As the title of “advisor” is not contemplated as being restricted in the Consultation, this could result in unqualified individuals choosing to use the title of “advisor” in place of “planner”. But the typical consumer does not understand the difference between financial planners and financial advisors – and this makes sense, as financial planning and financial advising are ultimately on the same spectrum of activities, with the former a specialization of the latter. We explore this concept in greater detail in subsequent questions, but the way forward is clear: Ontario must restrict both the

Advocis® is a trademark of The Financial Advisors Association of Canada. 7 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper titles of “financial planner” and “financial advisor” and the scope of their respective activities to qualified individuals who have achieved recognized designations.

1.4. What impact would the requirement to hold a recognized credential have on internationally trained professionals that relocate to Ontario and wish to operate as financial planners?

Designation‐granting bodies that are recognized in Ontario would likely enter into reciprocal recognition agreements with designation‐granting bodies based in other jurisdictions. These agreements could recognize the foreign credential as equivalent to the recognized domestic designation, or for those foreign credentials deemed to be less vigorous than the Ontario designation, set forth a route for upgrading that credential to the Ontario equivalent.

1.5. Are there any particular foreign credentials that would meet the proposed credential recognition standards? If so, please also provide the name of the credentialing organization.

Rather than endorsing any particular foreign credential, we recommend that Ontario grant any domestically‐recognized designation granting body the authority to grant equivalencies for foreign credentials.

1.6. What would constitute an appropriate transition period to allow individuals operating as financial planners in Ontario to attain a recognized credential once the proposed framework has been implemented?

We believe that those holding out as financial planners or financial advisors or offering planning or advisory services be given three years to attain a recognized credential to satisfy the requirements of being an accredited financial planner or advisor. After that transition period elapses, they would be required to title themselves as a salesperson, as explained further in Question 2.1 below.

1.7. Do you believe that the proposed credential requirement for financial planners would benefit consumers of financial planning services? If not, how would you alter the framework to improve consumer protection?

While the credentialing requirement is a step in the right direction of enhancing consumer protection, we are concerned that it may amount to a half‐measure that leaves glaring loopholes which leave consumers at risk. In our view, the changes brought about by the Consultation must go beyond restricting the use of specific titles. To truly protect Ontario’s consumers, restrictions must encompass both titles and the scope of work, as they do for other professions. For example, in Ontario, individuals cannot call themselves a lawyer or offer legal services without being accredited by the Law Society of Ontario.

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If unqualified actors are able to continue to offer financial planning‐like services under an alternative label, consumers will be exposed to unnecessary risk – and this is a particularly the case as the Consultation does not envision prohibiting analogous titles in regards to financial advisors. As we will discuss in greater detail in Question 2.3, all financial advisors perform a certain level of financial planning activities as a necessary part of serving their clients, and holistic financial planning is a specialized subset of financial advice. So any attempt to carve out a subset of financial planners from the overall financial advisor population and apply enhanced standards only to the subset is a disservice to the objective of enhancing consumer protection.

In our view, the titles of “financial planner” and “financial advisor” must be protected, similar misleading titles must be banned, and the scope of these activities must be restricted to those who hold a recognized credential. The basic principle should be that a would‐be advisor or planner cannot hold himself out to the public in a manner that deceives or misleads – or could reasonably be expected to deceive or mislead – a client in regards to that advisor or planner’s proficiency, qualifications and service offerings (including specializations).

PROPOSAL TO PROHIBIT TITLES SIMILAR TO ‘FINANCIAL PLANNER’

2.1. Is the proposed list of prohibited titles appropriate? Why or why not? Would you add any titles to the list? Would you remove any titles from the list?

and

2.2. Is the proposed general prohibition on the use of other misleading titles appropriate?

We would simplify the approach to titles as follows:

 The title “financial planner” would only be available for use by those who have achieved a recognized financial planning designation, such as the CLU and CFP.  The title “financial advisor” would only be available for use by those who have achieved a recognized financial advisory designation, such as the CHS and forthcoming PFA and PIA (discussed further in Question 2.3 below).  All other licensed intermediaries (i.e., those licensed to sell financial products but without possessing a qualifying designation at the planner or advisor level) would be required to use the title “salesperson” in their title (such as “mutual funds salesperson”, “investment salesperson”, “insurance salesperson” and so on).

Ontario must make clear what the penalties will be for those who flout its rules.

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2.3. How should the use of the title “Financial Adviser” or “Financial Advisor” be treated under the proposed framework outlined in this paper?

Ontario must recognize that financial planning is a subset of financial advice

We believe that for any reform in this area to be effective, a practical reality must be acknowledged: from the consumer’s perspective, financial planning and financial advice are inextricably linked. In fact, advanced financial planning is a subset of the larger practice field of providing financial advice – so both raise substantially the same consumer protection issues.

Planning elements are an inseparable part of an advisor’s duties. This is true whether one looks at it from the client’s point of view, the regulator’s perspective, or from the standpoint of the practitioner. Fundamental aspects of financial planning, such as know‐your‐product, know‐your‐ client and suitability inform, to some degree, even relatively product‐centred relationships – and they are ever more prominent in the longer‐term advisor‐client relationships of trust at the planning end of the spectrum. This concept already permeates the rules, policies and bulletins of the MFDA, IIROC, OSC and FSCO.

We do not assert that all financial advisors are engaged in financial planning at the same level as those who have attained designations such as the CLU or CFP. Rather, these expert designations equip their holders to perform holistic, advanced planning that non‐designation holding counterparts cannot – and should not purport to be able to – do. Advanced planning is a specialization within the profession of financial advice. (And within the broad pool of financial advisors, there are other specializations and designations which enable those advisors to focus on the more detailed aspects of, for example, taxation, estate planning, and health insurance.)

Specialization is common in many professions: consider the medical profession, where all doctors must meet a minimum standard to be called a medical doctor and be a member of their professional body. But within that larger group, there are smaller groups who have specialized further: while every member of the profession is a doctor, only those who have completed additional training are allowed to use titles that identify their specialization, such as cardiologist and oncologist.

To further the analogy, consider a proposal to regulate only the subgroup of advanced specialists, as opposed to the entire group of medical doctors. Such an option would be a wholly inadequate policy response: the risk to consumers would be overwhelming if anyone could hold out as a doctor and operate largely or completely unregulated. Similarly, to regulate only financial advisors who have completed a specialized designation would be a wholly inadequate policy response, as this too

Advocis® is a trademark of The Financial Advisors Association of Canada. 10 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper

would expose consumers to risk. Yet this is what some within the financial services community are suggesting be implemented as a program of policy reform.

To protect Ontario consumers, the focus of the reforms must include financial advice

The way forward is clear: Ontario’s focus cannot be on financial planners alone because such a narrow focus means that the vast majority of Ontario’s financial consumers will not benefit from the reforms. In fact, of the roughly 45,000 retail‐facing financial intermediaries in Ontario,12 only about 12,000 have achieved the CLU or CFP designations.13 We believe that all Ontarians who access financial advice and planning in all its forms deserve higher standards.

Without diminishing the value of financial planning, recall that sophisticated software now does most of the technical planning work, in terms of the calculations concerning a client’s longevity, asset allocation, and expected growth and drawdown rates. As discussed earlier in this submission, the greatest value to the client of accessing professional planning or advice is derived through a relationship of trust that enables the gamma factor. So the core focus of Ontario’s reforms should be to ensure that the planner or advisor is worthy of that trust by expecting professional standards on an expansive basis.

Most Ontarians receive their financial planning in concert with product sales and advice

Few Ontarians can afford a stand‐alone comprehensive financial plan that is not attached to the sale of product, as this typically requires a direct outlay of several hundreds or even thousands of dollars at once. Instead, the vast majority of Ontarians who receive planning do so through their advisors who engage in elements of financial planning prior to making product recommendations aimed at addressing specific life goals, such as saving for a home or determining when one is financially ready for retirement.

It is these product sales which compensate the advisor for his or her efforts. Most consumers receive their planning and advice in this manner because it is accessible and affordable. We believe that all Ontarians deserve to enjoy the benefits of enhanced professionalism in the industry and to

12 PricewaterhouseCoopers LLP, Sound Advice: Insights into Canada’s Financial Advice Industry, July 2014 at p.11. Available at: http://www.advocis.ca/sareport.pdf. 13 As of the date of this submission, there are 1,808 CLU holders in good standing in Ontario (per The Institute’s membership statistics), along with nearly 10,000 CFP holders in Ontario (per Financial Planning Standards Council at http://www.fpsc.ca/docs/default‐source/FPSC/submissions‐and‐remarks/fpsc‐submission‐to‐expert‐committee‐june‐17‐ 2016.pdf).

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be able to trust that their advisor is qualified and competent, not just those who can afford comprehensive financial plans that are detached from product sales.

All of this leads to the conclusion that:

Financial advisors must have their titles protected and also be required to achieve a recognized designation, analogous to what the Consultation envisions for financial planners. As we have stated, we do not assert that financial advisors without specialized designations in planning have the same level of proficiency as those who have achieved the CLU or CFP. But Ontario should identify designations such as the CHS and forthcoming PFA and PIA that, while more generalist in nature than their advanced planning counterparts, nonetheless signify a level of achievement that denotes the holder’s professionalism. And as discussed earlier, both the titles and the scope of work performed by planners and advisors must be protected in order to address major consumer protection risks.

To understand where along the spectrum financial advice reaches a level of fulsomeness that it should properly be considered financial planning, Ontario should craft clear definitions of financial planning and financial advice. We would be pleased to assist, as we have experience drafting legislation in this area. Having a clear definition would allow financial advisors to better understand when their practice is reaching a certain level that they should acquire a planning designation.

2.4. Prohibited titles would need to be reviewed on a periodic basis to ensure the list remains current and appropriate. What would you consider to be an appropriate review period?

We believe that a review every five years would be appropriate to study marketplace developments and determine whether the restricted list remains relevant.

PROPOSAL TO CREATE A CENTRAL, PUBLICLY‐ACCESSIBLE DATABASE OF FINANCIAL PLANNERS

3.1. What information should be included on the central database?

The central database should capture both financial planners and advisors.

It should allow consumers to easily verify the intermediary’s registration status, licensing, professional and educational qualifications and credentials – including distinguishing between whether the intermediary has achieved an advisor‐level designation or a planner‐level designation. The database should provide a glossary or primer in plain language to explain the distinction to consumers.

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It should also include a history of substantiated complaints and breaches of the designation holder’s code of conduct, and the nature and degree of sanctions resulting from these breaches.

3.2. Do you foresee any specific concerns with the creation or maintenance of a central database?

The power of the central database lies in its ability to disclose to the public which advisors and planners are in good standing, and which are not due to violations of laws, regulations or codes of conduct. If all goes to plan, consumers will be relying on this database before selecting an intermediary, and through the course of that relationship.

Being “named and shamed” in the database should create consequences for that advisor or planner’s livelihood. So Ontario must ensure that the processes leading to public sanction meet the highest standards of administrative law by ensuring that all relevant parties have the opportunity to be heard and the disciplinary process followed meets principles of fundamental justice before a judgment is rendered and sanction imposed and published.

OTHER QUESTION

4.1. The government is committed to strengthening consumer protection while supporting innovation and growth in the financial services sector. In recent years, there has been rapid growth in the creation and provision of technological innovations related to financial planning. Would the proposals outlined in this consultation paper impact the creation and provision of these more innovative aspects or kinds of services? If so, how?

We do not believe the proposals in the Consultation will hinder the development of technologies related to financial planning. As discussed earlier, sophisticated financial planning software is used by most advisors and planners to run calculations and scenarios; the technical side of planning is already in the domain of technology.

Recall the value of advice is based on the client’s trust in his or her advisor, and commensurate with the strength of the relationship. We firmly believe that nothing will replace the human interaction that is fundamental to the development of that trust. In fact, we believe that the certification of advisors and planners as true professionals, as one outcome of this Consultation, could serve as a way to bolster that trust, while fintech firms continue to make sophisticated tools that will work in concert with human advisors to enrich the client experience.

APPENDIX – QUESTIONNAIRE FOR CREDENTIALING BODIES

GENERAL INFORMATION

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1. How many members do you have in Canada?

Advocis has approximately 13,000 members in 40 chapters located across Canada.

2. How many members do you have in Ontario?

About 6,000 of Advocis’ members are based in Ontario, in 23 chapters.

3. Please list the credential(s) provided by your organization.

Chartered Life Underwriter

The premier designation offered by Advocis’ designation‐granting affiliate, the Institute for Advanced Financial Education (the “Institute”), is the Chartered Life Underwriter (CLU). The CLU is Canada's premier wealth transfer and estate planning designation.

The CLU is an advanced designation that expands on the knowledge gained in the CFP education program with a focus on estate planning and wealth transfer. It sets financial advisors apart by successfully meeting established standards for competent practice and presenting a greater level of knowledge and specialized skill in complex wealth and estate‐transfer markets. CLU designation‐ holders are in the unique position of helping Canadians build and preserve wealth.

The CLU designation carries on a longstanding and proud tradition of contributing to financial education in Canada: it was recognized federally by an act of Parliament in 192414 and again in 2003.15

There are 3,267 active CLU designation holders, of which 1,808 are in Ontario.

Certified Health Insurance Specialist

The Certified Health Insurance Specialist designation (CHS) is the only health‐insurance focused designation in Canada. Designation holders gain expertise into income replacement, disability, critical illness, long term care, and group benefits strategies, and are well‐positioned to address the challenges of Ontario’s demographic shift as baby boomers enter their retirement years.

14 S.C. 1924, c. 104. 15 The Financial Advisors Association of Canada Act, S.C. 2003, c. 29.

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There are 1,837 active CHS designation holders, of which 1,097 are in Ontario.

New designations targeted at professional financial advisors

Later this year, Advocis will be launching two new designations to address the growing expectations of the Canadian public that all financial advisors are professional, proficient and current in the advice they provide. Both will represent professional learning opportunities for financial intermediaries who are interested in going beyond their initial product‐based licensing and becoming a professional advisor:  The Professional Financial Advisor (PFA) will focus on the foundation requirements for the financial advisor of the future.  The Professional Insurance Advisor (PIA) will focus on the foundational requirements for the insurance advisor of the future.

Both the PFA and PIA designation programs are focused on helping early career advisors to:  Transition to practice‐based training within a real‐world business environment.  Develop the sales, business, and marketing skills and knowledge required to build sustainable financial advisory business.  Develop the necessary client relationship building skills (rapport, utmost care, empathy, respect) that result in successful long‐term client‐advisor partnerships.  Build the foundations for a successful financial advisory practice entrenched in the financial planning process as outlined in course FP241, Financial Planning Foundations.  Deepen the technical financial planning knowledge required to provide relevant solutions and strategies to assist clients to achieve their financial goals.  Develop the compliance and regulatory knowledge that will assist in the establishment of a framework and position the advisor to develop a sustainable financial advisory business.  Incorporate ethical practices and the Advocis Code of Professional Conduct16 (“CPC”) into the business of a sustainable financial advisory practice.

MEMBERSHIP INFORMATION

4. In Ontario, what percentage of your members are not registered and/or licensed under either Financial Services Commission of Ontario (FSCO) or the Ontario Securities Commission (OSC)?

16 The Advocis Professional Code of Conduct can be found at: http://www.advocis.ca/pdf/Advocis‐CPC.pdf. The Explanatory notes can be found at: http://www.advocis.ca/pdf/AdvocisCPC‐ExplanatoryNotes.pdf.

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Approximately 25% of our members in Ontario (1,600 of 6,000) are not registered and/or licensed under either FSCO or the OSC. The majority of these (over 1,000) are student members who are in the process of completing their insurance (LLQP) license.

5. Does your organization focus on financial planning? If yes, please provide an explanation.

Advocis focuses on financial advisors, including financial planners. Of our over 13,000 members across Canada, 1,703 have achieved both the CLU and CFP designations. Another 1,265 have achieved the CLU (without the CFP) and 1,148 have achieved the CFP (without the CLU).

6. Are members required to renew their membership on a periodic (e.g., annual) basis?

Yes, our members are required to renew their membership on an annual basis.

COMPLIANCE AND DISCIPLINARY INFORMATION

7. Compliance Monitoring

7a. Do you have a process to monitor compliance with your code of ethics or standard of conduct?

Currently, Advocis’ process of monitoring member compliance with the CPC is complaint‐driven, as described in Question 8 below. Further, upon annual renewal, members are required to attest that they have adhered to our Code of Professional Conduct, have no outstanding material issues in regards to regulatory proceedings against them and that they have completed their continuing education requirements in accordance with their membership agreement.

As part of our new Strategic Plan, we are exploring opportunities to be more proactive in monitoring compliance with our CPC, which could include entering into memoranda of understanding with regulators to ensure that we are all up‐to‐date with each other’s disciplinary actions, so that we can collectively enhance consumer protection across the financial services sector.

7b. Do you conduct compliance reviews? If yes: i. How many have you conducted in the past 3 years? ii. Do you ever review the “financial plans” prepared for clients by your members? iii. What tools do you have to deal with issues identified during compliance reviews?

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Yes. As part of Advocis’ membership requirements, members are required to complete continuing education each year. The Institute randomly audits a sampling of its members for compliance with this requirement.

i. The Institute has randomly audited 375 CLU and CHS designation holders in the past three years (composed of 100 CLU and 25 CHS holders each year.) The Institute also conducts follow‐up reviews of any members who were audited and found to be deficient in the previous year to ensure that any deficiency is corrected.

ii. The Institute currently does not review financial plans prepared by its members. iii. As the body responsible for enforcing the Advocis/Institute CPC, The Institute has written procedures in place to provide a consistent and transparent process for determining facts, holding hearings and imposing sanctions (the “Disciplinary Procedure”).17

As of the date of this submission, The Institute’s Board of Trustees has established a working group to modernize the Disciplinary Procedure in conjunction with external legal counsel as part of Advocis’ execution of its new Strategic Plan. The aim of the modernization is to ensure the Disciplinary Procedure meets the high standards of administrative law that are to be expected of a professional association.

The Disciplinary Procedure is executed by dedicated Institute staff, with the support of the Institute’s Board of Trustees, peer members who serve on the Ethics Committee, Dispute Resolution and Hearing Panels, and the Professional Conduct Chair in the impugned member’s local chapter. Their roles are further detailed in the questions below.

8. Disciplinary Procedures

8a. How do you handle complaints about your members?

Complaints about members and Institute designation holders are handled using the process established in the Disciplinary Procedure, as further detailed below.

17 The Advocis/Institute Disciplinary Procedures are available at: http://www.iafe.ca/pdf/Disciplinary‐Procedure‐Oct10.pdf.

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8b. Do you have a disciplinary process? If yes: i. Please briefly explain your disciplinary process. ii. How are disciplinary proceedings initiated? iii. Do you have an investigatory process? If yes, please briefly explain. iv. What are the possible outcomes of this process? v. Who are the decision makers? i. The Disciplinary Procedure is a comprehensive policy that addresses a spectrum of situations that could bring a member’s conduct into disrepute. Depending on the nature and severity of the alleged conduct, the Disciplinary Procedure may invoke a Dispute Resolution mechanism, the judgment of the Ethics Committee or Hearing Panels with the authority to impose a variety of sanctions, and a Board of Appeal as a final forum to review a judgment. The Disciplinary Procedure is based on a peer review system, carried out by members of The Institute and Advocis. The mechanics of the Disciplinary Procedure are addressed in the questions below. ii. Any person (including a member of the public or a member concerned about another member’s conduct) can complete a standard‐form Request for Investigation (“RFI”)18 intake document or write a letter outlining the details of the dispute. One of these written options must be received in order to initiate the Disciplinary Procedure. iii. Upon receipt of an RFI or letter, Institute staff will conduct an initial investigation to determine if the case falls within The Institute’s jurisdiction, and if so, whether the case has prima facie merit. If Institute staff determine that the case should be dealt with by another entity, staff will notify the complainant accordingly and The Institute’s involvement will cease. If Institute staff determine that the complaint does fall within its jurisdiction but clearly does not have merit, the investigation will be terminated and the parties will be notified of the conclusion of the investigation and no further steps will be taken. However, if it is determined that the complaint falls within The Institute’s jurisdiction and has merit, staff may forward the case to Dispute Resolution or to the Ethics Committee.

The Ethics Committee will review recommendations made by Institute staff and determine if the severity of the infraction is minor or major. If the Ethics Committee determines that the severity of the infraction is minor, it will order that the impugned member complete educational requirements as a condition of continued membership but no other sanctions will be imposed and the Disciplinary

18 The RFI is available at: http://www.iafe.ca/pdf/Inst‐RFI‐form‐oc12.pdf.

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Procedure will be terminated. If the Ethics Committee determines that the severity of the infraction is major, it will forward the file to Dispute Resolution or Hearing Panel.

The Dispute Resolution process is a voluntary process by which Advocis/The Institute attempt to help resolve a dispute or a conflict between two parties by negotiated settlement with the help of a facilitator.

To commence the Dispute Resolution process, Institute staff shall notify in writing the Professional Conduct Chair of the Chapter to which the member under investigation belongs. The Chair will appoint a Facilitator to assist in the Dispute Resolution between the complainant and said member within 30 days of the date the Chair is notified of the matter. The Facilitator shall be an Advocis/Institute designation holder in good standing. He or she should not have any conflicts of interest in the matter brought forward and must remain neutral. The Facilitator will be appointed by The Institute Board of Trustees from a roster of qualified candidates within the Chapter or region from which the member under review is from.

The Facilitator’s role is to advance the dispute resolution process and assist the parties in resolving the issue at hand and reaching an agreement. The Facilitator is a neutral party with no decision‐ making powers or authority to impose a settlement on either party.

The Facilitator must keep all information disclosed during the meeting confidential. Any information disclosed as part of the Dispute Resolution session is inadmissible in any further steps in the Disciplinary Procedure or in litigation or arbitration to the extent permitted by law. The parties agree not to subpoena or ask that the Facilitator testify or produce records or notes in future proceedings. No transcripts will be kept of the proceedings.

iv. If the file is sent to Dispute Resolution, the process is completed upon (a) the execution of a settlement by the complainant and the member; (b) a written declaration of one or more parties that the Dispute Resolution is terminated; or (c) a written declaration by the Facilitator that further efforts in the dispute resolution would not be helpful. If The Institute is notified in writing within 30 days from the commencement of Dispute Resolution that an executed settlement was reached, then no further steps shall be taken in the Disciplinary Procedure; however, if The Institute is not notified within the 30 day period, then staff will forward the matter to a Hearing Panel.

After deliberating the case, the Hearing Panel will decide if the conduct of the member has breached the CPC, and if so, the sanctions that will be imposed. The sanctions are described in our response to question 8e below.

Please see Appendix “A” for visual depiction of The Institute’s Disciplinary Procedure.

Advocis® is a trademark of The Financial Advisors Association of Canada. 19 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper v. The decision makers include:

 Institute staff, as they determine if the complaint is within The Institute’s jurisdiction and whether it has prima facie merit, and they recommend which forum should be used to handle cases with merit;  Institute Ethics Committee Members including the Chair, who is a member of The Institute Board of Trustees, and other committee members, who are Institute designation holders or members of Advocis in good standing; and  Members of the Hearing Panel, who are described in our response to Question 8(c)(ii) below.

8c. Do you have a disciplinary hearing process? If yes: i. Please briefly explain your hearing process. ii. Who are the decision makers? iii. Are the hearings public? iv. Please provide examples of the results of your disciplinary hearing process.

Yes, The Institute has a disciplinary hearing process. i. The Hearing Panel conducts a hearing to determine if the member’s conduct has breached the CPC and, if so, the nature and extent of sanctions that are to be imposed.

The Hearing Panel will set a date for the hearing and will notify the complainant and the member under investigation with at least 14 days’ notice of such hearing. The complainant and the member are entitled to appear at the hearing in person and to be represented by counsel (at each person’s own expense). Any other individual(s) wishing to attend the hearing must obtain permission from the Hearing Panel and sign a confidentiality agreement.

One member of the Hearing Panel shall serve as Chair of the panel and rule on any questions or dispute as to procedure. Although the Hearing Panel is not a judiciary body nor a court of law, it may admit evidence as it sees fit. The Hearing Panel shall decide if the member’s conduct has breached the CPC, and decide if any sanctions are to be imposed. It will issue a final written report with the decision. This report will be filed at the National Office of The Institute and copies of the decision will be provided to the complainant and the member.

Records of every Disciplinary Procedure will be kept for a period of six years. ii. The decision makers are the members of the Hearing Panel. The Hearing Panel is composed of a minimum of three members in good standing, one of whom is a member of the Board of Trustees of The Institute or a member of the National Board of Directors of Advocis; and at least one member

Advocis® is a trademark of The Financial Advisors Association of Canada. 20 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper shall be a member of the Chapter (preferably the Professional Conduct Chair) to which the member under investigation belongs. The Board of Trustees of The Institute, or any two of the Chair, Vice Chair and Past Chair of The Institute, shall appoint the members of a Hearing Panel from a roster of willing and qualified members. iii. No. Only the complainant and the member under investigation are entitled to appear at the hearing in person, along with their counsel. Any other individual(s) wishing to attend the hearing must obtain permission from the Hearing Panel and sign a confidentiality agreement. iv. The Hearing Panel shall decide if the member’s conduct has breached the CPC, and decide if any sanctions are to be imposed. The Hearing Panel will issue a final written report with the decision. This report will be filed at the National Office of The Institute and copies of the decision will be provided to the complainant and the member.

Below are some examples of actual recent sanctions that have been imposed on designation holders:

 A member had his membership suspended for three months, during which time he was also barred from advertising his CLU designation. His name was also removed from The Institute’s registry of members in good standing.  Following staff recommendations, a member had to complete the “Knowing the Code of Professional Conduct” ethics online course, as well as two ethics credits during each of the 2014 and 2015 calendar years. The member was also required to submit a written report to the Ethics Committee identifying the safeguards implemented in the member’s practice to ensure that the CPC would not be breached going forward.

8d. Are your disciplinary decisions public?

Public announcement of sanctions may be made in FORUM magazine or any other Advocis and/or Institute publication(s); notification to provincial regulator(s) with jurisdiction over the member; notification to the member’s Advocis Chapter; notification to any company the member has a contract with, and whose products have been involved in the member’s breach of the CPC; notification to another professional body or association with jurisdiction over the member; and, release of a national and/or local press release to news media.

It is up to the members of each individual Hearing Panel to decide whether to make their findings public, balancing fairness to the member versus the public interest and advancement of consumer protection that could arise from such disclosure.

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8e. What disciplinary action can you take against your members? (For example, can you suspend or revoke the credential, impose terms and conditions, impose fines and/or issue cautionary letters?)

One or more of the following sanctions may be imposed by the Hearing Panel:  Private Written Censure;  Public Censure;  Education Requirement;  Suspension of membership in The Institute and/or Advocis and suspension to use Advocis and/or The Institute designations and trademarks for a specified period of time that will not exceed five years;  Expulsion from The Institute and/or Advocis membership and permanent revocation of the right to use The Institute/Advocis designations and trademarks;  Report to Regulatory Authorities;  Hearing Costs; and  Report to other people (For example: the member’s employer, the MGA Owner, the Regional Director or Branch Manager).

If an appeal (discussed below) is filed, the sanctions are suspended until following the Board of Appeal’s decision.

8f. Is there an appeal process for your disciplinary decisions? If yes, please briefly explain.

Yes. The complainant and the member under investigation have the right to appeal the Hearing Panel’s decision. A notice of appeal must be made in writing and filed with The Institute no later than 15 days after the Hearing Panel’s decision has been delivered to the parties.

A Board of Appeal shall be composed of a minimum of three members who may be Directors of The Institute, past Directors, or other members in good standing. The Board of Trustees of The Institute, or any two of the Chair, Vice‐Chair and Past Chair, shall appoint the members of the Board of Appeal.

The Board of Appeal has the power to uphold, amend or overturn a decision of a Hearing Panel; the Board of Appeal can also uphold, amend or overturn the sanctions imposed by a Hearing Panel.

The Board of Appeal’s decision is final.

8g. How many complaints about your members have you received in the past 3 years?

In the past three years The Institute has received five complaints.

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8h. Of the reviews you have conducted and/or the complaints you have received within the past 3 years: i. How many have resulted in the initiation of disciplinary proceedings? ii. How many have resulted in: 1. The suspension or revocation of a member’s credential? 2. Another form of disciplinary action being taken against an individual?

i. Five complaints have resulted in the initiation of disciplinary proceedings. ii. 1. Five complaints have resulted in the suspension of a member’s membership or designation. 2. In addition to suspensions, the Hearing Panel has imposed other sanctions, such as completing additional education requirements.

CREDENTIAL INFORMATION

For each credential listed in Question 3:

9. Does the credential have an education or course requirement? If yes, please provide a copy of the course syllabus.

Yes, the CLU, CHS and PFA have education and course requirements. The syllabi are attached.

CLU  To enrol in the CLU designation program, students must first successfully complete four Advocis CFP certification courses: o FP241: Financial Planning Foundations (Appendix “B”) o FP242: Taxation and Investment Planning (Appendix “C”) o FP243: Retirement Income Planning (Appendix “D”) o FP244: Insurance and Estate Planning (Appendix “E”)  Then, CLU students must complete three core courses: o CLU255: Advanced Concepts in Tax & Law for Personal Planning (Appendix “F”) o CLU256: Tax and Legal Principles for Businesses and Their Owners (Appendix “G”) o CLU257: Advanced Estate Planning (Appendix “H”)

CHS  To enrol in the CHS designation program, students must first successfully complete one of the following four Advocis CFP certification courses: o FP241: Financial Planning Foundations (Appendix “B”)

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o FP242: Taxation and Investment Planning (Appendix “C”) o FP243: Retirement Income Planning (Appendix “D”) o FP244: Insurance and Estate Planning (Appendix “E”)  Then, CHS students must complete two core courses: o CHS303: Disability Income Insurance – Individual and Group (Appendix “I”) o CHS504: Critical Illness, Long‐Term Care & Group Living Benefits (Appendix “J”)

PFA  To enrol in the PFA designation program, students must first successfully complete two Advocis CFP certification courses: o FP241: Financial Planning Foundations (Appendix “A”) o FP242: Taxation and Investment Planning (Appendix “B”)  Then, PFA students must complete three core courses: o Practice Development (Appendix “K”) o Regulatory Process & Compliance Guidelines (Appendix “L”) o Professional Standards (Appendix “M”)

PIA The PIA will also have course requirements that will be similar to that of the PFA. However, the designation is not sufficiently far along in its development that we are able to provide further details as of the date of this submission.

10. Does the credential have an examination requirement? If yes, what are the examination requirements?

CLU Yes, each component course has an examination requirement, as outlined in the following table:

FP241 FP242 FP243 FP244 CLU255 CLU256 CLU257 5 module 5 module 5 module 4 module 4 module 4 module 2 written quizzes quizzes quizzes quizzes quizzes quizzes assignments

1 case study 1 case study 1 case study 1 case study Final exam Final exam Final exam

Final exam Final exam Final exam Final exam

CHS Yes, each component course has an examination requirement, as outlined in the following table:

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FP241 FP242 FP243 FP244 CHS303 CHS504 5 module 5 module 5 module 4 module 4 module 4 module quizzes quizzes quizzes quizzes quizzes quizzes

1 case study 1 case study 1 case study 1 case study Final exam Final exam

Final exam Final exam Final exam Final exam

PFA Yes, each component course has an examination requirement, as outlined in the following table:

FP241 FP242 Practice Regulatory Professional Development Process & Standards Compliance Guidelines 5 module 5 module 12 8 case studies 1 quiz quizzes quizzes assignments and quizzes (combined) 1 case study 1 case study Final exam Final exam

The PFA will be “capped off” with a final exam, in the form of a comprehensive case study focused on the Practice Development and the Regulatory & Compliance Courses.

PIA The PIA will also have an examination requirement that will be similar to that of the PFA. However, we are not yet able to provide further details.

11. Does the credential have a code of ethics or standard of conduct? a. If you have a code of ethics, please provide a copy. b. How do you assess whether a member is following the code of ethics? c. If you have a standard of conduct, please provide a copy. d. How do you assess whether a member is meeting the standard of conduct?

All holders of Advocis’ designations, including the CLU, CHS, and future PFA and PIA are (or will be) subject to the CPC. As discussed above, breaches of the CPC are investigated following a complaint by following The Institute’s Disciplinary Procedure. Further, members are required to attest that

Advocis® is a trademark of The Financial Advisors Association of Canada. 25 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper they continue to abide by the CPC upon the renewal of their designations. As discussed in Question 7a, Advocis is exploring ways to strengthen its monitoring of member adherence to the CPC as part of our mission to fulfill our Strategic Plan.

12. Does the credential have a continuing education requirement? If yes: a. Please provide a description. b. How many hours of continuing education or professional development are required per year? c. What action do you take if a member does not meet the continuing education requirement?

CLU A minimum of 30 continuing education (“CE”) credits (standard: 1 CE = 1 hour) each calendar year, one credit of which must be from a recognized Ethics program. A minimum of 15 CE credits must be accredited by The Institute; a maximum of 15 CE credits can be professional development. General professional development CE credits must be industry‐related (courses, seminars, etc.), and may be subject to The Institute's review. Any deficiency in one year must be made up by the end of the next calendar year, in addition to the full year's complement of CE credits. An exemption may be granted in exigent circumstances.

CLU designation holders who fail to renew their CLU designation or fail to meet ongoing requirements on an annual basis will lose their rights to publicly promote themselves as having the CLU and will have the designation revoked.

CHS The annual CE requirement for the CHS designation is 10 general professional development CE credits which must be industry‐related (courses, seminars, etc.), and may be subject to The Institute's review. Any deficiency in one year must be made up by the end of the next calendar year, in addition to the full year's complement of CE credits. An exemption may be granted in exigent circumstances.

CHS designation holders who fail to renew their CHS designation or fail to meet ongoing requirements on an annual basis will lose their rights to publicly promote themselves as having the CHS and will have the designation revoked.

PFA and PIA While still under development, both the PFA and PIA will carry a requirement that holders complete CE. However, the quantity and nature of those credits has not been determined. Advocis understands the importance of CE and it will be a key component of maintaining these designations in good standing.

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13. What is the minimum length of time in which an individual can acquire your credential(s)?

CLU The minimum length of time reasonably required to achieve the CLU designation is 840 days, based on the following modular breakdown:

FP241 FP242 FP243 FP244 CLU255 CLU256 CLU257 120 days 120 days 120 days 120 days 120 days 120 days 120 days

CHS The minimum length of time reasonably required to achieve the CHS designation is 360 days, based on the following modular breakdown:

One of: Both: FP241 FP242 FP243 FP244 CHS303 CHS504 120 days 120 days 120 days 120 days 120 days 120 days

PFA The minimum length of time reasonably required to achieve the PFA designation is expected to be around 18 months.

PIA The minimum length of time required to achieve the PIA designation is not yet determined, but it is expected to be similar to the PFA’s commitment.

14. What is the cost to acquire the credential? Are there ongoing fees payable by members? If so, how much are these fees, how often must they be paid and how are they set?

CLU The course cost for Advocis members is $2,300. The cost for non‐members is $4,720. Fees are paid per module, as follows:

FP241 FP242 FP243 FP244 CLU255 CLU256 CLU257 Member: Member: Member: Member: Member: Member: Member: $150 $200 $250 $250 $450 $450 $550

Non‐ Non‐ Non‐ Non‐ Non‐ Non‐ Non‐ member: member: member: member: member: member: member: $570 $570 $570 $570 $795 $795 $850

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There is an annual licensing fee to continue use of the CLU designation. For 2018, it has been set at $364.

CHS The minimum course cost for Advocis members is $1,050 and the maximum is $1,150, depending on which modules are taken. The cost for non‐members is $2,160. Fees are paid per module, as follows:

One of: Both: FP241 FP242 FP243 FP244 CHS303 CHS504 Member: Member: Member: Member: Member: Member: $150 $200 $250 $250 $450 $450

Non‐ Non‐ Non‐ Non‐ Non‐ Non‐ member: member: member: member: member: member: $570 $570 $570 $570 $795 $795

There is an annual licensing fee to continue use of the CHS designation. For 2018, it has been set at $193.

PFA and PIA The pricing for the PFA and PIA have not yet been determined. However, we are cognizant that these designations are aimed at relatively new advisors who may not yet have a significant book of business. It is our intention for the price of these courses to be reasonable to advisors at the outset of their professional careers.

15. Can holders of your credential be accredited by more than one organization?

The CLU, CHS, PFA and PIA designations are only available through The Institute. However, there are no restrictions on holders of Institute designations that would prevent them from also acquiring other designations from other accrediting bodies.

4. CONCLUSIONS AND NEXT STEPS

The Consultation represents the opportunity to bring about the reforms envisioned by Ontario’s Expert Committee that could represent a major step forward in consumer protection and the

Advocis® is a trademark of The Financial Advisors Association of Canada. 28 Ontario Ministry of Finance Regulation of Financial Planners Consultation Paper professionalization of financial advisors and planners who make an enormous difference in their clients’ lives. It is critically important to get the details right.

Rather than narrowly focusing on the specialization of financial planners, Ontario must act to protect all of its financial consumers by capturing the broader pool of financial advisors – all Ontarians deserve the peace of mind knowing that when they place their trust in the advice of their financial intermediary, that intermediary is a professional, with the knowledge, competence and ethics to serve their needs.

That is why Ontario must recognize designations for both professional titles; namely, the CLU and CFP for financial planners, and the CHS, PFA and PIA for financial advisors. Ontario must also look beyond titles, but to the scope of activities as well, restricting the scope of advisory or planning activities to those who hold qualifying designations.

Advocis is committed to the professionalization of advisors and planners as the way forward. It is at the core of our Strategic Plan. It is our firm belief that it is the best way to serve both our membership and the clients they serve, and we would be pleased to work with Ontario to fulfill our shared vision. Should you have any questions, please do not hesitate to contact the undersigned, or Ed Skwarek, Vice President, Regulatory Affairs and Public Affairs at 416‐342‐9837 or [email protected].

Sincerely,

Greg Pollock, M.Ed., LL.M., C.Dir., CFP Jim Virtue, CFP, CLU, CA President and CEO Chair, National Board of Directors

Advocis® is a trademark of The Financial Advisors Association of Canada. 29 Appendix A Appendix A, Page 1 Appendix B: FP241 Syllabus Appendix B, page 1

Module 1: The Financial Services Industry & Planning Fundamentals Learning Objectives ...... 1 Overview ...... 1 The Financial Services Industry Introduction...... 2 Securities Regulators ...... 3 Background ...... 3 Canadian Securities Administrators ...... 3 Provincial Securities Commissions ...... 4 Implementing the Objectives of Securities Regulation ...... 4 Self-Regulatory Organizations ...... 5 Investment Industry Regulatory Organization of Canada (IIROC) ...... 5 Mutual Fund Dealers Association (MFDA) ...... 6 Stock Exchanges ...... 6 Disclosure...... 7 Fund Facts Documents (FFD) ...... 8 Prospectus ...... 9 System for Electronic Document Analysis and Retrieval (SEDAR) ...... 10 Financial Services ...... 10 Federal Jurisdiction ...... 11 Office of the Superintendent of Financial Institutions ...... 11 Financial Consumer Agency of Canada ...... 12 Provincial Jurisdiction ...... 13 Provincial Regulators ...... 14 Self-Regulatory Organizations ...... 15 Consumer Protection Introduction ...... 16 Canadian Investor Protection Fund (CIPF) ...... 16 Canada Deposit Insurance Corporation (CDIC) ...... 18 The Organization ...... 18 Types of Coverage ...... 18 Coverage Amount ...... 19 Registered Plans ...... 20 Administration ...... 22 Assuris...... 22 Administration ...... 22 Categories & Benefit Types ...... 23 Death Benefit Coverage ...... 23 Cash Value Coverage ...... 24 Accumulated Value Coverage ...... 24 Monthly Income Coverage ...... 24 Health Expense Coverage ...... 25 Additional Details ...... 25 Determination of Benefits ...... 27 Assuris in Practice ...... 28 Scenario 1: Pat ...... 29 Scenario 2: Irene ...... 30 Scenario 3: Ralph ...... 30 Scenario 4-6: Peter, Janet & Roberto ...... 31 Property & Casualty Insurance Compensation Corporation (PACICC) ...... 31 Administration ...... 31 Coverage ...... 32 Funding ...... 32 Credit Union Deposit Protection Organizations ...... 32

Financial Planning Process Introduction...... 33 Step 1: Establishing the Client-Planner Engagement ...... 35 The Overall Concept ...... 35 Services, Process & Documentation ...... 36 Disclosure & Engagement Letter ...... 37 Clarification of Client’s Responsibilities ...... 38 Step 2: Gathering Client Information & Determining Goals and Expectations ...... 39 The Process ...... 39 Goals & Expectations ...... 40 Values, Attitudes & Expectations ...... 41 Step 3: Clarifying & Identifying ...... 42 Step 4: Developing & Presenting the Financial Planning Recommendations ...... 43 Client-Specific Financial Plan ...... 43 Client Values, Attitudes ...... 43 Client Knowledge & Experience ...... 44 Strategies ...... 44 Projections ...... 44 Considerations ...... 45 In Summary ...... 45 Present & Review the Plan With the Client ...... 45 Collaboration With the Client ...... 47 Step 5: Implementing the Financial Planning Recommendations ...... 47 Implementing the Recommendations ...... 47 Implementation Plan ...... 48 Urgent Matters ...... 48 External Deadlines ...... 49 Other Plans ...... 49 Documentation ...... 49 Specific Services ...... 50 Coordination With Other Professionals ...... 50 Step 6: Monitoring the Financial Plan ...... 51 Monitor & Evaluate ...... 51 Review Progress ...... 52 Changes in Personal Circumstances ...... 52 Changing Tax Laws & Economic Circumstances ...... 52 New or Changing Circumstances ...... 53 Appendices ...... 53 FPSC Practice Standards ...... 53 FPSC Summary of the Six-Step Financial Planning Process ...... 55 Conclusion ...... 57 Professional Conduct Introduction ...... 58 The Competency Profile ...... 59 Professional Skills ...... 61 Professional Responsibility ...... 61 Practice ...... 62 Cognitive Skills ...... 62 Communication ...... 63 FPSC Standards of Professional Responsibility7 ...... 63 Code of Ethics & Rules of Conduct ...... 64 Code of Ethics Principles ...... 64 Summary of Code of Ethics - Rules of Conduct ...... 66 FPSC Fitness Standards ...... 68 Continuing Education Introduction ...... 70 Qualifying CE ...... 71 Common Education Activities ...... 72 Summary ...... 73 Key Terms ...... 74

Module 2: Financial Statements & Budgeting Learning Objectives ...... 1 Overview ...... 1 Financial Statements The Role of Financial Statements ...... 2 Who Uses Financial Information ...... 2 The Importance of Standardization ...... 2 Accounting Concepts ...... 3 Statement Selection ...... 3 Statement Form ...... 4 Accounting Principles ...... 4 The Statements ...... 5 Balance Sheet ...... 5 Company ...... 5 Personal ...... 7 Cost versus Market Value ...... 9 Income Statement ...... 9 Corporate ...... 9 Personal ...... 11 Cash Flow Statement ...... 11 Ratio Analysis for Investment Planning Introduction ...... 13 Financial Ratios ...... 13 Liquidity Ratios ...... 14 Current Ratio ...... 14 Quick Ratio ...... 16 Leverage Ratios ...... 17 Debt-to-Equity Ratio ...... 18 Debt-to-Assets ...... 19 Interest Coverage ...... 20 Profitability Ratios...... 22 Gross Profit Margin ...... 22 Operating Profit Margin ...... 24 Net Profit Margin ...... 25 Return on Common Equity ...... 27 Return on Assets ...... 29 Activity Ratios ...... 31 Asset Turnover Ratio ...... 31 Inventory Turnover Ratio ...... 33 Receivable Turnover Ratio ...... 34 Working Capital ...... 35 Value Ratios ...... 36 Dividend Payout Ratio ...... 37 Earnings Per Share ...... 38 Price/Earnings Ratio ...... 40 Market Capitalization ...... 41 Managing Personal Affairs Personal Financial Statements ...... 43 Net Worth ...... 44 Debt-to-Equity Ratios ...... 44 Debt-to-Assets Ratio ...... 46 Debt Management & Budgeting Introduction...... 47 Credit Assessment ...... 47 Debt Service Ratio ...... 47 Total Debt Service Ratios ...... 47 Gross Debt Service Ratios ...... 48 Collateral ...... 50 Consumer Credit ...... 50

Appendix B, page 4

Credit Cards ...... 50 Line of Credit ...... 51 Single-Purpose Personal Loans ...... 52 Investment Loan ...... 52 Insurance Policy Loan ...... 52 Loan from Employer ...... 52 Refinancing & Debt Consolidation ...... 53 Mortgages ...... 53 Overview ...... 53 Basics ...... 54 Amortization ...... 54 Term ...... 56 Interest Rates ...... 56 Fixed Rate Mortgage ...... 56 Variable Rate Mortgage ...... 57 Conventional Mortgage versus High Ratio Mortgage ...... 57 Features ...... 58 Open Mortgage ...... 58 Closed Mortgage ...... 58 Portability ...... 59 Cost ...... 60 Administration ...... 60 Payment Schedule ...... 60 Reverse Mortgages ...... 61 Nature of a Reverse Mortgage ...... 62 Types of Reverse Mortgages ...... 62 Taxation ...... 62 Home Equity Line of Credit ...... 63 Leases ...... 63 Application ...... 63 Insolvency & Bankruptcy ...... 65 Overview ...... 65 Asset Assignment, Credit Rating & Tax Filing ...... 65 Non-Released Debts ...... 66 Consumer Proposal ...... 66 Debt Management ...... 67 Money Management...... 68 Overview ...... 68 Budgeting Process ...... 68 Income ...... 69 Expenses ...... 70 Net Income Available for Saving ...... 70 Emergency Fund ...... 71 Conclusion ...... 72 Special Needs Planning ...... 72 Introduction ...... 72 Disabled Children ...... 72 Dependent Adult ...... 73 Terminally Ill ...... 73 Net Worth & Cash Flow Monitoring Progress – Tracking Net Worth ...... 75 Net Worth Statement ...... 76 Cash Flow ...... 77 Monitoring Progress – Net Cash Flow ...... 78 Cash Flow Statement ...... 79 Bringing it all Together ...... 80 Appendices Apex Manufacturing ...... 81 Appendix 1: Balance Sheet ...... 81 Appendix 2: Income Statement & Statement of Retained Earnings ...... 83

Appendix 3: Cash Flow Statement ...... 84 Compass Retail ...... 85 Appendix 4: Balance Sheet ...... 85 Appendix 5: Income Statement & Statement of Retained Earnings ...... 86 Appendix 6: Cash Flow Statement ...... 87 Max & Sharon West ...... 88 Appendix 7: Statement of Net Worth ...... 88 Appendix 8: Cash Flow Statement ...... 90 Appendix 9: Monthly Expenses ...... 92 Appendix 10: Monthly Income ...... 93 Appendix 11: Projected Cash Flow Statement ...... 94 Formulas ...... 95 Summary ...... 97 Key Terms ...... 98

Appendix B, page 6

Module 3: Government Benefits & Programs Learning Objectives ...... 1 Overview ...... 1 Employment Insurance ...... 2 Covered Individuals ...... 2 EI Premiums ...... 3 Qualification ...... 4 Claims ...... 4 Benefits ...... 5 Out of Country ...... 5 Benefit Repayments ...... 6 EI as a Second Payer ...... 6 Tax Treatment ...... 6 Canada Child Tax Benefit (CCTB) Eligibility & Amounts ...... 7 Other Income Assistance Programs ...... 8 Workers’ Compensation Introduction ...... 9 Covered Individuals ...... 9 Types of Disabilities ...... 10 Premiums ...... 11 Benefits ...... 11 Eligible Earnings ...... 11 Benefit Period ...... 12 Taxation ...... 13 Other Federal Assistance Programs ...... 13 Registered Disability Savings Plans (RDSP) Introduction ...... 15 Canada Disability Savings Grant ...... 15 Canada Disability Savings Bond ...... 16 When Are Repayments of CDSGs & CDSBs Required? ...... 17 Specified Disability Savings Plan (SDSP) ...... 18 Payments & Taxation ...... 21 When Are Payments Made? ...... 21 Tax Payable On Non-Qualified Investment7 ...... 24 Death of RDSP Beneficiary ...... 24 Registered Education Savings Plans (RESP) Introduction...... 25 Types of Plans...... 25 Non-Family Plan ...... 25 Specified Plan ...... 26 Family Plan ...... 26 Group Plan ...... 26 Roles ...... 26 Subscriber ...... 26 General Criteria ...... 26 Residency & Age ...... 27 Joint Subscribers ...... 27 Changing Subscribers ...... 28 Multiple Plans & Employer-Sponsored Plan ...... 28 Promoter ...... 29 Beneficiary ...... 29 General Criteria ...... 29 Multiple Plans & Multiple Roles ...... 29 Blood Relationship & Adopted ...... 30 Changing Beneficiaries ...... 31 Contributions ...... 31 Tax Implications ...... 31 Limits ...... 31

Over-contributions ...... 32 Trustee Fees & Insurance Premiums ...... 33 Transferring an RESP ...... 34 Rollover of RESP Investment Income ...... 34 Qualified Investments ...... 35 Payments From an RESP ...... 36 Payment of Contributions ...... 36 Educational Assistance Payments ...... 36 Limits on EAPs ...... 37 Accumulated Income Payments ...... 38 Taxation of AIP ...... 39 RRSP Relief ...... 39 Alternative RRSP Strategy ...... 40 Plan Termination ...... 41 RESP Summary ...... 42 Canada Education Savings Grant (CESG) Introduction ...... 44 Amount & Calculation ...... 44 Canada Learning Bond (CLB) ...... 45 Eligibility ...... 47 Payments ...... 48 Grant Repayments ...... 48 Tax-Free Savings Account Introduction ...... 49 Intended Purpose ...... 49 Features & Benefits ...... 49 Eligible Investments ...... 50 TFSA Contribution & Withdrawal ...... 50 Excess Contributions ...... 56 Upon Death ...... 58 Summary ...... 58 Key Terms ...... 59

Module 4: Time Value of Money Learning Objectives ...... 1 Overview ...... 1 Financial Calculator ...... 3 Rates of Return Interest Rates ...... 4 Simple Interest ...... 4 Compound Interest ...... 6 Nominal vs. Effective Yield ...... 8 Time Value of Money Present Value ...... 11 Future Value ...... 13 Using the Calculator ...... 15 SHIFT Key ...... 16 Begin & End Mode ...... 16 Setting the Decimal Place ...... 16 Change Sign Feature ...... 17 Clear All ...... 17 Helpful Hints ...... 17 TVM Prerequisites ...... 18 Application of TVM Calculations...... 18 Present Value of a Single Sum ...... 19 Future Value of a Single Sum ...... 26 Present Value of a Periodic Payment Stream ...... 31 Future Value of a Periodic Payment Stream ...... 41 Interest Rate Conversion ...... 50 Determine Interest Rate ...... 51 Determine Payment Amount ...... 59 Determine Compounding Periods ...... 67 Additional Applications ...... 72 Annuities ...... 72 Present Value Formula ...... 72 Future Value Formulas ...... 73 Using the Calculator for Annuity Applications ...... 73 Bonds ...... 78 Pricing Bonds ...... 78 Determine Interest ...... 82 Retirement Calculations ...... 84 Accumulations ...... 84 Target Interest Rate ...... 87 Reasonableness of Time Horizon ...... 89 Loan Payments/Repayments ...... 90 Determine Loan Interest Rate ...... 90 Determine Loan Amount ...... 91 Determine Loan Payment ...... 92 Determine Loan Period ...... 93 Leasing Calculations ...... 94 Real Rate of Return ...... 95 After-Tax Rate of Return ...... 97 Real After-Tax Rate of Return ...... 98 Calculation for Perpetuity ...... 100 Cash Flow Applications Cash Flows ...... 103 Net Present Value ...... 103 Internal Rate of Return ...... 107 Formulas ...... 110 Summary ...... 112 Key Terms ...... 113

Appendix B, page 9

Module 5: Basic Economics & Investment Fundamentals Learning Objectives ...... 1 Overview ...... 1 Basic Economics Introduction ...... 3 Gross Domestic Product ...... 3 Supply & Demand ...... 5 What is Demand? ...... 6 Law of Demand ...... 6 Influencing Demand ...... 7 Movements Along & Shifts in the Demand Curve ...... 7 Movements Along the Demand Curve ...... 8 Shifts in the Demand Curve ...... 9 What is Supply? ...... 10 Law of Supply ...... 10 Influencing Supply ...... 11 Movements Along & Shifts in the Supply Curve ...... 11 Movements Along the Supply Curve ...... 12 Shifts in the Supply Curve ...... 13 Market Equilibrium ...... 14 Price & the Allocation of Resources ...... 15 Inflation & Unemployment ...... 16 Aggregate Supply & Demand ...... 16 Aggregate Demand ...... 17 Consumer Spending ...... 18 Investment Spending ...... 19 Government Spending ...... 19 Net Exports Spending ...... 20 Aggregate Supply ...... 20 ...... 21 Determinants of Aggregate Supply ...... 22 Business Cycle ...... 22 Trough ...... 24 Recovery/Expansion ...... 24 Peak ...... 25 Recession ...... 25 Business Cycle Economic Impact ...... 26 Economic Indicators ...... 28 Leading Indicators ...... 28 Coincident Indicators ...... 29 Lagging Indicators ...... 29 Canadian Money Supply ...... 30 What Is Money? ...... 30 Uses for Money ...... 30 Canadian Financial System...... 31 Role of Banking System ...... 31 Reserve System ...... 32 Reserve Ratio ...... 33 Deposit Multiplier ...... 36 Components of Money Demand ...... 37 Canadian Monetary Policy ...... 37 Open Market ...... 40 Transfers of Government Deposits ...... 40 Changing the Bank Rate ...... 40 Expansionary vs. Contractionary Monetary Policy ...... 41 Monetary Policy and the Interest Rate ...... 41 Canadian Fiscal Policy ...... 45

Investment Fundamentals Introduction...... 46 Yield Curves ...... 46 Theories on the Term Structure of Interest Rates ...... 48 Forecasting Economic Output ...... 48 The Effect of Government Borrowing ...... 49 Inflation ...... 50 Background ...... 50 Consumer Price Index ...... 50 Causes ...... 51 Inflation Control ...... 52 Effects of Inflation ...... 52 High Inflation ...... 52 Low Inflation ...... 52 Unexpected Inflation ...... 53 Interest Rates ...... 53 Deflation ...... 54 Exchange Rates ...... 55 Investment Risk ...... 55 Unsystematic Risk ...... 56 Systematic Risk ...... 56 Influence of Time ...... 57 Types of Investment Risk ...... 57 Business Risk ...... 58 Market Risk ...... 59 Reinvestment Risk ...... 59 Interest Rate Risk ...... 60 Inflation Risk ...... 60 Marketability Risk ...... 61 Liquidity Risk ...... 61 Political Risk ...... 62 Exchange Rate Risk ...... 62 Default Risk ...... 62 Assessing Risk ...... 63 Standard Deviation ...... 63 Beta ...... 69 Portfolio Development ...... 72 Analysis ...... 72 Opportunity Cost ...... 73 Holding Periods ...... 73 Measures of Performance ...... 74 Calculating Returns ...... 75 Dollar-Weighted Returns ...... 76 Time-Weighted Returns ...... 76 Modern Portfolio Theory ...... 77 Correlation ...... 77 Markowitz Theory ...... 78 Efficient Frontier Analysis ...... 79 Capital Asset Pricing Model ...... 81 Concept ...... 81 Market Portfolio ...... 82 Security Market Line ...... 82 Conclusion ...... 84 Arbitrage Pricing Theory ...... 84 Efficient Market Hypothesis ...... 85 Post-Modern Portfolio Theory ...... 86 Summary ...... 88 Key Terms ...... 89

Module 6: Personal Income Tax Reporting Appendix C, Page 2 Module 6: Personal Income Tax Reporting Learning Objectives ...... 1 Overview ...... 1 Income Tax Administration Government Roles ...... 2 Concept of Tax Planning ...... 3 Sources of Tax Information ...... 4 Compliance ...... 4 Requirement To File an Income Tax Return...... 5 Who Must File? ...... 5 Who Should File? ...... 5 Who Does Not Have To File? ...... 6 Residency ...... 6 Resident of Canada ...... 6 Dual Resident ...... 8 Non-Resident ...... 8 Return Filing Dates ...... 9 Individuals ...... 11 Self-Employed Taxpayer & Spouse ...... 11 Deceased Taxpayer ...... 11 Partner in a Partnership ...... 13 Corporation & Trust ...... 13 Summary of Filing Due Dates ...... 14 Income Tax Instalments ...... 15 Calculating the Instalment Amount ...... 15 Penalties ...... 15 Income Tax Penalties ...... 15 Objections & Appeals ...... 17 Foreign Property Holdings ...... 18 Definition of Spouse ...... 18 Personal Income Tax Introduction……………………………………………………………...……..……….…………………………………………..19 Income Tax Framework ...... 20 Income Tax Calculation ...... 22 (I)Total Income ...... 25 Types of Income ...... 26 Employment Income ...... 26 Taxable Benefits ...... 27 Automobile Benefits ...... 27 Automobile Benefits (Cont'd) ...... 29 Employer-Paid Education ...... 32 Private Non-Group Wage-Loss Replacement Plan ...... 33 Group Life Insurance Premium ...... 34 Financial Planning or Tax Planning ...... 34 Interest-Free, Low-Interest & Forgiven Loans ...... 35 Registered Retirement Savings Plan (RRSP) Contributions ...... 38 Employee Stock Option Plans ...... 39 Employee Stock Option Plans (Cont'd) ...... 41 Premiums for Provincial Hospitalization & Medical Insurance ...... 43 Other Taxable Benefits ...... 43 Non-Taxable Benefits ...... 44 Automobile Allowance (For Using Own Motor Vehicle) ...... 44 Registered Pension Plan (RPP)/Deferred Profit Sharing Plan (DPSP) Contributions ...... 45 Counselling Services ...... 45 Relocation Expenses ...... 45 Private Health Services Plans ...... 46 Gifts & Awards ...... 46 Appendix C, Page 3 Use of Employers Recreational Facilities ...... 48 Club Dues ...... 48 Premiums for Group Wage-Loss Replacement Plan ...... 48 Other Non-Taxable Benefits ...... 50 Summary of Taxable & Non-Taxable Benefits...... 51 Pension Income Splitting (Line 116) ...... 52 Self-Employment ...... 53 Business Income (Lines 162 & 135) ...... 54 Professional Income (Lines 164 & 137) ...... 56 Commission Income (Lines 166 & 139) ...... 56 Farming Income (Lines 168 & 141) ...... 57 Fishing Income (Lines 170 & 143) ...... 57 Deductions for Workspace in the Home ...... 58 Global Criteria ...... 58 Determining Reasonable Proportion ...... 59 Other Considerations ...... 60 Investment Income ...... 62 Dividend Income ...... 62 Dividends From Taxable Canadian Corporations (Line 120) ...... 62 Dividends From Non-Resident Corporations ...... 65 Stock Dividends ...... 65 Stock Split ...... 65 Dividends Received By a Spouse or Common-Law Partner ...... 66 Dividends Allocated From a Trust ...... 66 Interest & Other Investment Income (Line 121) ...... 67 Reporting Interest Income ...... 67 Rental Income (Line 126) ...... 70 Passive vs. Active ...... 70 Expense vs. Capital ...... 71 Capital Cost Allowance ...... 72 Renting a Portion of the Principal Residence ...... 73 Taxable Capital Gains (Line 127) ...... 73 Other Income ...... 75 Taxable Support Payments (Line 128) ...... 75 Pension/Retirement Income ...... 76 Other Income (Line 130) ...... 77 Non-Taxable Income ...... 77 (II) Deduction From Total Income ...... 78 RRSP, PRPP & RPP Contributions (Lines 207 & 208) ...... 78 Deduction for Elected Split Pension Amount (Line 210) ...... 79 Professional, Association & Union Dues (Line 212) ...... 79 Child Care Expense (Line 214) ...... 79 Disability Supports Deduction (Line 215)...... 83 Allowable Business Investment Losses (ABILs) (Line 217) ...... 83 Moving Expenses (Line 219) ...... 84 Support Payments (Line 220) ...... 85 Carrying Charges & Interest Expense (Line 221) ...... 86 CPP/QPP Contributions on Self-Employment (Line 222) ...... 86 Other Employment Expenses (Line 229) ...... 87 Other Deductions (Line 232) ...... 88 Social Benefit Repayment (235) ...... 88 (III) Net Income ...... 89 (IV) Deductions From Net Income ...... 89 (V) Taxable Income ...... 90 (VI) Calculating Initial Federal & Provincial Tax...... 91 Federal Tax Payable ...... 91 Provincial Tax Payable ...... 92 (VII) Deduction of Non-Refundable Tax Credits ...... 92 Appendix C, Page 4 Family Caregiver Amount ...... 93 Basic Personal Amount (Line 300) ...... 93 Age Amount (Line 301) ...... 93 Spouse or Common-Law Partner Amount (Line 303) ...... 94 Amount for an Eligible Dependant (Line 305) ...... 95 Amount for Infirm Dependants Age 18 or Older (Line 306) ...... 96 Employment ...... 96 Public Transit Passes Amount (Line 364)...... 97 Home Buyers' Amount (Line 369) ...... 97 Pension Income Amount (Line 314) ...... 97 Caregiver Amount (Line 315) ...... 98 Disability Amount (Line 316) ...... 99 Disability Amount Transferred From a Dependant (Line 318) ...... 100 Interest Paid on Student Loans (Line 319) ...... 100 Tuition & Education Amounts (Line 323) ...... 101 Medical Expenses (Lines 330 & 331) ...... 102 Donations & Gifts (Line 349) ...... 104 Dividend Tax Credit (Line 425) ...... 106 (VIII) Basic Tax ...... 107 Basic Federal Tax (Line 429) ...... 107 Basic Provincial Tax ...... 108 (IX) Deductions Additions ...... 108 Labour-Sponsored Funds Tax Credit (Line 414) ...... 108 Special Taxes - Additional Tax on RESP Accumulated Income Payments (Line 418) ...... 108 Conclusion ...... 109 Summary ...... 109 Key Terms ...... 110

Appendix C, Page 5

Module 7: Tax Applications

Module 7: Tax Applications Appendix C, Page 6 Module 7: Tax Applications Learning Objectives ...... 1 Overview ...... 1 Terminology ...... 2 Capital Gains System Introduction ...... 5 Types of Capital Property ...... 5 Personal-Use Property ...... 6 Listed Personal Property ...... 6 Other Property ...... 6 Basic Capital Gain/Capital Loss Calculation...... 8 Proceeds of Disposition ...... 8 Adjusted Cost Base (ACB) ...... 9 Disposition ...... 11 Taxable Capital Gain/Allowable Capital Loss ...... 11 Treatment of Allowable Capital Loss ...... 13 Capital Gains Reserve ...... 14 Conclusion ...... 14 Special Treatment ...... 16 Death of a Taxpayer ...... 16 General Tax Treatment ...... 16 Spousal Rollover ...... 17 Electing Out of the Spousal Rollover ...... 18 Property Owned as Joint Tenants ...... 19 Conclusion ...... 21 Inter Vivos Gifts ...... 21 Inter Vivos Transfer to a Spouse or Common-Law Partner ...... 22 Tax Consequences for Inter Vivos Transfer to a Spouse or Common-Law Partner ...... 23 Property Transfer to a Non-Arm's Length Individual ...... 24 Alter Ego or Joint Partner Trust ...... 26 Principal Residence ...... 27 Second Residence ...... 30 Transfer to a Corporation ...... 33 Transfer To/From Partnership or Proprietor ...... 36 Property Transferred to Joint Tenants ...... 37 Change of Use ...... 37 Involuntary Disposition ...... 38 Leaving Canada ...... 38 Entering Canada ...... 39 Transfer of Farm Property ...... 39 Inter Vivos Transfer of Farm Property ...... 40 Transfer of Farm Property at Death ...... 41 Identical Properties ...... 42 Mutual Funds, Corporate Shares & Segregated Funds ...... 44 Foreign Currency ...... 44 Capital Gains Rollover for Investment in Small Business ...... 46 Allowable Business Investment Loss (ABIL) ...... 46 Other Considerations ...... 47 Personal-Use Property ...... 47 Listed Personal Property ...... 48 Superficial Loss ...... 48 Capital Gains Exemption ...... 49 Capital Gains Formula ...... 50 Formula ...... 50 Unused Lifetime Deduction1 ...... 50 Annual Gains Limit ...... 51 Cumulative Gains Limit ...... 51

Copyright © 2017 The Financial Advisors Association of Canada Module 7: Tax Applications Appendix C, Page 7 Cumulative Net Investment Loss (CNIL) ...... 51 Exclusions From Capital Gains Treatment ...... 54 Capital Cost Allowance Introduction ...... 55 CCA Classes ...... 56 Basic CCA Formula ...... 56 First-Year Rule ...... 57 Short Taxation Year ...... 58 General Guidelines ...... 58 Disposition of Depreciable Property ...... 59 UCC ...... 59 A Negative UCC ...... 59 Capital Dividend Account Purpose ...... 63 Components of the Account ...... 63 Reporting ...... 64 Eligible Capital Expenditures Tax Perspective ...... 65 Cumulative Eligible Capital (CEC) Account ...... 65 Disposition ...... Error! Bookmark not defined. Alternative Minimum Tax Considerations ...... 67 Process & Calculation ...... 68 AMT Carryforward ...... 70 Income Attribution Introduction ...... 71 Loans & Transfers ...... 71 Spouse ...... 71 Minor Children ...... 73 Non-Arm's Length Individual ...... 73 Other Provisions ...... 74 Exemptions ...... 76 Property Transferred at Fair Market Value ...... 76 Loans at Market Rates ...... 77 Separation ...... 77 Changes in Circumstances ...... 77 Anti-Avoidance Rule ...... 78 Kiddie Tax ...... 78 Summary ...... 79 Key Terms ...... 80

Appendix C, Page 8

Module 8: Business & Organizational Structures

Module 8: Business & Organizational Structures Appendix C, Page 9 Module 8: Business & Organizational Structures Learning Objectives ...... 1 Overview ...... 1 Sole Proprietorship Introduction ...... 2 Unlimited Liability ...... 2 Taxation ...... 2 Advantages ...... 4 Disadvantages ...... 4 Year-End ...... 5 Partnerships General Partnership ...... 6 Characteristics ...... 6 Taxation ...... 7 Capital Cost Allowance ...... 8 Income ...... 8 Capital Account ...... 9 Year-End ...... 11 Partnership Interest ...... 12 Adjusted Cost Base of a Partnership Interest ...... 12 Asset Transfer into a Partnership ...... 13 Disposition of a Partnership Interest ...... 14 Advantages ...... 14 Disadvantages ...... 15 Limited Partnership ...... 16 Characteristics ...... 16 Taxation ...... 17 Limited Liability Partnership ...... 18 Corporations Introduction ...... 19 Characteristics ...... 19 Type of Corporations ...... 20 Share Capital ...... 21 Corporate Taxation ...... 22 Corporate Taxation Components ...... 22 Fiscal Year ...... 24 Small Business Deduction (SBD) ...... 25 Dividend Income ...... 27 Advantage of Owner/Manager ...... 28 Tax Deferral ...... 28 Dividends ...... 30 Capital Gains ...... 31 Shareholder Taxation ...... 32 Salary/Employment Income ...... 32 Regular Dividends ...... 33 Capital Dividend Account ...... 33 Shareholder Loan ...... 34 General Rule ...... 34 Short-Term Exception ...... 34 Loans Treated as Income ...... 35 Taxable Benefit ...... 35 Shareholder Appropriations ...... 36 Qualified Small Business Corporation Shares (QSBCS) ...... 37 Holding Companies ...... 37 Creditor Protection ...... 38 Investment Opportunity ...... 38 Differing Compensation Needs ...... 39

Copyright © 2017 The Financial Advisors Association of Canada Module 8: Business & Organizational Structures Appendix C, Page 10 Estate Planning ...... 40 Estate Freeze ...... 40 Summary ...... 42 Key Terms ...... 43

Appendix C, Page 11

Module 9: Investment Products

Appendix C, Page 12 Module 9: Investment Products Learning Objectives ...... 1 Overview ...... 1 Select Fixed-Income Securities Introduction ...... 2 Treasury Bills ...... 2 Nature ...... 2 Taxation ...... 3 Strategies ...... 4 Commercial Paper ...... 4 Nature ...... 4 Taxation ...... 4 Strategies ...... 5 Bankers’ Acceptance ...... 5 Nature ...... 5 Taxation ...... 5 Strategies ...... 5 GICs & Term-Deposits ...... 6 Nature ...... 6 Taxation ...... 8 Strategies ...... 9 Index-Linked GIC ...... 9 Nature ...... 9 Taxation ...... 10 Strategies ...... 10 Mortgage-Backed Securities ...... 11 Nature ...... 11 Taxation ...... 13 Strategies ...... 13 Conclusion ...... 13 Bonds & Debentures Introduction ...... 14 Nature of a Bond ...... 14 Face or Par Value ...... 14 Issuer & Bondholder ...... 15 Bond Price ...... 15 Maturity Date ...... 16 Coupon Rate ...... 16 Settlement Date ...... 18 Basic Taxation ...... 19 Marketability ...... 19 Strategy ...... 20 Government Bonds ...... 21 Marketable Bonds ...... 21 Government of Canada Real Return Bonds ...... 22 Canada Savings Bonds ...... 23 Canada Premium Bonds ...... 24 Provincial & Municipal Bonds ...... 24 Corporate Bonds ...... 25 Nature ...... 25 Types of Bonds ...... 25 Extendible Bond ...... 26 Retractable Bond ...... 26 Convertible Bond ...... 27 Callable Bond ...... 28 Floating Rate Bond ...... 28 Income Bond ...... 29

Copyright © 2017 The Financial Advisors Association of Canada Appendix C, Page 13 Mortgage Bond ...... 29 Strip Bond ...... 29 Bond Rating Agencies ...... 31 Common Shares Introduction ...... 33 Nature ...... 33 Structure ...... 33 Dissolution ...... 33 Ownership Transfer ...... 34 Classes of Shares ...... 34 General Terminology ...... 35 Investment Earnings ...... 35 Dividends ...... 36 Payments ...... 36 Important Dates ...... 37 Liquidating Dividend ...... 37 Dividend Reinvestment & Share Purchase Plans...... 38 Capital Appreciation ...... 38 Stock Purchase ...... 39 Initial Public Offering ...... 39 Secondary Market ...... 40 Share Purchase ...... 40 Cash ...... 40 Margin ...... 40 Short Selling ...... 44 Stock Split ...... 46 Market View ...... 47 Corporate Strategy ...... 47 Preferred Shares Introduction ...... 48 Voting Rights, Dividends & Dissolution...... 48 Other Features ...... 49 Why Preferred Shares? ...... 50 Strategy ...... 51 Derivative Securities Introduction ...... 52 Options ...... 52 Call Option ...... 52 Put Option ...... 53 Nature of Options Market ...... 53 The Players ...... 53 The Process ...... 54 Writer of a Call ...... 55 Writer of a Put ...... 55 Why Use Options? ...... 59 Call Options ...... 59 Put Options ...... 60 Straddle ...... 61 Conclusion ...... 62 Warrant ...... 63 Rights ...... 64 Forward Contract ...... 65 Futures Use of Futures ...... 66 Clone Fund ...... Error! Bookmark not defined. SWAP ...... 67

Appendix C, Page 14 Mutual Funds Introduction ...... 68 Closed-End Investment Funds ...... 68 Unit Investment Trusts ...... 69 Open-End Investment Funds ...... 69 Reasons for Investing in Mutual Funds ...... 70 Other Considerations ...... 71 Net Asset Value ...... 71 Operational Issues ...... 72 Disclosure ...... 72 Management Expense Ratio ...... 73 Sales Charge ...... 73 Front-End Load ...... 74 Deferred Sales Charge ...... 75 No Load ...... 76 Service Fees ...... 76 Fund Classifications ...... 77 Money Market Funds ...... 78 Mortgage Funds ...... 78 Bonds Funds ...... 78 Dividend Funds ...... 79 Real Estate Funds ...... 79 Balanced Funds ...... 79 Asset Allocation ...... 80 Equity Funds ...... 80 International & Global Funds ...... 80 Speculative & Venture Funds ...... 81 Performance Evaluation ...... 81 Comparison ...... 81 Investment Risk ...... 83 Average Return ...... 84 Purchase/Withdrawal Mechanisms ...... 84 Systematic Withdrawal Plan ...... 85 Cheque Writing ...... 86 Dollar Cost Averaging ...... 86 Structure ...... 87 Income Tax Implications ...... 89 Mutual Fund Trusts ...... 89 Mutual Fund Corporation ...... 90 Segregated Funds Introduction ...... 91 Comparison to Mutual Funds ...... 91 Similarities ...... 91 Life Insurance ...... 92 Guarantees ...... 93 Beneficiary Designation ...... 94 Assuris Coverage ...... 94 Process ...... 95 Income Tax Implications ...... 95 Income Flow ...... 95 Disposition ...... 96 Guarantee ...... 98 Benefits of Segregated Funds ...... 98 Other Considerations ...... 99 Selecting Appropriate Funds ...... 99

Appendix C, Page 15 Exchange Traded Funds Introduction ...... 101 ETF Basics ...... 101 Benefits of ETFs ...... 101 Types of ETFs ...... 102 Taxation ...... 103 Other Investment Structures Hedge Funds ...... 104 Labour-Sponsored Investment Funds ...... Error! Bookmark not defined. Nature ...... Error! Bookmark not defined. Applications ...... Error! Bookmark not defined. Tax-Sheltered Investments ...... 104 Limited Partnership ...... 104 Characteristics ...... 104 Taxation ...... 105 Income Trusts ...... 106 Flow-Through Shares ...... 107 International Investments ...... 108 Foreign Holdings ...... 108 Taxation ...... 108 Real Estate ...... 109 Direct Holdings ...... 109 Mortgages ...... 110 Real Estate Investment Trusts ...... 110 Precious Metals ...... 111 Collectible Assets ...... 111 Insurance ...... 112 Summary ...... 112 Key Terms ...... 113

Appendix C, Page 16

Module 10: Investment Planning & Analysis

Appendix C, Page 17 Module 10: Investment Planning & Analysis Learning Objectives ...... 1 Overview ...... 1 Behavioural Finance Introduction ...... 3 Heuristics ...... 3 Prospect Theory ...... 4 Endowment Effect or Divestiture Aversion ...... 4 Status Quo Bias ...... 4 Overconfidence ...... 5 Demographics ...... 5 Escalation Bias ...... 5 Mental Accounting ...... 6 Herd Mentality ...... 6 Measuring Return Introduction ...... 7 Treasury Bills ...... 7 Quoted Yield ...... 7 Purchase Price ...... 8 U.S. Treasury Bills ...... 9 Effective Annualized Yield ...... 10 Bonds ...... 11 Market Price ...... 11 Current Yield ...... 13 Yield-to-Maturity ...... 15 Yield-to-Call ...... 16 Preferred Shares ...... 18 Current Yield ...... 18 Market Price ...... 19 Holding Period Return ...... 20 Duration ...... 22 Immunization ...... 26 Mutual Funds - Investment Return ...... 26 Stock Valuations ...... 28 Dividend Discount Model ...... 28 Zero-Growth Model ...... 29 Constant-Growth Model ...... 31 Three-Stage DDM ...... 32 Conclusion ...... 33 Finite Holding Period ...... 33 Price-Earnings Based Valuations ...... 34 Zero-Growth Model ...... 35 Other Models ...... 36 Conclusion ...... 36 Analysis Introduction ...... 37 Security Analysis ...... 37 Technical Analysis ...... 37 Moving Averages ...... 38 Relative Strength Index ...... 39 Fundamental Analysis ...... 40 Diversification ...... 41 Types of Diversification Asset Classes ...... 42 Company Size ...... 44 Industry ...... 44 Geography ...... 45

Appendix C, Page 18 Management Style ...... 45 Fixed-Income Maturity Dates ...... 45 Credit Risk ...... 46 Conclusion ...... 46 Investment Styles ...... 46 Active Investing ...... 46 Passive Investing ...... 47 Styles of Portfolio Development ...... 48 Security Selection ...... 48 Asset Allocation ...... 48 Market Timing ...... 50 Maturity Selection ...... 50 Short Sales ...... 51 Style-Based Investing ...... 52 Indexed Portfolios ...... 53 Buy and Hold ...... 53 Portfolio Insurance ...... 53 Investment Objectives ...... 54 Income ...... 55 Safety of Principal ...... 55 Liquidity ...... 56 Growth ...... 57 Marketability ...... 57 Business Cycles ...... 58 Hedging Strategies ...... 59 Leveraged Investing ...... 60 Interest Deductibility ...... 60 Magnification ...... 60 Other Considerations ...... 63 Application ...... 64 Formula Investing ...... 64 Dollar-Cost Averaging ...... 65 Registered vs. Non-Registered ...... 65 Capital Gains Issue ...... 65 Strip Bonds ...... 67 Managing Risk ...... 67 Business Risk ...... 68 Market Risk ...... 68 Interest Rate Risk ...... 69 Reinvestment Risk ...... 70 Inflation Risk ...... 70 Appendices ...... 72 Appendix 1 - Statement of Net Worth ...... 72 Appendix 2 - Investment Leverage ...... 74 Summary ...... 82 Key Terms ...... 83 Relevant Acronyms ...... 85

Appendix D, Page 1

Appendix D: FP243 Syllabus FP243 — Retirement Income Planning

Module 11: Government Retirement Benefit Plans ...... 24

Learning Objectives ...... 25

Overview...... 25

History ...... 25

Canada Pension Plan (CPP) ...... 27 Administration ...... 28 Benefits ...... 28 CPP Contributions ...... 28

Pensionable Employment ...... 28

Contribution Structure ...... 29

Contribution Rates ...... 32

Contribution Calculations ...... 32

Administration ...... 34

Statement of Contributions ...... 34 CPP Benefits ...... 34

Spouse & Common-Law Partner ...... 34

Retirement Benefits ...... 35

Eligibility ...... 35

Post-Retirement Benefit ...... 35

Retirement Benefit Changes ...... 36

Pension Adjustments for Early & Late CPP Take-Up ...... 37

Calculating the CPP Retirement Pension ...... 38

Normal Retirement – Age 65 ...... 41

Early Retirement – Prior to Age 65 ...... 41

Late Retirement – After Age 65 ...... 42

Start Date Decision ...... 44

CPP Pension Sharing ...... 47 Appendix D, Page 2

Provisions ...... 48

Terminating the Assignment ...... 51

Credit Splitting ...... 51

Provisions ...... 52

Date of Termination of the Relationship ...... 54

Mandatory Credit Splitting & Other Issues ...... 54

Disability Benefits ...... 55

Eligibility ...... 55

Defining Disabled ...... 56

Benefits ...... 56

Rehabilitation, Work & Related Activities ...... 57

Termination of Benefits ...... 57

Disability, Retirement Benefits & Survivor's Benefits ...... 58

Dependent Children of Disabled Contributors ...... 58

Benefits for Survivor's ...... 59

Eligibility ...... 59

The Death Benefit ...... 60

Survivor's Pension ...... 60

Children's Benefit ...... 62 Benefit & Rate Summary...... 64 Indexing of Benefits ...... 65 Tax Treatment of CPP Contributions & Benefits ...... 65

Old Age Security (OAS) ...... 67 Spouses & Common-Law Partners ...... 67 Old Age Security Retirement Pension ...... 68

Eligibility ...... 68

Deferring Old Age Security Pension ...... 68

Pension Amount ...... 69

Program Funding & Benefits ...... 70 Appendix D, Page 3

OAS Clawback ...... 70 Guaranteed Income Supplement (GIS) ...... 71

Eligibility ...... 71

Program Funding & Benefits ...... 72

GIS Clawback ...... 73

Base Income ...... 74

Out of Country ...... 74

Termination of Benefits ...... 75 Allowance ...... 75

Eligibility ...... 75

Benefits ...... 75

Base Income ...... 76

Out of Country ...... 77

Termination of Benefits ...... 77 Allowance for Survivors ...... 77

Eligibility ...... 77

Benefits ...... 78

Base Income ...... 78

Termination of Benefits ...... 79 Benefit Payment Summary ...... 79 Tax Treatment of OAS Benefits ...... 79

Summary ...... 80

Key Terms ...... 81

Module 12: Registered Pension Plans ...... 83

Learning Objectives ...... 84

Overview...... 84

Registered Pension Plan Basics ...... 86 Retirement System ...... 86 Regulations ...... 87 Appendix D, Page 4

Plan Administration ...... 88 Pensionable Service ...... 88 Eligibility ...... 89 Termination ...... 90 Vesting ...... 90 Locking-In Provisions ...... 91 Portability ...... 92 Normal Retirement Age ...... 92 Plan Amendments & Termination ...... 92 Pension Plan Contributions ...... 93 Multi-Employer Plan ...... 93 Pension Income Splitting ...... 93

Defined Benefit Pension Plans ...... 94 Benefit Formulas ...... 95

Final Earnings/Best Average Earnings ...... 95

Career Average ...... 98

Flat Benefit ...... 101 Contributions ...... 102

Employer ...... 102

Investment Return ...... 103

Life Expectancy ...... 104

Other Items ...... 104

Employee ...... 106

Current Service ...... 106

Past Service Contributions ...... 108 Benefits ...... 108

Entitlement ...... 108

Calculation ...... 109

Maximum Pension Rule ...... 111

Integration With Government Benefits ...... 112 Appendix D, Page 5

Indexation ...... 112 Retirement ...... 113

Normal Retirement ...... 113

Early Retirement ...... 116

Qualifying Factor ...... 117

Bridging Benefits ...... 118

Postponed Retirement ...... 119

Termination of Employment ...... 119

Death of Plan Member ...... 120

Relationship Breakdown ...... 121 Income Tax Implications ...... 122 Defined Benefit Pension Statement...... 124

Calculations ...... 127

Individual Pension Plans ...... 129 Definition ...... 129 Plan Fit ...... 129 Plan Design ...... 130 Past Service ...... 130 Plan Value ...... 131

Defined Contribution Pension Plan ...... 134 Plan Fit ...... 135 Contributions ...... 136

Integration With Government Benefits ...... 137

Investment Selection ...... 138

Maximum Contributions ...... 138 Benefits ...... 139

Entitlement ...... 139

Benefit Calculation ...... 139 Retirement ...... 141

Normal Retirement ...... 141 Appendix D, Page 6

Early Retirement ...... 143

Postponed Retirement ...... 144

Termination of Employment ...... 144

Death of Plan Member ...... 145

Relationship Breakdown ...... 146 Pooled Registered Pension Plans ...... 146 Income Tax Implications ...... 147 DB & DC Comparison ...... 148

Appendices ...... 151 Appendix One - Federal Governing Pension Legislation ...... 151

Summary ...... 151

Key Terms ...... 153

Module 13: Registered Retirement Savings Plans ...... 156

Learning Objectives ...... 157

Overview...... 157

Registered Retirement Savings Plans (RRSPs) ...... 160 Establishing an RRSP ...... 162

Minimum Age ...... 162

Maximum Age...... 162

Types of Plans ...... 163

Individual RRSP ...... 163

Self-Directed Individual RRSP ...... 164

Group RRSP ...... 166 Contributions ...... 168

Earned Income ...... 168

Current Contribution Limit ...... 169

Pension Adjustment ...... 170

RRSP Contributions ...... 172

New Contribution Room ...... 172 Appendix D, Page 7

Pension Adjustment Reversal (PAR) ...... 173

Past Service Pension Adjustment (PSPA) ...... 174

Total Contribution Room ...... 178

Types of Contributions ...... 181

Timing ...... 182

Maximum Age Restrictions ...... 182

Issuing Receipts ...... 183

Other Types of Contributions ...... 183

Excess RRSP Contributions ...... 183 Investments...... 187

Qualified Investments ...... 187

Non-Qualified Investments ...... 188 Income Tax Implications ...... 189

Regular RRSP ...... 189

Asset Transfers ...... 190

Transfer From an Unmatured RRSP (During Annuitant's Lifetime) ...... 190

Transfer to an Unmatured RRSP ...... 192

Death of an Annuitant ...... 194

General Terms ...... 194

Refund of Premiums ...... 194

Spouse or Common-Law Partner ...... 195

Financially Dependent Child or Grandchild ...... 196

Financially Dependent Child or Grandchild (Disabled) ...... 196 Spousal RRSP ...... 197

Criteria ...... 197

Attribution ...... 198

Contributing Spouse Over Age 71 ...... 201

Contributions After Death of Spouse ...... 201 Appendix D, Page 8

Retiring Allowance ...... 202

Definition ...... 202

Calculation ...... 202

Transfer ...... 204

Locked-In RRSPs & Locked-In Retirement Accounts ...... 206 Nature ...... 206 Integration With an RRSP ...... 206 Establishing a Locked-In RRSP or LIRA ...... 207 Asset Transfers ...... 207 Plan Maturity ...... 208 Death of an Annuitant ...... 209

Home Buyer’s Plan ...... 210 Nature ...... 210 Eligibility ...... 210

Regular Program ...... 211

Disabled Person's Assistance ...... 212 Qualifying Home ...... 213 Withdrawals ...... 214 Restriction on RRSP Deduction ...... 216 Repayment Withdrawals ...... 217

Schedule & Calculation ...... 217

Designating a Repayment ...... 218 HPB Balance ...... 218 Shortened Repayment Period ...... 219

HBP Participant Dies ...... 219

HBP Participant Becomes a Non-Resident ...... 220

HBP Participant’s Options in the Year of Turning 71 ...... 220 Cancelling Participation ...... 221 Analysis ...... 221

Lifelong Learning Plan ...... 223 Appendix D, Page 9

Nature ...... 223 Eligibility ...... 224

Roles & Conditions ...... 224

Qualifying Educational Program ...... 225 Withdrawals ...... 225

Use of the Funds ...... 225

Amounts ...... 225

Process ...... 227 Restrictions on RRSP Deductions ...... 227 Repayment of Withdrawals ...... 228

Repayment Period ...... 228

LLP Student Leaves Educational Program ...... 228

Repayment Schedule ...... 229

Repayment Calculation ...... 230

Designating a Repayment ...... 230 LLP Balance ...... 231 Shortened Repayment Period ...... 231

LLP Participant Dies ...... 232

LLP Participant Becomes a Non-Resident ...... 232

LLP Participant’s Options in the Year of Turning 71 ...... 233 Cancelling Participation ...... 233

Deferred Profit-Sharing Plans (DPSPs) ...... 234 Contributions ...... 234 Withdrawals From a DPSP ...... 235 Death of the DPSP Plan Member ...... 237 Assessing Value ...... 238

Summary ...... 239

Key Terms ...... 240

Module 14: Retirement Income ...... 243

Learning Objectives ...... 244 Appendix D, Page 10

Overview...... 244

Registered Retirement Income Funds (RRIFs) ...... 247 Establishing an RRIF ...... 248

Transfer From an RRSP ...... 249

Transfer From an RRIF ...... 251

Transfer From an RPP ...... 252 Types of RRIFs ...... 253 Minimum Withdrawal Calculation ...... 253

Minimum Payment Calculation ...... 254 Withdrawals From an RRIF...... 256

Ongoing Withdrawal By Annuitant ...... 256

Frequency ...... 256

Excess Amounts ...... 257

Transferring Assets ...... 258 Spousal RRIF ...... 259

Criteria ...... 259

Income Attribution ...... 259 Investments...... 262 Transfers Out of RRIF ...... 263 Income Tax Implications ...... 264

Regular RRIF ...... 264

Spousal RRIF Payments ...... 265

Pension Income Tax Credit & Splitting ...... 266

Death of an RRIF Annuitant ...... 266

General Terms ...... 266

Designated Benefit ...... 267

Spouse or Common-Law Partner ...... 267

Financially Dependent Child or Grandchild ...... 269

Financially Dependent Child or Grandchild (Disabled) ...... 269 Appendix D, Page 11

Designated Benefits General Summary ...... 270 Beneficiary Designation ...... 271 Relationship Breakdown ...... 272 Selection of an RRIF ...... 272

Life Income Funds (LIFs), Locked-In Retirement Income Funds (LRIFs) & Prescribed Registered Retirement Income Funds (PRRIFs)...... 274 Unlocking Locked-In Funds ...... 275

Special Circumstances ...... 275

Prescribed RRIF ...... 275 Life Income Funds (LIFs) ...... 277

Establishing an LIF ...... 277

Withdrawals From an LIF...... 278

Investments ...... 280

Asset Transfers ...... 280

Income Tax Implications ...... 281

Death of an LIF Annuitant ...... 281

Relationship Breakdown ...... 281

Conversion to a Life Annuity ...... 281 Locked-In Retirement Income Funds (LRIF) ...... 282

Nature...... 282

Establishing an LRIF ...... 282

Withdrawals From an LRIF ...... 283

Asset Transfers ...... 283

Income Tax Implications ...... 283

Death of the LRIF Annuitant ...... 284

Relationship Breakdown ...... 284 Selection of an LIF, an LRIF or a PRRIF ...... 284 Comparison of Plans ...... 284

Annuities ...... 286 Appendix D, Page 12

Registered Annuities ...... 287 Non-Registered Annuities ...... 288 Income Tax Implications ...... 289

Registered Annuities ...... 289

Non-Registered Annuities ...... 289

Non-Prescribed Taxation ...... 290

Prescribed Taxation ...... 290

Calculating Capital & Interest Elements ...... 291

Other Tax Issues ...... 293 Features of Annuities ...... 293

Immediate vs. Deferred Annuity ...... 293

Term of the Annuity ...... 294

Straight Life Annuity...... 294

Joint Life Annuity ...... 295

Life Annuity With Guarantee Periods ...... 296

Indexed Annuity ...... 299

Temporary Annuities ...... 300

Impaired Annuities ...... 302

Fixed vs. Variable Annuity ...... 303

Death ...... 303 Selection of an Annuity ...... 304

Reverse Mortgages ...... 305 Nature of a Reverse Mortgage ...... 305 Types of Reverse Mortgages ...... 307

Reverse Annuity Mortgage ...... 307

Line of Credit Reverse Mortgage ...... 308

Fixed Term Reverse Mortgage ...... 309 Taxation...... 309

Retirement Compensation Arrangement (RCA) ...... 310 Appendix D, Page 13

Nature of an RCA...... 310 Taxation...... 310 Contributions ...... 311 Distributions Out of the Plan ...... 312 RCA Operation ...... 313 Deemed RCA ...... 313 Filings ...... 314

Appendices ...... 315 Appendix One - Direct Transfers (a), (b) ...... 315 Appendix Two - Transfers Directly & Indirectly (a), (b) ...... 316 Appendix Three - Direct Transfer Due to Relationship Breakdown (a), (b), (c) ...... 317 Appendix Four - Governing Pension Legislation ...... 318

Summary ...... 318

Key Terms ...... 320

Module 15: Retirement Planning ...... 323

Learning Objectives ...... 324

Overview...... 324

Goal & Objective Setting ...... 326 Fundamentals ...... 326

Planning Horizon ...... 326

Retirement Age...... 327

Interest Assumptions ...... 332 Income Planning...... 333

Budget-Based Planning ...... 333

Objective-Based Planning ...... 335 Life Cycle Stages ...... 337

Retirement Assets ...... 339 Compounding ...... 339 Types of Savings ...... 343

Registered Accumulation ...... 344 Appendix D, Page 14

Taxation ...... 345

Non-Registered Investments ...... 346

Interest-Bearing Investments ...... 346

Dividends ...... 348

Capital Gains ...... 348

Conclusion ...... 350

Average vs. Marginal Tax Rate ...... 350 Planning Strategies ...... 351

Borrowing to Make an RRSP Contribution ...... 352

RRSP Deposit vs. Mortgage Repayment ...... 354 Income Strategies ...... 358

Inflation ...... 358

Capital Preservation ...... 359

Capital Erosion ...... 361

Access Principles ...... 362

Summary ...... 363

Key Terms ...... 364

Relevant Acronyms...... 366 Appendix E, Page 1

Appendix E: FP244 Syllabus Module 16: Legal Fundamentals & Family Law Learning Objectives ...... 1 Overview ...... 1 Legal Fundamentals ...... 2 Contracts ...... 2 Formation of a Contract ...... 2 Offer & Acceptance ...... 3 Consideration ...... 3 Intention to Create a Legal Contract ...... 4 Capacity to Contract ...... 5 Legal Intent ...... 5 Discharging a Contract ...... 6 Performance & Agreement ...... 6 Frustration ...... 6 Operation of Law ...... 7 Breach of Contract ...... 7 Law of Torts ...... 7 The Basis for Liability ...... 7 Negligence ...... 8 Letter of Engagement ...... 8 Duty of Care ...... 8 Application ...... 9 Fiduciary Responsibility ...... 9 Agency Relationship ...... 10 Structure ...... 10 Actual Authority ...... 11 Apparent Authority ...... 12 Agent's Duty ...... 12 Property Title ...... 12 Sole Ownership ...... 13 Joint Ownership ...... 13 Types of Joint Ownership ...... 14 The Four Unities ...... 15 Family Law ...... 17 Marriage ...... 18 Common-Law Relationships ...... 19 Domestic Contracts ...... 20 Marriage Contract ...... 20 Cohabitation Agreement ...... 20 Appendix E, Page 2

Separation Agreement ...... 21 Divorce ...... 22 Trends & Process ...... 22 Corollary Relief, Joint Custody & Access ...... 23 Marital Property ...... 24 Division of Pension Assets ...... 25 Child Support ...... 26 Financial Arrangements ...... 26 Calculating Child Support ...... 27 Number of Children ...... 28 Custody Arrangement ...... 28 Selecting the Support Table ...... 30 Annual Income ...... 30 Special or Extraordinary Expenses ...... 31 Undue Hardship ...... 31 Calculations ...... 32 Child Support Amounts ...... 34 Enforcement ...... 34 Income Tax Implications ...... 35 Child Support ...... 36 Distinguishing Between Child & Spousal Support ...... 37 Spousal Support ...... 37 Periodic Payments ...... 38 Lump-Sum Payments ...... 38 Same-Sex Partners ...... 38 Other Considerations...... 39 Spousal or Common-Law Amount Credit ...... 39 Amount for an Eligible Dependant Credit...... 39 Child Care Deduction ...... 40 Capital Property Transfer ...... 40 Principle Residence Exemption ...... 41 Registered Pension Plan ...... 42 Registered Retirement Savings Plans & Registered Retirement Income Funds ...... 42 Tax-Free Savings Account Transfers ...... 43 Spousal RRSP ...... 43 Legal Fees ...... 43 Appendix One - Child Support Guidelines ...... 44 Summary ...... 46 Key Terms ...... 47 Appendix E, Page 3

Module 17: Risk Management & Insurance Fundamentals Learning Objectives ...... 1 Overview ...... 1 Insurance Fundamentals ...... 2 Insurance Contract ...... 2 Offer, Acceptance & Consideration for Insurance ...... 2 Parties ...... 3 Contract Validity ...... 5 Representation & Warranty ...... 5 Material Fact & Material Representation ...... 6 Mistake of Law & Concealment ...... 6 Incontestability Period...... 7 Contract Formation ...... 8 Application ...... 8 Premium Payment ...... 9 Conditional Receipt ...... 9 Characteristics of Insurance Contracts ...... 9 Elements of an Insurance Contract ...... 11 Declarations ...... 11 Ratings ...... 11 Exclusions...... 12 Riders, Endorsements & Floaters ...... 12 Principles of Insurance Contracts ...... 13 Insurable Interest ...... 13 Principle of Indemnity ...... 13 Valued Contract ...... 14 Parol Evidence Rule ...... 14 Subrogation ...... 14 The Risk Management Process ...... 16 Step One: Setting Risk Management Objectives ...... 16 Step Two: Identifying & Evaluating Risks ...... 17

Appendix E, Page 4

Step Three: Selecting Strategies ...... 19 Risk Control Strategies ...... 19 Risk Financing Strategies ...... 21 Step Four: Implementation ...... 22 Step Five: Monitoring ...... 22 Conclusion ...... 23 Property & Casualty Insurance...... 24 Automobile Insurance ...... 24 Terminology ...... 24 Provincial Regulation1 ...... 26 Bodily Injury ...... 27 Accident Benefits ...... 27 Uninsured Motorists ...... 28 Family Protection ...... 28 Liability ...... 28 Third Party Liability Coverage ...... 28 Driving Another Person's Automobile ...... 29 Damage to Vehicle ...... 29 Collision ...... 29 Comprehensive Insurance ...... 29 Other Variations ...... 30 Features ...... 30 Premiums ...... 30 Driver ...... 31 Vehicle ...... 31 Policy Design ...... 31 Claims...... 33 Home Insurance ...... 34 Types of Policies ...... 34 Replacement Cost vs. Actual Cash Value...... 36 Claims...... 37 Appendix E, Page 5

Additional Living Expenses ...... 38 Uninsurable Peril ...... 38 Burglary, Robbery & Theft ...... 39 Liability Coverage...... 39 Excess Liability Coverage & Cottage ...... 41 Tenant Insurance ...... 41 Condominium Insurance ...... 41 Risk Management Process ...... 42 Other Types of Coverage ...... 42 Government Health Insurance ...... 44 Canada Health Act ...... 44 Program Criteria ...... 44 Conditions ...... 46 Extra-Billing & User Charges ...... 46 Provincial Health Insurance Plans ...... 46 Services ...... 46 Covered Individuals ...... 48 Taxation Implications ...... 48 Private Medical Insurance ...... 49 Extended Health Coverage ...... 50 Dental Insurance Coverage ...... 50 Plan Design ...... 51 Deductible ...... 51 Coinsurance ...... 52 Maximum ...... 53 Selection ...... 54 Out-of-Canada Coverage ...... 55 Taxation Implications ...... 56 Summary ...... 57 Key Terms ...... 58

Appendix E, Page 6

Module 18: Life Insurance & Living Benefits Learning Objectives ...... 1 Overview ...... 1 Individual Insurance Contracts ...... 3 Parties to the Contract ...... 3 Insurer/Carrier ...... 3 Policy Owner ...... 4 Life Insured ...... 6 Joint Life ...... 7 Beneficiary Designation ...... 7 Revocable vs. Irrevocable ...... 7 Designating a Beneficiary ...... 11 A Named Beneficiary...... 11 Estate as a Beneficiary ...... 12 Minor as a Beneficiary ...... 13 Valid Beneficiary Appointments ...... 13 Contingent Beneficiary ...... 15 Settlement Options ...... 15 Creditors ...... 15 Named Beneficiary ...... 15 Collateral Assignment & Creditor of Beneficiary ...... 17 Contract Formation ...... 17 Void & Voidable Contracts ...... 17 Policy Delivery ...... 18 Rescission Right ...... 18 Incontestability Period...... 18 Misstatement of Age ...... 19 Grace Period ...... 19

Appendix E, Page 7

Policy Reinstatement ...... 20 Suicide Clause ...... 21 Premiums ...... 22 Life Expectancy & Mortality ...... 22 Premium Calculation ...... 22 Age & Gender ...... 23 Smoking Status ...... 24 Rating ...... 24 Uninsurable ...... 25 Preferred Rates ...... 25 Underwriting ...... 25 Riders...... 26 Terminology ...... 27 Face Amount ...... 27 Beneficiary ...... 27 Adjusted Cost Basis ...... 28 Exempt & Non-Exempt Policies ...... 30 Illustration...... 31 Temporary vs. Permanent ...... 31 Living Benefits ...... 32 Why Buy Life Insurance ...... 32 Term Life Insurance ...... 33 Benefit Amount ...... 33 Renewable ...... 33 Convertible ...... 35 Policy Expiration ...... 35 Product Pricing & Premiums ...... 36 Product Selection ...... 38 Whole Life Insurance ...... 40

Appendix E, Page 8

Plan Design ...... 40 Participating Policy Dividends ...... 42 Cash Receipt ...... 43 Automatic Premium Reduction ...... 44 Paid-Up Bonus Additions ...... 44 Accumulation ...... 44 Term Insurance ...... 45 Surrender Charges ...... 45 Premiums ...... 45 Policy Loans ...... 46 Collateral Assignment ...... 47 Death Benefit ...... 47 Non-Forfeiture Options ...... 48 Product Selection ...... 49 Universal Life Insurance ...... 50 Product ...... 50 Mortality Charges ...... 51 Expense Charges ...... 52 Investments ...... 52 Cash Surrender Value ...... 52 Death Benefit Options ...... 53 Non-Forfeiture Options ...... 54 Policy Loan & Illustration ...... 54 Term-to-100 ...... 55 Product Design ...... 55 Premiums ...... 55 Exempt & Non-Exempt ...... 55 Income Tax Implications ...... 56 December 1, 1982 ...... 56 Last Acquired ...... 56 Appendix E, Page 9

Adjusted Cost Basis ...... 57 Annual Taxation ...... 58 Disposition ...... 59 Death of Life Insured ...... 59 Ownership Transfer ...... 60 Arm's Length ...... 60 Non-Arm's Length ...... 61 Shareholder Transactions ...... 62 Rollovers ...... 63 Full Surrender ...... 63 Partial Surrender ...... 64 Policy Loans ...... 66 Policy Dividends ...... 67 Collateral Assignment ...... 67 Dividends on Deposit ...... 68 Applications Using Individual Life Insurance ...... 69 Capital Needs Analysis ...... 69 Immediate Cash Needs & Debt and Lump-Sum Needs ...... 70 Long-Term Income ...... 70 Monitoring ...... 71 Estate Planning ...... 75 Collateral Assignment ...... 75 Key-Person Insurance ...... 76 Buy-Sell Arrangements ...... 76 Types of Arrangements ...... 76 Cross Purchase Buy-Sell Arrangement ...... 77 Promissory Note Arrangement ...... 79 Share Redemption Arrangement ...... 81 Policy Replacement ...... 84 Appendix E, Page 10

Group Life Insurance ...... 85 Basic Principles ...... 85 Product Design ...... 86 Beneficiary ...... 87 Evidence of Insurability ...... 87 Conversion ...... 88 Disability Provision ...... 88 Premiums ...... 88 Taxation of Group Life Insurance ...... 89 Appropriateness ...... 89 Disability Insurance ...... 91 Individual Disability Insurance ...... 92 Morbidity ...... 92 Occupational Classification ...... 92 Other Underwriting Factors ...... 93 Policy Owner ...... 94 Definition of Disability ...... 94 Reduced Disability ...... 96 Other Design Aspects ...... 97 Waiting/Elimination Period...... 97 Benefit Period ...... 97 Benefit Maximum ...... 98 Other Contractual Provisions ...... 99 Riders ...... 100 Taxation ...... 101 Individual Disability Applications ...... 101 Needs Analysis ...... 102 Step One: Setting the Risk Management Objective ...... 102 Step Two: Identifying & Evaluating Risks ...... 103 Step Three: Selecting Strategies ...... 104

Appendix E, Page 11

Step Four: Implementation ...... 105 Step Five: Monitoring ...... 105 Business Overhead Insurance ...... 106 Key-Person Disability Coverage ...... 107 Disability Buy-Sell Insurance ...... 107 Group Disability Insurance ...... 108 Characteristics ...... 108 Product Design...... 108 Taxation of Group Disability Insurance ...... 110 Appropriateness of Coverage ...... 111 Long-Term Care Insurance ...... 112 Plan Features ...... 112 Plan Models ...... 112 Level of Care ...... 113 Elimination/Waiting Period ...... 113 Benefit Amount & Period ...... 114 Exclusions...... 114 Claim Eligibility ...... 114 Covered Individuals ...... 115 Contract & Premiums ...... 115 Income Tax Implications ...... 116 Critical Illness Insurance ...... 117 Plan Features ...... 117 Premiums & Claims ...... 118 Covered Illnesses ...... 119 Income Tax Implications ...... 119 Summary ...... 120 Key Terms ...... 121

Appendix E, Page 12

Module 19: Estate Planning Learning Objectives ...... 1 Overview ...... 1 Power of Attorney ...... 3 Power of Attorney for Property ...... 4 Power of Attorney for Personal Care ...... 7 Estates & Wills ...... 8 Basics of a Will ...... 8 Nature ...... 8 Types of Wills ...... 9 Mirror, Joint & Mutual Wills ...... 10 Purpose ...... 11 Creation & Testator ...... 11 Estate Fundamentals ...... 12 Legacy/Bequest ...... 12 Ademption & Abatement ...... 13 Lapse ...... 13 Exoneration ...... 14 Residue ...... 14 Per Stirpes vs. Per Capita ...... 15 Executor...... 18 Selection ...... 18 Role ...... 19 Powers ...... 19 Distribution of Estate ...... 20 Creditors ...... 20 Priority Order ...... 20 Heirs ...... 21 Amount ...... 21 Timing ...... 21 Other Considerations ...... 22 Special Needs Beneficiaries ...... 23 Minor Children ...... 23 Educational Costs ...... 23 Appendix E, Page 13

Disabled Child...... 24 Releases & Passing of Account ...... 25 Dependants' Relief ...... 26 Spousal Rights ...... 26 Clauses in the Will ...... 27 Identification ...... 28 Revocation of Previous Wills ...... 28 Appointment of Executor ...... 28 Registered Money Rollover ...... 29 Payment of Debts ...... 29 Bequests ...... 30 Trustee Powers ...... 31 Trustee for Minor Beneficiaries ...... 31 Releases on Behalf of Minor Beneficiaries ...... 32 Qualification of Beneficiary ...... 32 Special Provision ...... 32 Guardianship...... 32 Dates & Signatures ...... 33 Other Clauses ...... 34 Testamentary Trusts ...... 34 Integration ...... 34 Types of Trusts ...... 35 Spousal Trust ...... 35 Non-Spousal Trust ...... 37 Types of Interest ...... 39 Trustee ...... 39 Taxation ...... 40 Graduated Rate Estate ...... 40 Qualified Disability Trust (QDT) ...... 44 Property Transfers ...... 44 Multiple Trusts ...... 45 Administrative Issues ...... 45 Multiple Wills ...... 45 Retention of a Will ...... 46 Updating a Will ...... 46 Cancelling a Will ...... 47

Appendix E, Page 14

Intestate ...... 49 Relationships ...... 49 Overview of Intestacy ...... 51 Distribution of Estate ...... 53 Preferential Share ...... 53 Beyond Preferential Share ...... 55 No Preferential Share ...... 58 Other Heirs ...... 59 Partial Intestate ...... 60 Appointment of an Administrator ...... 60 Probate ...... 62 Process ...... 62 Probatable Assets...... 63 Fees ...... 63 Probate Planning ...... 63 Developing the Plan ...... 64 Non-Probate Assets ...... 65 Joint Tenancy ...... 65 Named Beneficiary ...... 66 Other ...... 67 Applying the Concepts ...... 68 Will Substitutes ...... 72 Joint Tenancy Ownership ...... 72 Beneficiary Designations ...... 73 Inter Vivos Trusts ...... 75 Uses of an Inter Vivos Trust ...... 75 Donatio Mortis Causa ...... 76 Taxation ...... 77 Income ...... 77 Property Transfers ...... 77 Deemed Disposition ...... 77 Income Attribution ...... 78 Appendix E, Page 15

Special Trusts ...... 78 Spousal or Common-Law Partner Trust ...... 81 Living or Family Trust ...... 81 Taxation ...... 82 Elective Returns ...... 82 Rights or Things Income ...... 82 Proprietor or Partnership Income ...... 84 Testamentary Trust Income ...... 84 Integration of Returns ...... 85 Full Claim on Each Return ...... 85 Dividend Claim Permitted...... 86 Claim Against Specific Income ...... 86 Eligible for Final Return Only ...... 87 Administrative Issues ...... 87 Death of a Tax Payer ...... 89 General Tax Treatment ...... 89 Spousal Rollover ...... 89 Electing Out of the Spousal Rollover ...... 90 Property Owned as Joint Tenants ...... 92 General Treatment ...... 92 Spousal Rollover ...... 93 Capital Gains ...... 93 Principal Residence ...... 94 Transfer of Farm Property at Death ...... 94 Alternative Minimum Tax, Attribution & Estate Property ...... 95 Death of a Taxpayer Summary ...... 95 Death of an RRSP Annuitant ...... 96 General Terms ...... 96 Refund of Premiums ...... 97 Spouse or Common-Law Spouse ...... 97 Financially Dependent Child or Grandchild ...... 98 Financially Dependent Child or Grandchild (Disabled) ...... 98 RRSP Contributions After Death ...... 99 Death of the RRIF Annuitant ...... 99 Appendix E, Page 16

Employee Death Benefit ...... 100 Application of Exemption...... 101 U.S. Estate Taxes ...... 102 Residency Rules ...... 102 U.S. Estate Tax ...... 103 Applications ...... 105 Holding Companies ...... 105 Estate Freeze ...... 105 Insurance ...... 107 Estate Planning ...... 107 Buy-Sell Arrangements ...... 107 Insured Annuity/Back-to-Back ...... 108 Funding a Trust With Insurance ...... 110 Estate Planning Review ...... 110 Estate Planning Process ...... 110 Estate Planning Checklist ...... 111 Charitable Giving ...... 113 Basic Tax Rule ...... 113 Federal Non-Refundable Tax Credit ...... 113 Optimizing Credit ...... 114 Gifts In Kind ...... 115 Special Circumstances ...... 116 Life Insurance ...... 117 Absolute Assignment ...... 117 Beneficiary Designation ...... 119 Will Planning ...... 119 Conclusion ...... 119 Appendix One – Sample Will ...... 120 Summary ...... 122 Key Terms ...... 123 Relevant Acronyms ...... 127 Appendix F, Page 1

Appendix F: CLU255 Syllabus

Advanced Concepts in Tax & Law for Personal Planning CLU 255 Appendix F, Page 2 Table of Contents

Course Objectives ...... 16 Course Outline ...... 16 Study Aids ...... 17 Assessments ...... 18 Effective Learning ...... 6 Module 1: The Canadian Legal System& Income Tax Administration ...... 8 Learning Objectives ...... 1 The Canadian Legal System ...... 2 Creating Legislation ...... 2 The Income Tax Act ...... 3 Canadian Tax System ...... 3 Tax Reform ...... 3 Goods & Services Tax (GST) ...... 3 Projections on Personal Income Tax Revenues ...... 3 Development of Legislation ...... 4 Department of Finance...... 4 Minister of Finance ...... 5 Income Tax Regulations ...... 5 Amendments ...... 5 Interpreting the Income Tax Act ...... 5 Structure of the Act ...... 5 Overview of the ITA ...... 6 Reading a Provision ...... 9 Calculation of Income ...... 9 Calculation of Taxable Income ...... 10 Calculation of Income Tax ...... 10 Administration & Enforcement ...... 11 Statutory Interpretation ...... 11 Interpreting Tax Legislation ...... 11 Definitions in the Act ...... 12 Activity #2 ...... 13 Activity #3 ...... 13 Cases ...... 14 Supporting Material to Assist in Interpretation ...... 14 CRA Communicating With Taxpayers ...... 14 Guides & Pamphlets ...... 14 Information Circulars ...... 15 Technical Interpretations Letter ...... 15 Advance Tax Rulings ...... 15

Copyright © 2016 The Institute for Advanced Financial Education. 3 Appendix F, Page 3 Interpretation Bulletins (Folios) ...... 15 Tax Policy ...... 16 Equity ...... 16 Neutrality ...... 16 Simplicity ...... 17 Tax Treaties ...... 17 Tax Information Exchange Agreements ...... 17 Provincial Issues ...... 17 Family Law ...... 17 Married versus Common-Law ...... 18 Landmark Decision ...... 18 Civil Union ...... 19 Other Jurisdictions...... 20 Three Years of Cohabitation ...... 20 Child Support ...... 21 Getting Divorced ...... 22 Government of Canada, Federal Child Support Guidelines ...... 22 Changing Child Support ...... 23 When You Are Not Married ...... 23 Family Law Related Concepts ...... 24 Domestic Contract ...... 24 Division of Family Property ...... 24 Valuation Date ...... 25 Value ...... 25 Unjust Enrichment ...... 25 Matrimonial Home ...... 26 Child of the Marriage ...... 26 Split Custody ...... 26 Spousal Support ...... 27 Child Support ...... 28 Bankruptcy Legislation ...... 28 Informal ...... 28 Consumer Proposal ...... 29 Division I Proposal...... 29 Filing Bankruptcy ...... 29 Key Terms ...... 31 Contract Law ...... 33 Contract Law Concepts ...... 33 Offer ...... 33 Tender ...... 33 Acceptance ...... 33

Copyright © 2016 The Institute for Advanced Financial Education. 4 Appendix F, Page 4 Consideration ...... 34 Seal 34 Objective Meaning...... 35 Context ...... 35 Implied Term ...... 35 Severability ...... 35 Parol Evidence Rule ...... 35 Contra Proferentum ...... 36 Exclusionary Cause ...... 37 Breach ...... 37 Mistake - Void & Voidable Contract ...... 38 Capacity to Contract ...... 38 Privity of Contract ...... 38 Illegal Contract ...... 39 Contract Against Public Policy ...... 39 Misrepresentation ...... 39 Fraud...... 39 Frustration ...... 40 Unconscionability ...... 40 Undue Influence ...... 41 Performance...... 41 Waiver ...... 42 Novation ...... 42 Assignment ...... 43 Expectation ...... 43 Duty to Mitigate ...... 44 Specific Performance ...... 44 Injunctive Relief ...... 45 Income Tax Administration ...... 46 Residency ...... 46 Relationship to Taxation ...... 46 In What Country Do I Reside? ...... 46 Primary Factors in Determining Issue of Residency ...... 47 Secondary Factors in Determining Issue of Residency ...... 47 Sojourning In Canada ...... 48 Part-Time Resident ...... 48 Assessment ...... 49 Appeals...... 49 Canada Revenue Agency ...... 49 Tax Court of Canada ...... 50 Federal Court of Appeal ...... 50

Copyright © 2016 The Institute for Advanced Financial Education. 5 Appendix F, Page 5 Supreme Court of Canada ...... 50 General Anti-Avoidance Rules ...... 51 Voluntary Disclosure ...... 51 Disclosure Requirements ...... 52 Tax Shelters ...... 53 Third-Party Civil Penalties ...... 53 Key Terms ...... 54 Summary ...... 55 Module 2: Taxation of Life Insurance & Living Benefits...... 56 Life Insurance ...... 2 Exempt versus Non-Exempt ...... 2 Non-Exempt ...... 2 Exemption Test Policy...... 3 G2 & G3 Policies ...... 3 Monitoring of Exemption Test ...... 3 Paid-Up Additions ...... 4 Grandfathering of G1 Policies ...... 4 Prescribed Premium ...... 4 Prescribed Increase in Death Benefits ...... 5 Last Acquired ...... 6 Transfer of Ownership...... 6 Exercise of a Contractual Right ...... 6 Policy Reinstatement ...... 7 Other Policy Changes ...... 7 Rules ...... 7 Rule #1 ...... 8 Rule #2 ...... 8 Rule #3 ...... 8 Rule #4 ...... 9 Rule #5 ...... 9 Rule #6 ...... 9 Rule #7 ...... 9 Rule #8 ...... 9 Exemption Test Changes for G3 Policies ...... 10 Adjusted Cost Basis of G2 Life Insurance Policy ...... 10 Corporate Owned Insurance Policies ...... 11 Increases to the ACB ...... 11 Decreases to the ACB ...... 13 One ACB per Policy ...... 13 The ACB Effect on Certain Policy Transactions ...... 14 Taxation on Policy Dispositions...... 14

Copyright © 2016 The Institute for Advanced Financial Education. 6 Appendix F, Page 6 Death Benefit Under an Exempt Policy ...... 14 Death Benefit Under a Non-Exempt Policy ...... 14 Third Party Life Insurance ...... 15 Income Inclusion ...... 15 Definition of Disposition ...... 16 Transactions Not Considered Dispositions ...... 16 Proceeds of Disposition ...... 17 Dividends ...... 17 Policy Dividends ...... 18 Absolute Assignment ...... 19 Collateral Assignment ...... 19 Policy Loans ...... 20 Interest Deductibility ...... 20 Policy Loan Interest ...... 21 Policy Transfer to Family Members ...... 21 Transfer to Children (ss 148(8)) ...... 21 Transfer from a Trust ...... 22 Inter-Vivos Transfer to Spouse/Partner (ss 148(81))...... 22 Transfer to Spouse/Partner on Death (ss 148(82)) ...... 22 Split Dollar ...... 23 Assessing a Split Dollar Situation ...... 23 Taxation of the Policy Death Benefit ...... 24 Death of a Policy Owner: Not the Life Insured ...... 24 Death of Life Insured: Exempt Policies & G1 Policies ...... 24 Death of Life Insured: Non-Exempt Policies ...... 25 Death of the Life Insured: Exempt Policies, Non-Exempt Side Fund ...... 25 Insurance Leveraging Programs ...... 26 Key Terms ...... 27 Annuities 28 Types of Annuities ...... 28 Tax Treatment of an Annuity Contract ...... 28 Annual Accrual Method ...... 29 Taxation on the Accrual Method ...... 29 Prescribed Tax Treatment ...... 30 Calculating the Capital Element ...... 30 Step 1: Determine the Capital Element ...... 31 Step 2: Determine the Number of Annuity Payments ...... 31 Step 3: Determine the Proportion of Each Annuity Payment ...... 31 Step 4: Determine the Capital Element of Each Annuity Payment ...... 31 Change to Tax Rules ...... 32 Annuity Premiums ...... 32

Copyright © 2016 The Institute for Advanced Financial Education. 7 Appendix F, Page 7 Taxation on Disposition ...... 32 Taxation on Death ...... 32 Charitable Annuities ...... 32 Key Terms ...... 34 Segregated & Mutual Funds ...... 35 Mutual Fund Trusts ...... 35 Mutual Fund Corporations...... 35 Segregated Funds ...... 36 Taxation of Mutual Funds & Segregated Funds ...... 36 Segregated Fund Guarantees ...... 36 “Top-Up” Payments ...... 37 Disposition Under a Segregated Fund Policy ...... 37 Death of the Policyowner ...... 38 Roll Over ...... 38 Third Party Ownership ...... 38 Guaranteed Minimum Withdrawal Benefit Plans ...... 38 Interest Deductibility...... 40 Key Terms ...... 41 Living Benefits Products ...... 42 Disability Insurance ...... 42 Wage Loss Replacement Plan ...... 42 Employer-Provided Coverage ...... 43 Corporate-Owned Disability ...... 43 Business Overhead Insurance ...... 43 Supplementary Health Insurance ...... 43 Critical Illness Insurance ...... 44 Long-Term Care Insurance ...... 45 Key Terms ...... 46 Summary ...... 47 Module 3: Income Splitting & the Taxation of Trusts and Beneficiaries ...... 48 Learning Objectives ...... 1 Income Splitting ...... 2 Income Splitting Overview ...... 2 Income Splitting With a Spouse ...... 3 Prescribed Rate Loan ...... 3 Prescribed Interest Rates ...... 5 Role of the Prescribed Interest Rate ...... 5 Calculating the Prescribed Interest Rate ...... 5 2015 Statistics ...... 6 Second-Generation Investment Income ...... 6 CPP/QPP Pension Benefit Sharing ...... 7

Copyright © 2016 The Institute for Advanced Financial Education. 8 Appendix F, Page 8 Electing to Share CPP/QPP Pension Benefit ...... 7 Cancelling Pension Sharing ...... 8 Québec Pension Plan (QPP) ...... 8 Pension Splitting ...... 8 Aged 65 & Older ...... 9 Under Age 65 ...... 9 CPP Sharing ...... 9 Benefits of Pension Splitting ...... 10 OAS Clawback...... 10 Death of a Spouse ...... 11 Notional Split ...... 11 Eligibility for Pension Benefits Tax Credit ...... 11 Defining Eligible Pension Income ...... 12 TFSA Income Splitting ...... 12 Income Splitting Through a Family Business ...... 13 Splitting the Capital Gain ...... 13 Spousal RRSPs ...... 14 Post-Mortem Income Splitting ...... 15 Other Family Members ...... 16 Prescribed Rate Loan ...... 17 Capital Gains ...... 17 Tax-Free Savings Account ...... 17 Income Splitting Through a Family Business ...... 18 Salary ...... 18 Dividends ...... 18 Capital Gains ...... 19 Attribution ...... 19 Attribution Rules ...... 19 Loan Guarantees ...... 19 Zero-Rate Loan ...... 20 Gifts to a Minor ...... 20 Market-Driven Loans...... 21 Anti-Avoidance ...... 21 Split Income Tax ...... 21 Split Income ...... 21 The Deeming Rule ...... 21 Purpose of Taxing Split Income ...... 21 Income Splitting Strategy ...... 23 Joint & Several Liability ...... 23 Exclusions to Split Income Rule ...... 24 Kiddie Tax Net Continues To Expand ...... 24

Copyright © 2016 The Institute for Advanced Financial Education. 9 Appendix F, Page 9 “Kiddie Tax” Defined...... 24 Expansion of Kiddie Tax Rules (2011) ...... 24 Expansion of Kiddie Tax Rules (2014) ...... 24 Application of Kiddie Tax Rules ...... 25 Split Income Defined for the Kiddie Tax Rules ...... 25 Exceptions ...... 25 Corporate Attribution ...... 25 Corporate Attribution Rule ...... 26 Effected Participants ...... 26 Shareholder Loan ...... 26 Exchange of Shares ...... 27 Corporate Attribution - Excerpt #1...... 27 Holding Company ...... 27 Freeze Planning ...... 28 Failing the Definition of a Small Business Corporation ...... 28 Alternate Planning Strategy ...... 28 Corporate Attribution - Excerpt #2...... 29 Application of Attribution Rules ...... 29 Anti-Avoidance Measures ...... 29 Designated Person ...... 29 Small Business Corporation ...... 31 Corporate Reorganization ...... 31 Interest Benefit ...... 31 Holding Company ...... 31 Planning Strategies ...... 31 Key Terms ...... 32 Trusts 33 Trust Law Basic ...... 33 Types of Trust ...... 34 Trustee’s Discretion ...... 34 Residency ...... 34 Regular Trust ...... 35 Spousal Trust ...... 35 Impact of Will Provisions on the Validity of the Spousal Trust ...... 36 ITA Concessions ...... 36 Tainted Spousal Trust ...... 36 Income Determined Under Trust Law ...... 38 Spousal Trusts & Life Insurance ...... 38 Suggested Strategies ...... 38 Risk of a Negative Assessment ...... 39 Alter Ego/Joint Partner ...... 39

Copyright © 2016 The Institute for Advanced Financial Education. 1 Appendix F, Page 10 Advantages & Disadvantages ...... 40 Resulting Capital Gains or Capital Cost Allowance ...... 40 Preferred Beneficiary Election ...... 41 Preferred Beneficiary ...... 41 Proposed Solution ...... 41 Taxation ...... 42 Deemed Disposition (21 Year Rule) – Capital Property ...... 42 Deemed Disposition Rules ...... 42 Depreciable Property ...... 43 Payment of Tax By Installments ...... 43 Rollover of Trust Property ...... 43 Trusts Exempt From the Deeming Provisions ...... 43 Mitigating the Financial Impact of the Deeming Provisions ...... 43 Reversionary Trust ...... 44 Disposition (21-Year Rule) – Life Insurance ...... 45 Testamentary Insurance Trusts...... 46 Carry-Back of Net Capital Losses From the Estate to the Deceased ...... 46 Taking Advantage of the Capital Loss Carry-Back Provision ...... 47 New Trust Regime in the Offing ...... 47 Background ...... 47 Testamentary Trusts in the Spotlight ...... 48 A Glimpse at the Changes for Testamentary Trusts ...... 49 Implementation of Flat-Top Rate Taxation ...... 49 Graduated Rate Estate Trust (GRE) ...... 50 Other Tax Measures ...... 50 Transitioning to the New Tax Rules for Trust ...... 50 Surprise Announcement ...... 52 Taxation of Estates: Changes Are Coming ...... 52 Graduated Tax Rates ...... 52 Graduated Rate Estate (GRE) ...... 52 Time Frames ...... 52 Taxation at Top-Flat Tax Rate ...... 53 Taxation at Death for Spousal, Alter Ego & Joint Partner Trusts ...... 54 Implications of the Change in Taxations ...... 54 Effect on Post-Mortem Tax Planning ...... 55 New Trust Legislation ...... 56 Death of Beneficiary Under Alter Ego, Joint Spousal & Common-Law Partner Trusts ...... 56 Deemed Year-End When Death Occurs ...... 56 Trust Income Deemed Payable to Beneficiary ...... 56 Filing Due Date for Trust ...... 56 Deduction in Computing Income of Trust (ITA 104(6)) ...... 57

Copyright © 2016 The Institute for Advanced Financial Education. 1 Appendix F, Page 11 Paragraphs 104(6)a to (a.4) Various Trusts ...... 57 Paragraph 104(6)(b) Adjusted Distribution Amount ...... 57 Paragraph 104(6)(b) Amended ...... 57 Trust Deduction – Death of Spouse or Common-Law Partner (ITA 110.6(12)) ...... 58 Invalid Designation ...... 58 Key Terms ...... 59 Summary ...... 60 Module 4: Tax Planning for Charitable Giving, Death & Retirement ...... 61 Learning Objectives ...... 1 Death of a Taxpayer ...... 2 Probate ...... 2 Probate Fees By Province/Territory ...... 3 Probate Planning ...... 5 Jointly Owned Property ...... 5 Inter Vivos Trust ...... 5 General Taxation ...... 6 Deemed Disposition ...... 6 Capital Property ...... 6 Spousal Rollover ...... 7 Vesting Indefeasibly ...... 7 Automatic Rollover ...... 8 Paying the Tax ...... 8 Alternative Minimum Tax ...... 9 Types of Returns ...... 9 Final Return ...... 9 Cohabiting Spouse or Common-Law Partner Return...... 9 Filing Deadline for the Deceased’s Final Return ...... 9 Payment of Taxes ...... 10 Rights or Things Return ...... 11 Deceased Partner ...... 11 Exclusions...... 11 Optional Return ...... 12 Transfers to Beneficiaries ...... 12 Alternatives for Filing ...... 12 Testamentary Trust Income in the Year of Death ...... 13 Reporting of Capital Gains & Losses ...... 13 RRSP & RRIF Named Beneficiary ...... 14 Beneficiary Beware ...... 14 Death of an RRSP & RRIF Annuitant ...... 14 Joint & Several Liability ...... 15 The Estate’s Responsibility ...... 15

Copyright © 2016 The Institute for Advanced Financial Education. 1 Appendix F, Page 12 Higgins vs. The Queen ...... 15 Farm & Fisher Property ...... 16 Application of the Provision ...... 16 Criteria for Rollover Treatment ...... 16 Family Farm Corporation ...... 17 Farm Rollover ...... 17 Testamentary Trust ...... 17 Automatic Rollover ...... 17 Clearance Certificate ...... 18 Key Terms ...... 19 Charities 20 Tax Rules Governing Charities ...... 20 Classification of Charities & Non-Profits ...... 20 Registration as a Charity ...... 21 Charitable Activities ...... 21 Benefits of Registration ...... 22 Obligations ...... 23 Revocation of Charitable Status ...... 23 Disbursement Quotas ...... 23 Requirements ...... 24 Base for the Disbursement Quota ...... 24 Charitable Donors ...... 24 Income Tax Credit ...... 25 Limit Based on Net Income ...... 25 Gift In-Kind ...... 25 Year of Death ...... 25 Provincial Charitable Credit ...... 26 Provincial Surtaxes ...... 27 Donations Above $200 in a Year ...... 27 Corporate Donors ...... 28 Donation of Appreciated Securities to Charity ...... 28 Corporations...... 28 Donor-Advised Funds ...... 29 Donation of RRSPs/RRIFs ...... 29 Traditional Charitable Annuity Programs ...... 30 Split Receipting ...... 30 “Shop” the Annuity Market ...... 31 Alternative Charitable Insured Annuities ...... 31 Gifts Involving Insurance Policies ...... 32 Valuation of a Gift of a Life Insurance Policy ...... 32 Determination of Fair Market Value ...... 32

Copyright © 2016 The Institute for Advanced Financial Education. 1 Appendix F, Page 13 Exclusions ...... 32 Implications of the Deeming Rule ...... 33 Gifting Tax Shelters ...... 33 The CRA’s Approach ...... 33 Make Up of Tax Shelters ...... 33 New Proposals ...... 34 Key Terms ...... 35 Taxation of Retirement Plans ...... 36 Canada/Québec Pension Plan ...... 36 Old Age Security & Guaranteed Income Supplement ...... 37 Employee Profit Sharing Plan (EPSP) ...... 38 EPSP Contributions ...... 38 Taxation of EPSPs ...... 38 Taxation Upon Retirement ...... 38 Taxation Upon Death ...... 39 Deferred Profit Sharing Plan (DPSP) ...... 39 Beneficiaries...... 39 DPSP Contributions ...... 40 DPSP Vesting ...... 40 Payments Out of a DPSP ...... 40 Payments Before the Deadline ...... 40 Special Rules ...... 41 Income Tax Consequences ...... 41 DPSP Employee Contributions ...... 42 Death of a Plan Member...... 42 Registered Pension Plans ...... 42 Taxation of Retirement Benefits ...... 42 Taxation of Death Benefits ...... 42 LIF, LRIF, PRRIF ...... 43 Taxation on Retirement ...... 43 Taxation on Death ...... 43 Registered Retirement Savings Plan (RRSP) ...... 43 Death of Annuitant...... 44 Marriage Breakdown ...... 44 Registered Retirement Income Funds (RRIFs) ...... 44 Taxation of Payments ...... 44 Income Splitting ...... 45 Death of an RRIF Owner ...... 45 Minimum Required Withdrawal ...... 45 Key Terms ...... 46 International ...... 47

Copyright © 2016 The Institute for Advanced Financial Education. 1 Appendix F, Page 14 Entering Canada ...... 47 Properties Excluded From the Deemed Disposition Rule ...... 47 Taxable Canadian Property ...... 48 Other Taxable Canadian Property ...... 48 Life Insurance Policies ...... 49 Leaving Canada: “The Departure Tax” ...... 49 Life Insurance Policies ...... 50 Corporate Owned Life Insurance ...... 50 Exemptions ...... 50 Election 51 Life Insurance Policies ...... 51 Non-Resident Owners of Canadian Life Insurance Policies ...... 51 Canadian Residents Owning Foreign-Issued Life Insurance Policies ...... 51 US Estate Tax ...... 52 Calculation of US Estate Tax (Non-US Individuals) ...... 52 Worldwide Estate ...... 53 Deductions – Non-Resident Alien’s World Estate ...... 53 US Estate Tax Schedule, 2013 Onwards ...... 54 Unified Credit ...... 55 Marital Credit for Canadian Residents ...... 55 Canadian Tax Credit for US Estate Tax...... 55 Foreign Account Tax Compliance Act (FATCA) ...... 56 Report of Foreign Bank & Financial Accounts (FBAR) ...... 56 Key Terms 57 Summary 58 AdvancedConceptsin Tax& LawforPersonal Planning ...... 59

Appendix G: CLU256 Syllabus 256 Table of Contents

Tax & Legal Principles for Business and their Owners ...... 1 Course Objectives ...... 3 Course Outline ...... 3 Study Aids ...... 4 Assessments ...... 5 Effective Learning...... 6 Module 1: Tax Concepts for Sole Proprietorships, Partnerships & Private Corporations .. 9 Learning Objectives ...... 1 Entities ...... 2 Sole Proprietorship ...... 2 Starting & Registering a Business ...... 3 Taxation ...... 3 Business Losses ...... 4 Liability ...... 4 Summary ...... 4 Partnership ...... 5 Establishing a Partnership ...... 6 General Partnership ...... 6 Corporations ...... 7 Limited Liability ...... 7 Continuity ...... 8 Small Business Tax Rate - Active Income of a Private Corporation ...... 9 Income Tax Advantages of Corporate Structure ...... 10 Cost of Non-Deductible Insurance Premiums ...... 11 Tax Deferral ...... 12 Passive Income & Flow-Through Taxation ...... 13 Probate ...... 13 Organizational Formalities ...... 13 Summary ...... 13 Holding Company ...... 14 Professional Corporation ...... 15 Key Terms ...... 16 Taxation of Partnerships ...... 17 Appendix G, Page 2

General Partnerships ...... 17 Limited Partnerships ...... 18 Limited Liability Partnerships ...... 18 Fiscal Period of a Partnership ...... 19 Taxable Income of Partnerships & Partners ...... 19 Flow-Through Taxation ...... 19 Allocation of Partnership Losses ...... 20 Adjusted Cost Base ...... 20 Partnership Draw ...... 20 Contribution of Property ...... 21 Partnership Property...... 23 Withdrawal or Retirement of a Partner ...... 23 Capital Interest ...... 23 Income Interest ...... 24 Death of a Partner ...... 25 Prior Agreement ...... 25 Fiscal Period...... 25 Tax Treatment on Deemed Disposition ...... 26 Wind-Up of a Partnership ...... 26 Rolled to the Partners ...... 27 Rolled to a Sole Proprietor ...... 27 Rolled to a New Partnership ...... 28 Rolled to a Corporation ...... 28 Uses of Limited Partnerships ...... 28 At-Risk Rules ...... 28 Taxation on Dispositions ...... 29 Special Situations ...... 29 Investment Clubs ...... 30 Professional Partnerships ...... 30 Tax Treatment of WIP Expenses ...... 30 Deceased Partners ...... 31 Farm Partnerships ...... 31 Key Terms ...... 32 Definitions & Corporate Relationships ...... 33 Canadian Corporation ...... 33 Residence of a Corporation ...... 33 Appendix G, Page 3

Public Corporation ...... 34 Private Corporation ...... 34 Canadian Controlled Private Corporation (CCPC) ...... 34 Small Business Corporation (SBC) ...... 34 Why is SBC Status Important? ...... 35 Control ...... 35 Relationships ...... 36 Non-Arm’s Length ...... 36 Related ...... 36 Associated ...... 38 Connected ...... 38 Affiliated ...... 39 Dividends ...... 40 Taxable ...... 40 Eligible Dividend & GRIP Concept ...... 40 Ineligible Dividend & LRIP Concept ...... 40 Non-Taxable ...... 41 Adjusted Cost Base ...... 41 Paid-Up Capital ...... 41 Key Terms ...... 43 Summary ...... 45 Module 2: Tax Planning for Private Corporations & Their Shareholders ...... 47 Learning Objectives ...... 1 Corporate Taxation ...... 2 Taxation of Corporations ...... 2 Taxation Year – Fiscal Period ...... 2 Type of Income ...... 2 Active Business Income ...... 3 Interest Income ...... 3 Capital Gains/Losses of a Corporation ...... 3 Dividend Income ...... 3 Part IV Tax ...... 4 Appendix G, Page 4

Federal Tax Rates & Credits ...... 5 Federal Tax Abatement ...... 5 General Rate Reduction ...... 5 Small Business Deduction ...... 5 Additional Refundable Tax (ART) ...... 5 Summary ...... 6 Refundable Portion of Part I Tax ...... 6 Refundable Dividend Tax on Hand ...... 7 Provincial Corporate Taxes ...... 8 Allocation of Taxable Income ...... 8 Provincial Tax Rates ...... 9 Filing of Tax Returns ...... 10 Payment of Tax ...... 10 Theory of Integration ...... 11 Neutrality...... 11 Key Components ...... 11 Active Business Income ...... 12 Investment Income ...... 14 Key Terms ...... 16 Capital Dividends ...... 17 Components of the CDA ...... 17 Integration of Components...... 18 Calculating the CDA...... 19 Life Insurance Proceeds ...... 19 CDA Election ...... 19 Penalty Tax ...... 20 The CDA & the Tax Status of Shareholders ...... 21 The Capital Dividend Account – A Recap ...... 21 Understanding Credits ...... 21 Capital Dividend Trapped By Circumstances ...... 22 Corporate Tax Attribution Rules ...... 22 Timing of the Allocation & Interpretation ...... 23 Key Terms ...... 24

Appendix G, Page 5

Capital Gains Exemption ...... 25 Calculation of Additional Exemption ...... 25 Assets Qualifying for the Lifetime Capital Gains Exemption ...... 27 Qualifying Criteria ...... 27 QSBC Shares ...... 28 Qualified Farm or Fishing Property ...... 28 Residency Requirements for CGE ...... 29 Converting Non-Qualifying Business Assets Into Shares of a QSBC ...... 29 Taking Advantage of the CGE ...... 30 Disposition of a Capital Asset ...... 31 Benefit of Restructuring the Business Operation ...... 31 Dispositions for Tax Purposes ...... 31 Cumulative Net Investment Losses ...... 32 Allowable Business Investment Losses (ABILs) ...... 33 Alternative Minimum Tax (AMT) ...... 33 Triggering AMT ...... 34 Crystalizing CGE...... 34 To Crystalize Paul's CGE ...... 35 Paul's Side of the Transaction ...... 36 Holdco’s Side of the Transaction ...... 36 Key Terms ...... 38 Shareholder Remuneration & Benefits ...... 39 Salary versus Dividends...... 39 Salary ...... 39 Dividends ...... 39 Comparison ...... 40 Numerical ...... 40 Numerical Analysis ...... 40 Non-Numerical ...... 41 Benefits ...... 41 Employee versus Shareholder Benefit ...... 41

Appendix G, Page 6

Shareholder Benefits ...... 42 Subsection 15(1) ...... 42 Bona Fide Transactions ...... 43 Taxable Shareholder Benefits ...... 43 Corporate Assets ...... 43 Payment of Personal Expense ...... 43 Corporate-Owned Life Insurance ...... 44 Loans to Shareholders ...... 44 Repaying the Shareholder Loan ...... 45 Tax Deduction Available ...... 45 Shareholder & Employee Loans ...... 46 Shareholder Loans ...... 46 Shareholder Loan Rules ...... 46 Shareholder/Employee Exceptions ...... 47 Key Terms ...... 48 Summary ...... 49 Module 3: Tax Applications for Business Restructuring & Transition ...... 51 Learning Objectives ...... 1 Business Structuring ...... 2 Section 85 ...... 2 Overview ...... 2 Conditions ...... 3 Eligible Property ...... 3 The Transaction ...... 3 Elected Transfer Price ...... 4 Choosing the Elected Transfer Price ...... 4 Case Scenario ...... 6 Corporations Using Section 85 ...... 8 Holding Companies Using Section 85 ...... 9 Transferring Eligible Assets ...... 10 Section 86 ...... 11 Implementing Section 86 ...... 11

Appendix G, Page 7

Comparison of Section 85 & Section 86 ...... 13 Internal Section 85 Transfer ...... 13 Single Corporation Section 85 ...... 14 Describing an Internal Section 85 ...... 15 Section 51 Conversion ...... 16 Key Terms ...... 17 Corporate Attribution ...... 18 A Penalty Provision ...... 18 Designated Person ...... 18 Specified Shareholder ...... 19 The Conditions ...... 19 Deemed Income ...... 21 Outstanding Amount ...... 21 Purpose Test ...... 22 Marriage Breakdown ...... 22 Safe Harbour Provision ...... 22 Key Terms ...... 23 Buy-Sell Arrangements ...... 24 Buy-Sell Provisions ...... 24 Changing Trends ...... 25 Managing Risk Exposure ...... 25 Developing Harmony ...... 26 Dynamic Documents ...... 26 Appropriateness of Funding ...... 27 Buy-Sell Structures ...... 28 Explaining a Buy-Sell Arrangement ...... 28 Criss-Cross Method ...... 29 Income Tax Results Disposing of Capital Property ...... 29 Summary ...... 30 Buying & Selling Shareholder's Shares...... 31 Advantages ...... 32 Disadvantages ...... 32 Appendix G, Page 8

Promissory Note Method ...... 32 Corporate Owned Life Insurance ...... 32 Income Tax Results Disposing of Capital Property ...... 33 Buying & Selling Shareholder's Shares ...... 34 Giving a Promissory Note ...... 35 Collecting Life Insurance Proceeds...... 35 Capital Dividend Account ...... 35 Proceeds of the Capital Dividend ...... 36 Advantages ...... 36 Disadvantages ...... 37 Redemption Method...... 37 Disposing of Capital Property ...... 38 Income Tax Results ...... 38 Buying & Selling Shareholder's Shares ...... 38 Redeeming the Shares ...... 40 Adjusting the Accrued Capital Gain...... 40 Tax Consequences ...... 41 Advantages ...... 42 Disadvantages ...... 42 Comparison ...... 43 Hybrid Method ...... 43 Basic Description ...... 43 Income Tax Results Disposing of Capital Property ...... 44 Buying & Selling Shareholder's Shares...... 45 Giving a Promissory Note ...... 45 Collecting Life Insurance Proceeds ...... 46 Capital Dividend Account ...... 46 Redeeming the Shares ...... 46 Paying a Capital Dividend ...... 47 Advantages ...... 48 Disadvantages ...... 48 Appendix G, Page 9

Spousal Rollover ...... 48 Disability ...... 49 Structuring the Disability Buy-Sell ...... 49 Stop-Loss Rules ...... 50 Conclusion ...... 50 Key Terms ...... 51 Summary ...... 52 Module 4: Succession Planning for the Disposition of a Business Interest ...... 53 Learning Objectives ...... 1 Estate Freeze ...... 2 The Concept of Estate Freeze ...... 2 Choosing an Estate Freeze ...... 3 Techniques ...... 3 Parties to an Estate Freeze ...... 4 Sale of Assets ...... 4 Freezing a Corporation ...... 5 Section 85 ...... 5 Section 86 ...... 5 Achieving Section 86 Estate Freeze ...... 6 Freezing Personally-Owned Assets ...... 6 Refreezing the Freeze ...... 7 Family Attributes for a Refreeze ...... 8 Partial Freeze ...... 9 Family Attributes for a Partial Freeze ...... 10 Systematic Redemption ...... 10 Choosing a Systematic Redemption Strategy ...... 12 Key Terms ...... 13 Succession ...... 14 Succession: The Casting Call ...... 14 Finding Commonality ...... 14 Family ...... 15 Management & Employees ...... 15 Family as Employees ...... 15 Conclusion ...... 16

Appendix G, Page 10

Business Transfer: Making Decisions, Outcomes & Risks More Manageable ...... 16 Changes in Society ...... 16 Estate Liquidity ...... 17 Perceived Fairness ...... 17 Shareholders’ Agreements ...... 17 Life Insurance for Risk Management ...... 18 To Sell or Not to Sell – The Age Old Question ...... 18 Outright Sale ...... 18 Freeze Strategy ...... 19 Process for Evaluation ...... 20 Conclusion ...... 20 Family Transition: Chance, Choice or Necessity ...... 20 Heir Apparent ...... 20 Family as Employees ...... 20 Managing Value & Expectations ...... 21 Family Relationships ...... 21 Transparency Adds Value ...... 22 Third-Party Option ...... 22 Risk Increases Without a Plan ...... 22 Conclusion ...... 22 Succession Planning: Let’s Make a Deal ...... 22 Price Depends on Structure ...... 23 Role Preferences ...... 23 Share Sale & Asset Sale ...... 24 Conclusion ...... 24 Case Study: Business Emergencies Can Be Planned For ...... 25 When the Unexpected Happens ...... 25 Start-Up Phase ...... 26 Growth Phase ...... 26 Maturity Phase ...... 26 Decline Phase ...... 26 Contingency Planning ...... 27 Key Terms ...... 28 Appendix G, Page 11

Valuation of a Corporation ...... 30 Transactions ...... 30 Purchaser & Vendor ...... 31 Fair Market Value ...... 31 Valuation ...... 32 Capitalization of Earnings ...... 32 Asset-Based Approach ...... 33 Comparison ...... 34 Integration Into Shareholders’ Agreement...... 35 Book Value...... 35 Book Value Plus Fair Market Increments ...... 35 Fixed Value ...... 35 Valuation ...... 36 Formula ...... 36 Shareholder Relationships ...... 36 Special Pricing ...... 37 Price Adjustment Clause ...... 38 Managing the Risk of a Punitive Outcome ...... 39 Conditions for Price Adjustment Clause ...... 39 Scenario 1 ...... 39 Scenario 2 ...... 40 Key Terms ...... 41 Corporate-Owned Insurance – Valuation ...... 42 Statutory Provisions ...... 42 Normal Valuation Principles ...... 43 Cash Surrender Value of the Policy ...... 43 State of Health/Life Expectancy of the Life Insured Under the Policy ...... 44 Conversion Privileges Under the Policy ...... 44 Policy Riders ...... 45 Policy's Replacement Value ...... 45 Buy/Sell Arrangements ...... 45 Capital Gains Exemption ...... 45 Appendix G, Page 12

Life Insurance Impact on Share Valuation ...... 46 Buy-Sell Arrangement ...... 46 Key Terms ...... 48 Summary ...... 49 Tax & Legal Principles for Businesses and their Owners ...... 51 Appendix H, Page 1

Appendix H: CLU257 Syllabus 257 – Advanced Estate Planning

Course Description This course is the culmination of all the courses in the CLU program. The course is designed to help financial advisors hone their skills in working with the client to develop a comprehensive estate plan that addresses all of the client's objectives and obligations.

Learning Objectives • To analyze the client's financial status and overall estate planning objectives • To explain the advantages and disadvantages of different estate planning strategies and contrast them with one another • To consider planning strategies involving the use of inter vivos and testamentary trusts • To assess the need for life insurance in order to support the estate plan and recommend alternative insurance strategies Appendix I, Page 1

Appendix I: CHS303 Syllabus Course Outline

Prescribed Texts

Text references in this course are to:

 Disability Insurance and Other Living Benefits – Jacqueline Figas, CHS, CLU, EPC, RHU, CFSB

The course is divided into the following nine study sessions. For more details, click on the links below to see the study schedule.

Module Study Sessions Description The Nature of DI Risk Disability Statistics 1 1 Marketing & Distribution 2 Sources of Income During a Disability Determining Insurable Earnings DI Policy Provisions 3 Optional Benefits for DI Policies 2 4 DI Plans & Options for Contract Workers DI Needs Analysis & Plan Design Head Office Product Design & Pricing DI Underwriting 5 3 DI Claims 6 Workplace Solutions DI Business Needs & Products Special Risk Products for Disability Insurance Taxation of DI & Business Products 7 Public Health Insurance 4 8 Individual Health Insurance 9 Travel Insurance Putting It All Together

Prescribed Texts

Text references in this course are to:

 Group Benefits Plan Management – Ann O’Neill  The Aging Client and Long-Term Care – Jacqueline Figas, CHS, CLU, EPC

The course is divided into the following ten study sessions. For more details, click on the links below to see the study schedule.

Module Study Sessions Description 1 1 Critical Illness 2 3 2 Long-Term Care 4 Risk & Insurance Concepts 5 Benefits Plan Management 3 6 Plan Design Plan Funding Plan Administration 7 4 Claims Processing 8 Underwriting Plan Marketing 5 9 Disability Extended Health Care Benefits Dental Care 6 10 EAP & Wellness Programs Flexible Benefits Plan Design

® The Institute for Advanced Financial Education. 2014 © Appendix K: PFA Practice Developent Syllabus Appendix K, Page 1 PFA Practice Development Course Preliminary Table of Contents

Module 1: Starting Out: Business Planning Building a Successful Business Assessing Business Opportunity Building a Business Plan Goal Setting Aligning Goals Self-Improvement Goals Advisor Business Finances Sources of Business Income Activity Action Plan Employee Entrepreneur Independent Advisor Key Activities Summary

Module 2: Starting Out: Marketing Overview What is Marketing? What Are You Marketing? Evolution of the Industry Clients Buy the Value of Advice Your Brand/Value Proposition Developing Your Value Proposition Selling Yourself Who Are You & What Do You Do? Elevator Speech Quick Elevator Speech Developing a Quick Elevator Speech Personal Biography Holding Yourself Out Guidelines A Professional Image Presenting Yourself Communication Summary

Module 3: Starting Out: Prospecting Overview Networking vs. Prospecting Finding Prospects Defining the Ideal Target Client Appropriate Communication Do Not Call Rules Marketing to Your Ideal Client Network Strategies Best Practices for Networking Developing a Center of Influence (COI) Network COI Key Professionals PFA Practice Development Course Appendix K, Page 2 Preliminary Table of Contents

Developing Your COI Strategy Nurture the Relationship Documentation Tracking Time & Revenue Summary

Module 4: Client Connection: Preparation Client Connection Cycle Six Stage Client Connection Cycle Client's Decision Making Process Meet With The Advisor Hiring the Advisor Advisor's Recommendations Agreeing to Take Action on Recommendations Agreeing to Take Action Now on Recommendations Building a Client Connection Process Preparing for the Initial Interview Questions From Clients Summary

Module 5: Client Connection: Implementation Overview The Initial Interview Resources How Will You Be Paid? Fact Finding Fact Finding Questionnaires - Pros & Cons Fact Finding to Uncover Hidden Need Questioning Techniques: Open-Ended vs. Closed-Ended Three Levels of Understanding Linking Techniques Power of Listening Obtaining a Client Engagement Agreement What to Include in the Client Engagement Agreement Summary

Module 6: Building Value: Analysis Preparing the Financial Plan & Analysis Financial Planning Software The Base Plan A Holistic Approach Uncovers Opportunities Cash Flow Statement Asset Management Taxation Estate Distribution Preparing Recommendations Full & Adequate Disclosure PFA Practice Development Course Appendix K, Page 3 Preliminary Table of Contents

Life Insurance Policy Replacement Summary

Module 7: Building Value: Advice Delivery Overview Presenting the Plan to the Client Financial Plan Components Modular & Comprehensive Plan The Second Meeting Tips for an Effective Presentation Gaining Commitment & Implementing the Plan Dealing With Objections & Questions From Clients The Advisor's Consideration of the Prospect Conclusion Summary

Module 8: Fine Tuning: Business Management Overview Habits Building Effective Work Habits Review Goals & Targets How to Thoroughly Review Goals & Other Targets Conducting a Review of Marketing Initiatives Prospecting Networking & Centres of Influence (COIs) Conducting a Review of Client Sales & Service Client Meetings Sales & New Business Client Base Referrals Assess Profitability Profitability of Client Relationships Example of Profitability Summary

Module 9: Fine Tuning: Practice Development Overview The Importance of Time Management Reviewing Business & Self-Improvement Goals Utilizing Resources & Support Delegation Creating a Strong Set of Procedures Complying With Rules & Regulations Personal Information Protection & Electronic Documents Act (PIPEDA) Know Your Client Appendix K, Page 4 PFA Practice Development Course Preliminary Table of Contents

Canadian Life & Health Insurance Association (CLHIA) Guidelines Anti-Money Laundering (AML) & Terrorist Financing Do Not Call Legislation Office Setup Ongoing Licensing Requirements Summary

Module 10: Fine Tuning: Marketing Your Practice Overview Marketing Your Practice Holding Yourself Out Disclaimers Where Should You Advertise? Free Advertising Newsletters Seminars & Events Hosting an Event Using Social Media Blogs & Twitter LinkedIn Determining Return on Investment Implementation Measurement & Follow Up Summary

Module 11: Strengthening Relationships: Communication Overview Ongoing Relationship Management How Often to Communicate? Do Not Call Rules Getting Feedback Ask for Feedback Do Something About It Unsolicited Feedback Referrals Keep a Log Rule #1 - Ask For One Rule #2 - Script It Rule #3 - Give Them a Reason Rule #4 - Time It Referral Procedures Referral Fees Summary Appendix K, Page 5 PFA Practice Development Course Preliminary Table of Contents

Module 12: Strengthening Relationships: Long-term Values Overview Ongoing Client Relationship Management Maximizing CRM Systems Annual Reviews Utilizing the Annual Review Effective Cross-Selling Summary Appendix L: PFA Compliance Course Syllabus Appendix L, Page 1 PFA Compliance Course Preliminary Table of Contents

Module 1 – Marketing and Communication

Competencies: - A7. Ensures that all client communications comply with the relevant regulatory framework. - B.10 Aligns business plans with marketing and service activities - B.16 Researches and determines target markets - B.17 Describes services to the target clients - B.18 Uses ethical methods of competition and solicitation

Marketing

• The National Do Not Call List (DNCL) Rules • Telemarketing rules • Automatic dialing-announcing device (ADAD) rules • Financial advisors / insurance agents and DNCL: unsolicited telecommunications rules o Prospects or former clients and unsolicited telecommunications rules o Fees and registration o Existing business relationships o Business-to-business exemptions

Communication

• Canada’s anti-SPAM legislation (Examples of compliant and non-compliance forms of communications for all advisors (mutual funds, IIROC, and insurance)) o Definition o Commercial electronic messages (CEMS) o Electronic address o Consent o Express consent o Exemptions: existing business relationship exemption o Existing non-business relationship exception o Implied business exception o Personal relationship exception o Family relationship exception o Referrals exception o Identification information o Unsubscribe mechanism o Liability Appendix L, Page 2 PFA Compliance Course Preliminary Table of Contents

Module 2 – Needs Analysis

Competencies: - A.2 Complies with due diligence framework - A.6 Assures confidentiality by using client information solely for the purposes for which if was obtained - A.11 Establishes information handling procedures and access protocols that ensure the safety of information - B.7 Uses a well-defined client engagement process - B.12 Considers information from a variety of sources - B. 13 Identifies incomplete or inconsistent information - B.14 Considers the relative costs and benefits of potential actions - B.15 Applies the appropriate financial analysis, mathematical methods, or formulas - B.17 Describes services to the target clients - B.19 Sets realistic expectations for all aspects of the financial plan and planning process - B.23 Obtains a complete understanding of the facts before providing information or making a recommendation to clients

• Financial Planning Needs Analysis

• Insurance Needs Analysis o Life insurance o Critical insurance o Disability income insurance

• Investment Needs Analysis

Module 3 – The Regulatory Framework

Content (articles and case studies) focused on practical matters relevant to a financial advisor’s practice

Competencies: - A.1 Complies with the relevant regulatory framework - A.4 Complies with regulations that apply to disciplinary complaints - A.5 Acts in accordance with requests of regulatory or designation-granting bodies, or their committees, or a member of their staff - A.8 Meets continuing education requirements for licenses and professional designations - A.9 Maintains all necessary licensing in good order - B.2 Stays current with changes in regulatory environment - B.27 Establishes and communicates a formal complaint-handling process - • Investment Industry Regulatory Organization of Canada (IIROC) and Financial Regulation o Introduction o Securities Exchange Regulations Appendix L, Page 3 PFA Compliance Course Preliminary Table of Contents

o Universal Market Integrity Rules (UMIR) o Head office supervision o Fee-based Accounts o Evidence of supervision o Control over customized portfolio summaries o Reassignment of accounts of terminated registrants o Control of client address changes o Control and review of advertising o Credit risk management o Product due diligence o Business titles and financial designations o Non-arm’s length investment products

• Mutual Fund Dealers Association of Canada o Introduction o MFDA membership requirements o Mutual fund dealer registration o Obligations of MFDA members o Registration as a mutual fund salesperson o MFDA rules o MFDA by-laws o MFDA policies o Know-Your-Product o Exempt securities o MFDA staff notices o MFDA trade supervision o KYC information o Information in the client file o Evidence of client instructions o Product due diligence o Branch review process o Suitability of investments o Suitability of leveraging

Module 4 – Know Your Client (KYC) and Suitability

Competencies: - B.1 Stays current with changes in the economic and political environment - B.3 Acknowledges limits of competence and knowledge and stays within them - B.4 Provides clients with all information and disclosure requirements to make an informed decision - B.8 Educates clients using examples and illustrations showing the importance of particular financial strategies Appendix L, Page 4 PFA Compliance Course Preliminary Table of Contents

- B.9 Provides objective explanations that the client needs to understand in evaluating the product or services that he / she is proposing or that he / she provides to the client - B.14 Considers the relative costs and benefits of potential actions - B.20 Acts in the best interest of the client - B.22 Voluntarily seeks the counsel of other professionals when appropriate - B.24 Provides appropriate and timely disclosure of conflicts of interest - B.25 Clearly illustrates the financial plan using an ethical and clear presentation that the client can understand with a reasonable degree of comprehension - B.28 Monitors the client’s situation in the appropriate areas in order to minimize potential problems before they occur - B.29 Informs clients as soons as he / she is aware of a problem that will prevent him / her from continuing with his / her mandate - B.31 Discloses conflicts of interest to the client and other related parties - B.32 Establishes procedures to handle conflicts of interest

• Introduction • The Investment Industry Regulatory Organization of Canada (IIROC) and Financial Regulation o Multiple Accounts o Information and Assessment o Periodic Updates and Review • The Mutual Fund Dealers Association of Canada (MFDA) o Approval of KYC information o Material changes to KYC information o New Account Application Form (NAAF) or KYC Form o Investment objectives o Risk tolerance o Methods of recording or depicting risk tolerance o Clients with multiple accounts o KYC for joint accounts o Best practices for quality KYC information

• The Canadian Securities Administrators (CSA) o Current KYC information o Signing and dating of KYC information o Accredited investors and permitted clients o Collecting KYC information

• Insurance (AMF) – NOT SURE WHERE TO PUT THIS! o Replacement of life insurance . Introduction . Definition of replacement . Life Insurance Replacement Declaration (LIRD) . Quebec Appendix L, Page 5 PFA Compliance Course Preliminary Table of Contents

. Jurisdictional delivery requirements . Industry reference document . Best practices for replacement

Module 5 – Money Laundering

• Introduction • Legislation (Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) • Regulations • FINTRAC Guidelines, Interpretation Notices and Procedures • Ministerial directives and transaction restrictions • Penalties for non-compliance • Financial entity obligations • Life insurance obligations • Securities dealer obligations • Compliance officer prudent practices • Written policies and procedures prudent practices • Assessing risks prudent practices • Training program prudent practices • Review prudent practices

Module 6 – Personal Information Protection and Electronic Documents Act (PIPEDA)

• Introduction Appendix L, Page 6 PFA Compliance Course Preliminary Table of Contents

• Application of PIPEDA • Basic Principals • Prudent PIPEDA compliance practices for financial advisors

Module 7 – Consumer Disclosure

Competencies: - B.5 Promotes the protection of the public through competent practice including the provision of education information to clients - B.6 Practices with honesty and acts responsibly to reflect credit upon the profession - B.31 Discloses conflicts of interest to the client and other related parties

• Life Insurance o Introduction o Legislation and regulations o CLHIA guidelines

• Securities o Introduction o MFDA o Relationship disclosure o Leverage risk disclosure

• IIROC o Relationship disclosure

• Canadian Securities Association (CSA) o Disclosure requirements o Point of sale disclosure for mutual funds o Point of sale disclosure for segregated funds o Point of sale disclosure for ETFs o Client Relationship Model II (CRM2)

Module 8 – Client Relationships

Competencies: - B.20 Acts in the best interest of the client - B.21 Refrains from practicing in conditions likely to compromise the quality of services - B.22 Voluntarily seeks the counsel of other professionals when appropriate - B.23 Obtains a complete understanding of the facts before providing information or making a recommendation to clients - B.24 Provides appropriate and timely disclosure of conflicts of interest Appendix L, Page 7 PFA Compliance Course Preliminary Table of Contents

- B.25 Clearly illustrate the financial plan using an ethical and clear presentation that the client can understand with a reasonable degree of comprehension - B.26 Demonstrates availability and diligence with respect to clients - B.27 Establishes and communicates a formal complaint-handling process - B.28 Monitors the client’s situation in the appropriate area in order to minimize potential problems before they occur - B.29 Informs clients as soon as he / she is aware of a problem that will prevent him / her from continuing with his / her mandate - B.30 Handles disengagement or client transfers to ensure the client is not exposed to any undue hardship and has enough time to make other financial arrangements - B.31 Discloses conflicts of interest to the client and other related parties - B.32 Establishes procedures to handle conflicts of interest

• Documentation • Referral fees • Client relationship management systems

Appendix M: PFA Code of Professional Conduct Syllabus Appendix M, Page 1 Appendix M, Page 2 Appendix M, Page 3 Appendix M, Page 4 Appendix M, Page 5 Appendix M, Page 6 Appendix M, Page 7 Appendix M, Page 8 Appendix M, Page 9 Appendix M, Page 10 Appendix M, Page 11 Appendix M, Page 12 Appendix M, Page 13 Appendix M, Page 14 Appendix M, Page 15 Appendix M, Page 16 Appendix M, Page 17 Appendix M, Page 18

Common Complaints Cases Protecting Your Practice Appendix M, Page 19 Appendix M, Page 20

Advisor improperly replaced an existing life policy with new coverage Failure to act competently Failure to act diligently Appendix M, Page 21

Failure to act in a

An Advocis member shall ensure the client fully understands all relevant product benefits and financial literacy.

Failure to act competently An Advocis member shall exhibit their competence through the effective application of both skill and knowledge when providing products and services. Appendix M, Page 22

Failure to act diligently An Advocis member shall show their diligence through the degree of attention or care exercised when advising clients and providing advice. Appendix M, Page 23

Written censure Suspended membership Suspended designation Education Referral to regulatory authority Appendix M, Page 24

Advisor purposely falsified information on Failure to act diligently Failure to act competently application form Failure to act in accordance with the spirit and principles of the law

Failure to act diligently An Advocis member shall show their diligence through the degree of attention or care exercised when advising clients and providing advice. Appendix M, Page 25

Failure to act competently An Advocis member shall maintain their competence through appropriate education, training and work experience as demonstrated by a commitment to continuous learning.

Failure to act in accordance with the spirit and principles of the law An Advocis member shall follow industry best practices as a guideline to meet the principles of the regulatory environment. Appendix M, Page 26

Private written sanction Report to the Insurance Council Appendix M, Page 27

Advisor denigrating a Failure to act in a manner that reflects colleague to acquire his clients and new clients positively on all other Advocis members Failure to act with integrity Failure to act diligently Appendix M, Page 28

Failure to act with integrity An Advocis member shall act with honesty, trustworthiness and put the best interest of their clients first.

Failure to act diligently An Advocis member shall show their diligence through the degree of attention or care exercised when advising clients and providing advice. Appendix M, Page 29

Failure to act in a professional manner An Advocis member shall treat other Advocis members fairly and respectfully as a professional courtesy. An Advocis member shall uphold the professional image of Advocis and its members.

Successful dispute resolution Appendix M, Page 30 Appendix M, Page 31 Appendix M, Page 32 Appendix M, Page 33 Appendix M, Page 34 Appendix M, Page 35