An important facet of financial planning involves projecting clients’ progress toward meeting their important life goals in areas that include retirement, child education and insurance. To make these projections, financial planners must estimate future inflation and borrowing rates, rates of return and life expectancy. In short, financial projections must make a series of assumptions.
Financial Planning Standards Council (FPSC) and Institut québécois de planification financière (IQPF) have released unified Projection Assumption Guidelines. Developed by a committee of actuarial and financial planning professionals and updated annually, the Projection Assumption Guidelines are intended as an aid in making long-term financial projections that are free from potential financial planner biases or predispositions.
As guidance, the assumptions acknowledge that each client situation is different and that financial planners will and should deviate from these assumptions when the client’s situation justifies doing so.
The first unified Projection Assumption Guidelines followed on the heels of the 2015 release of the Canadian Financial Planning Definitions, Standards & Competencies - a joint publication of FPSC & IQPF, the two organizations that establish and maintain standards for the financial planning profession in Canada. The national standards and definitions were developed in consultation with financial planners and industry firms from across the country.
The 2017 Guidelines are in effect as of July 31, 2017 and reflect the following changes:
- 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 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.
2017 Projection Assumption Guidelines
2017 Projection Assumption Guidelines - Addendum
2017 Normes d'hypothèses de projection
2017 Normes d'hypothèses de projection - Addenda
2016 Projection Assumption Guidelines
2016 Projection Assumption Guidelines - Addendum
2016 Normes d'hypothèses de projection
2016 Normes d'hypothèses de projection - Addenda
2015 Projection Assumption Guidelines
2015 Normes d'hypothèses de projection