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Alerts & Updates

FPSC and IQPF Update Unified Projection Assumption Guidelines for Financial Planners across Canada

TORONTO, ON – July 31, 2017 – Financial Planning Standards Council (FPSC) and Institut québécois de planification financière (IQPF) have released updated unified Projection Assumption Guidelines for financial planners across Canada. Developed in 2015 by a committee of actuarial and financial planning professionals and updated annually, the Guidelines aid financial planners in making long-term (10 or more years) financial projections that are free from potential biases or predispositions by drawing the information from a variety of reliable and publicly available data sources. The 2017 Guidelines are in effect as of July 31, 2017.

The 2017 updates were completed with input from an independent panel consisting of financial planners from across Canada and other experts from the broader public. Based on this input, changes incorporated into the updated Guidelines include:

  • A reduction in the Fixed Income guideline to account for the appreciation in historical bond prices that cannot be explained by changes in interest rates
  • Updated calculations based on the most recent Actuarial Report of the Canada Pension Plan and Quebec Pension Plan Actuarial Valuation
  • The replacement of the S&P/TSX Index with the MSCI EAFE Index in the calculation of the guidelines for Foreign Developed and Emerging Market Equities

Further qualitative guidance is provided to planners when developing financial projections over the shorter term (less than 10 years) and to emphasize the importance of sensitivity analysis to account for deviations from assumptions, including life expectancy, rates of return, inflation and exchange rates.  

The Projection Assumption Guidelines for 2017 are as follows:

Inflation rate:

2.0%

Return rates

Short term:

2.9%

Fixed income:

3.9%

Canadian equities:

6.5%

Foreign developed market equities:

6.7%

Emerging market equities:

7.5%

YMPE or MPE growth rate

3.0%

Borrowing rate:

4.9%

 
The Guidelines were updated in 2017 to include an Addendum containing the data sources on which the Guidelines are based, as well as the specific calculations for inflation and rate of return guidelines. This companion to the Guidelines offers financial planning professionals an opportunity to fully understand and replicate the recommended calculations for their own use.

“Updates to the Projection Assumption Guidelines provide financial planners with the current information to best help clients in meeting their important life goals,” says William Jack, CFP®, an actuary and member of the FPSC Standards Panel, an independent panel of CFP professionals and members of the public with responsibility for the maintenance and expansion of FPSC’s financial planning standards. “The ongoing evolution of the Guidelines helps planners provide appropriate advice and enhances the credibility of financial planning professionals.”

To ensure full transparency and replicability, the Guidelines are drawn from a variety of reliable and publicly available data sources, including the Canada Pension Plan Actuarial Report; Quebec Pension Plan Actuarial Valuation; Willis Towers Watson Annual Canadian Investment Perspectives Survey; and historical data based on the DEX 91-day T-bill index S&P/TSX, the DEX Universe Bond™ (Canadian bonds) index, the S&P/TSX (Canadian equities) index and the MSCI EAFE (Europe, Australia, Far East) index.

The Projection Assumption Guidelines and Addendum are developed by the Projection Assumption Standards Committee, a team of financial planners and actuaries. Among the Committee’s priorities for the development of the 2018 Guidelines are to investigate a replacement source for the discontinued Willis Towers Watson Annual Canadian Investment Perspectives Survey and to consider the merits of alternative approaches to the fixed income guidelines, given the significant evolution of fixed income markets over time. FPSC invites feedback and input from the financial planning community to help further the Committee’s work.

FPSC and IQPF thank Projection Assumption Standards Committee members Nathalie Bachand, A.S.A., F.Pl.; Martin Dupras, A.S.A., F.Pl., M.Fisc., ASC; Daniel Laverdière, A.S.A., F.Pl.; Patrick Longhurst, CFP, FCIA, and A. Kim Young, CFP, FCIA for their significant contributions to this important publication.

About Financial Planning Standards Council

As a professional standards-setting and certification body working in the public interest, FPSC’s purpose is to drive value and instill confidence in financial planning. FPSC ensures those it certifies―Certified Financial Planner® professionals and FPSC Level 1® Certificants in Financial Planning―meet appropriate standards of competence and professionalism through rigorous requirements of education, examination, experience and ethics. With FPSC’s formal partnership with the Institut québécois de planification financière (IQPF), which is the only organization authorized to certify Financial Planners in Québec, there are more than 23,500 Financial Planners in Canada who have met, and continue to meet, FPSC’s standards. More information is available at FPSC.ca and FinancialPlanningForCanadians.ca.

About Institut québécois de planification financière

The Institut québécois de planification financière (IQPF) is the only organization in Quebec authorized to grant financial planning diplomas and to establish rules concerning the ongoing professional development of professional financial planners. Only professionals recognized by the Institut québécois de planification financière are authorized to use the title of Financial Planner (F.Pl.) in Quebec. The IQPF is also the only organization in the province entirely dedicated to and reserved for financial planners. More information is available at IQPF.org.

For more information, please contact:
Caroline Horcher
Manager, Public Affairs
Financial Planning Standards Council
chorcher@fpsc.ca
416.593.8587, ext. 232 or 1.800.305.9886