1. Advanced Financial Planning
Week 2

2. Learning Objectives Financial Planning Practice
Comprehensive Financial Plan
Financial Management
Net Worth & evaluation
Cash Flow & evaluation
Calculate & evaluate Personal Financial Ratios
Prioritized Financial Goals & Components

3. Report on Disciplinary Action

4. “Scandals will Prompt Questions from Clients” Implications for Financial Planners?

5. What to Include in a Comprehensive Financial Plan?

6. Comprehensive Financial Plan Process
Financial Plan worksheet
What is included in a Comprehensive Financial Plan?
Review key areas and prioritization of components  include most important areas in the plan
Sample Financial Plan

7. Sample Plan Provided for “layout” ONLY Use charts or graphs
Provide explanation on the exhibit
Recommendations to improve
Consider the following S/B Recommendations
Conclusion S/B Action Plan

8. Writing Financial Planning Recommendations
Begin the paragraph with an underlined summary “lead sentence”
Justify the lead sentence in the rest of the paragraph

9. Sample Recommendation
When Able and Alice begin receiving RRIF income they should split this income.
Spouses over 65 years old are allowed to split their RRIF income.
Since Alice has substantially more funds in her RRSP, splitting their RRIF income will help equalize their incomes and lower taxes.

10. Personal Financial Ratios
Emergency Fund
Debt Position
Gross Debt Service Ratio
Total Debt Service Ratio
Savings Ratio

11. 1. Do I have adequate liquidity to meet emergencies?
Emergency Fund (number of months) =
Liquid assets Annual living expenditures/12
Calculates the number of months living expenses can be covered with liquid assets
Liquid assets includes all non-registered short term assets
Suggested coverage is 3 to 6 months (covers expenses should client lose their job)
High Net Worth clients may have less coverage and use personal credit (such as Line of Credit) to supplement

12. 2. Do I have the ability to meet my debt obligations?
Debt Ratio = Total Liabilities
Total Assets
Percentage of assets financed by borrowing.
Usually decreases over time.
Young clients higher percentage, older clients usually have lower percentages.
To evaluate calculate the trend over a number of years

13. 3. Mortgage Approval: Gross Debt Service Ratio
= housing costs
gross annual income
= mortgage (principal + interest) + taxes + heat
With mortgage lenders, new mortgage approval range is % of gross annual income (lower is better)
CMHC uses 32%

14. 5. Am I saving as much as I think I am?
Savings Ratio =
Income Available for Savings & Investment + regular savings Gross Annual Income
= Surplus/ Deficit (from Cash Flow) + regular annual savings (RRSP,etc) Gross Annual Income
Portion of gross income that is saved annually.
Recommendation is 10% of gross income

15. 4a. Total Debt Service Ratio (no rental property)
= housing costs + other debt annual payments
gross annual income
TDSR should not exceed 40% of gross income
Used to evaluate current debt payment level and approve new loans
For new loans, the TDSR is recalculated including the new loan repayment

16. Charles & Ann Gupta Evaluate their Net Worth position
Evaluate their Cash Flow position
Calculate & evaluate their Personal Financial Ratios
Complete Financial Plan worksheet
Prepare 2009 Taxes
Develop recommendations to improve their taxes

17. 4b. Total Debt Service Ratio with rental property
= (housing costs + other debt annual payments) -80% rental income
gross annual income
TDSR should not exceed 40% of gross income
Used to evaluate current debt payment level and approve new loans
For new loans, the TDSR is recalculated including the new loan repayment

18. Next Class 1. Charles & Ann Gupta:
Prioritized Financial Goals & Components
2009 Taxes & recommendations
2. Tax Planning & Minimization
Personal Income Tax
Tax Minimization Strategies