FAQ's

1. I am setting myself up as a consultant after being "down-sized" by my employer. What kind of benefits should I buy?
2. I'm looking for a financial advisor and a friend told me to look for a CFP beside an advisor's name. What does that mean?
3. I want to have a savings program for my children. Where do I start?
4. After paying down debt and investing, I never seem to have enough money to take my family on vacation. How can I find the money for a trip?
5. My colleague told me he was surprised when he learned how high his human life value was. What is this, how do I figure it out and why should I know?
6. I just recently received $50,000 from an uncle who passed away. I know I should save this money, but there are a few things I would like to buy too. What is your advice?
7. What are the various designations in the financial planning industry and what do they stand for?
8. I missed out on RRSP season this year. I can't seem to get enough money together after Christmas. What should I do?
9. What is the difference between investing in a mutual fund and a segregated fund?

Q: I am setting myself up as a consultant after being "down-sized" by my employer. What kind of benefits should I buy?

A: You are likely moving from a position where your employer protected you with a package of benefits for life, health and disability, to one where you are shouldering all the risk alone. Many newly self-employed people don't realize how much they have at stake. Once your severance package, if you had one, has run out, your family is unprotected should you die or become disabled. And chances are you will need a bank loan or line of credit to cover the costs of starting your business. The bank will demand a personal guarantee on this loan, putting your home and any other possessions at risk as well.

You should meet with a financial advisor to review the protection needs for yourself and your family. They will recommend insuring your debt. Then your priorities will be life and disability insurance. Health and dental insurance would be next, if you can afford it. Starting in 1998, self-employed people are able to write off some health insurance premiums at tax time.

Q: I'm looking for a financial advisor and a friend told me to look for a CFP beside an advisor's name. What does that mean?

A: CFP means Certified Financial Planner, an internationally recognized designation in financial planning. The CFP has been available to Canadian financial planners since 1996, when the financial services industry agreed it would be the industry standard. In the absence of any government regulation of financial planning, a CFP designation is the best way consumers can be sure they have someone qualified to advise them.

CFPs have studied a broad-based curriculum that includes financial planning, employee benefits, retirement and estate planning, investment management, and tax planning. They must pass a rigorous exam and have two years of financial planning experience. Every CFP adopts a code of ethics specifying that client interests must come before those of the advisor and requiring disclosure of any fees or commissions the advisor is paid for selling financial products.

ADVOCIS the Canadian Association of Insurance and Financial Advisors is one of four industry groups offering courses toward the CFP designation. If your advisor is not a CFP, ask if he or she is working toward the designation. Because the designation is fairly new, many qualified advisors are still completing its requirements.

A designation is not all you should look for in a financial advisor. Ask advisors you meet (you should meet with at least three before choosing one) if they are a member of a professional association. Don't hesitate to also ask them for three client referrals. This will help you find an advisor who is qualified and fits well with your personality.

CFP Requirements

• Education (broad-based curriculum)
• Examination (standard exam)
• Experience (at least two years)
• Ethics (client comes first)

Q: I want to have a savings program for my children. Where do I start?

A: In deciding on a savings program for your child, first make sure your own financial planning and life insurance coverage is in order. Your first priority should be to have a plan in place if you die before your child is an adult. Next meet with a qualified financial advisor. Answer the basic questions: What do I want to achieve? How much can I afford? Am I looking for something tax effective, safe or with long term growth? Am I looking for educational funding or savings of a more general nature? There are many tools to help you save for your child, but the right fit will depend on the answers to these and other questions.

Then consider all the options. Exempt life insurance is one way to save in your child's name, or you can create a trust fund, with specific instructions on how your child will access the money. If educational funding is a goal, Registered Education Savings Plans (RESPs) benefit from tax-deferred growth of your savings plus a government contribution. You can also save with an "in-trust" account. There are many investment options, from investment funds and savings bonds, to stocks and term certificates. But start early - time is on your side and your child's.

Q: After paying down debt and investing, I never seem to have enough money to take my family on vacation. How can I find the money for a trip?

A: Everyone should live for today as well as for their future. You and your family need some relaxation time together.

A little planning now will set you up for next year's vacation. Start thinking about what kind of vacation you would enjoy and then put aside $100 to $200 per month in a bank account. If you wait until you have cash on hand, you'll never go! This is as important as your insurance or retirement planning - so use the same disciplined savings approach. Remember the same advisor who helped you develop your insurance and retirement plans can also help you build an annual vacation into your financial plan. In fact, reviewing your debt and investment patterns with a financial advisor may even reveal a few extra dollars to set aside for your vacation. Then go ahead and have fun!

Q: My colleague told me he was surprised when he learned how high his human life value was. What is this, how do I figure it out and why should I know?

A: It can be a surprise to find out how much money you will contribute to your family throughout your lifetime. This is your human life value, and it can total more than $2 million to a young professional aged 30-35. Calculating your human life value can be a wake-up call, because it puts an objective dollar figure on what your loved ones would miss if you died or became disabled.

You can do the calculations yourself by calling up the web site of the Life and Health Insurance Foundation for Education (LIFE), which gives educational information about life, health and disability insurance (www.life-line.org). Under "life insurance" on this site you will find the Human Life Value Calculator. You enter your annual income, benefits, age, and estimated retirement age. The calculator looks at the total income you can expect throughout your lifetime, adjusting for inflation, personal expenses, and your time to retirement.

Lawyers use this figure in court cases suing for damages after an accidental death. You can use it in analyzing your insurance needs. Consult with a Chartered Life Underwriter (CLU). Compare other methods of determining life insurance needs, such as the more subjective process of calculating how much it will cost to bury you, pay off your debts and get your family re-established after your death. Together, you and your advisor may want to re-evaluate your insurance planning.

An Example of human life value

• Age: 35
• Annual income: $59,000*
• Benefits: $1,200
• Estimated retirement age: 65
• Human life value: $1.7 million
• Net present value: $708,000
  * assumes income will rise 4% a year

Q: I recently received $50, 000 from an uncle who passed away. I know I should save this money, but there are a few things I would like to buy too. What is your advice?

A: Any money you get as an inheritance is going to have some emotional ties for you. You may want to buy something to remember your uncle by, perhaps something for your home, or a trip you have always wanted. You could set aside 10 to 15 per cent of this inheritance for spending without compromising your need to save. When you look at that piece of furniture or the pictures of your trip, you will always think of your uncle.

Before deciding what to do with the bulk of your inheritance, you should seek the advice of a financial advisor. This is a good opportunity to establish or review some financial goals. A qualified financial advisor can help you set priorities. Whenever you have a windfall, you should pay down debt with high interest rates. Pay off credit card debt or a line of credit, then money owing on your car or home. Another priority should be retirement savings. If you have RRSP room contribute now. A financial advisor can help determine what type of RRSP investment is appropriate for you. If you are one of the lucky few who are up to date with RRSP planning, consult a qualified financial advisor to help you select an investment that fits in with your overall plan.

Windfall Priorities

• spend 10 to 15%
• pay high interest rate debt
• top up retirement savings
• invest

Q: What are the various designations in the financial planning industry and what do they stand for?

A: While the financial planning industry is for the most part unregulated, there are quite a number of designations and professional organizations to which a planner can belong once he or she has met the criteria.

MDRT (Million Dollar Round Table) is an international association of life underwriters dedicated to improving life insurance service through professional and personal development. Each year a small percentage of the world's life insurance/financial services sales force qualifies for MDRT membership based on high-level client services, ethical standards and production requirements.

CLU (Chartered Life Underwriter) earned at The American College is the undisputed professional credential for persons involved in the production, accumulation, preservation, and distribution of the economic values of human life. The CLU program provides insights into the life insurance business, its importance to the economy, its operation and distribution systems and its resurgent importance for safe and secure investments.

CH.F.C. (Chartered Financial Consultant) earned at The American College focuses on the comprehensive financial planning process as an organized way to collect and analyze information on a client's total financial situation; to identify and establish specific financial goals; and to formulate, implement and monitor a comprehensive plan to achieve those goals.

CFP (Certified Financial Planner) granted by the Certified Financial Planner Board of Standards indicates that an individual has met standards of competency and ethics in the practice of financial planning. To earn this designation, the individual must show evidence of financial planning education; pass a two-day, 10-hour examination; prove three years of financial planning related experience; and agree to abide by a code of ethics, as well as meet biennial continuing education and ethics disclosure requirements.

Each of these designations require several courses of study, some as many as ten, with examinations. These study instruments measure levels of competence of various disciplines including taxes, estate planning, business planning, insurance planning, investments, retirement planning, and employee benefits.

While membership in the MDRT shows a commitment to professionalism in production and client services, having one or more of these professional designations shows a level of knowledge and expertise in the multifaceted financial service industry. Committed professionals in the financial services industry seek both membership in MDRT and attainment of these designations, thus providing their clients with a level of service unparalleled by any other financial service industry or distribution channel.

The Million Dollar Round Table Code of Ethics

Members of the Million Dollar Round Table shall:

• Always place the best interests of their clients above their own direct or indirect interests.
• Maintain the highest standards of professional competence and give the best possible advice to clients by seeking to maintain and improve professional knowledge, skills and competence.
• Hold in the strictest confidence, and consider as privileged, all business and personal information pertaining to their clients' affairs.
• Make full and adequate disclosures of all facts necessary to enable their clients to make informed decisions.
• Maintain personal conduct which will reflect favorably on the life insurance industry and the Million Dollar Round Table.
• Determine that any replacement of a life insurance or financial product must be beneficial for the client.
• Abide by and conform to all provisions of the laws and regulations in the jurisdictions in which they do business.

The American College Code of Ethics

"In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself."

The Scope of CFP Board's Code of Ethics and Professional Responsibility

The Code consists of two parts: Part I - Principles and Part II - Rules. The Principles are statements expressing in general terms the ethical and professional ideals expected of CFP designee's which they should strive to, display in their professional activities. As such, the Principles are aspirational in character but are intended to provide a source of guidance for a CFP designee. The Principles include integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence. The Rules provide practical guidelines derived from the tenets embodied in the Principles. As such, the Rules set forth the standards of ethical and professionally responsible conduct expected to be followed in particular situations.

Q: I missed out on RRSP season this year. I can't seem to get enough money together after Christmas. What should I do?

A: You've missed out on a tax break this year, but don't let it happen again! Revenue Canada lets you carry forward unused contribution room, but if you wait too long, you'll never make up the shortfall. Start planning next year's RRSP contribution now. Check the assessment letter you got after you filed your tax return. It will tell you how much RRSP room you have.

But first, it's time to do some serious financial planning. Spring and fall are good times to reassess your financial goals and look at the asset mix of your entire portfolio. You have time and so do financial planners now that they're not rushed off their feet by RRSP queries. You should seek out a qualified financial advisor. Your advisor should assess your money personality and show you how to gain control of your savings.

Once you have set your goals, you can begin saving toward a full RRSP contribution. It's difficult to find $2,000 in the first two months of the year, but it's easier to put aside $200 a month for the next ten months. If your income is irregular and you expect a bonus or commission, figure those into the equation. Pay yourself first, before you spend on anything else.

Q: What is the difference between investing in a mutual fund and a segregated fund?

A: Segregated funds are similar to mutual funds in that they are pools of money managed by professional managers with defined philosophies, financial goals and investment guidelines. But while mutual fund companies establish mutual funds, life insurance companies, which have a tradition of prudent management, establish segregated funds.

Investments in segregated funds are made through individual variable insurance contracts that provide unique advantages. One advantage is that at least 75 per cent of the amount you originally invested in the contract is protected on maturity or when you die, even if the segregated fund plunges in value. Your contract is also off-limits to anyone who sues you or makes a claim on your estate if the contracts beneficiary is a member of your immediate family.

You can find out more about segregated fund investments from any member of the ADVOCIS, Canadian Association of Insurance and Financial Advisors. ADVOCIS members are licensed to sell life insurance and are qualified to sell individual variable insurance contracts.

Benefits of Investing In Segregated Funds

• guaranteed principal
• protection from creditors
• prudent fund management
• returns similar to mutual funds

Mutual Fund disclaimer
Investment funds can only be sold by prospectus. Please obtain a copy from the Mutual Fund Company or from Brian Hall and read it carefully before investing. The unit value and investment returns will fluctuate.
utual Funds are provided by Sterling Mutuals Inc. Head Office 880 Ouellette Ave., Suite 102 Windsor Ont. N9A 1C7. Other financial services provided under a separate insurance licence supervised by the Financial Service Commission of Ontario.

Segregated Funds Disclaimer
Subject to any applicable death and maturity guarantee, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to fluctuations in the market value of the assets in the segregated fund.