Use FPSC’s updated projection guidelines to help clients

The Financial Planning Standards Council (FPSC) and Institut québécois de planification financière have updated their Projection Assumption Guidelines for financial planners.

The guidelines, which were developed by the Projection Assumption Standards Committee, include the following assumption updates:

Further, changes to the assumptions include:

• a reduction in the fixed income guideline to account for the appreciation in historical bond prices that can’t be explained by changes in interest rates;
• updated calculations based on the most recent actuarial report of the Canada Pension Plan and the actuarial valuation of the Quebec Pension Plan; and
• the replacement of the S&P/TSX Index with the MSCI EAFE Index in the calculation of the guidelines for foreign developed market equities and emerging market equities.

To help planners develop financial projections over the shorter term (fewer than 10 years), further qualitative guidance is provided. The guidance emphasizes the importance of sensitivity analysis that accounts for changes to assumptions about things like life expectancy, rates of return, inflation and exchange rates.

Also, the update includes an addendum containing data sources for the guidelines as well as the specific calculations for the inflation and return rates guidelines. Financial planners can replicate the calculations.

The 2018 priorities of the Projection Assumption Standards Committee include investigating a replacement source for the discontinued Willis Towers Watson Annual Survey of Canadian Investment Perspectives, and considering the merits of alternative approaches to the fixed income guidelines.

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The staff of Advisor.ca have been covering news for financial advisors since 1998.