Montréal and Toronto – The Institut québécois de planification financière (IQPF) and FP Canada have jointly released the
2022 Projection Assumption Guidelines and
Addendum, for financial planners across Canada.
The Guidelines, which take effect April 30, 2022, are designed to help financial planners make longterm financial projections (10 or more years) that are free from potential biases or predispositions.
“The Guidelines, which are based on reliable and unbiased data, support professional financial planners in offering sound advice and ensuring that the plans their clients put into practice serve them well in the long term,” says Martin Dupras, a.s.a., F.Pl., M.Fisc., ASC, IQPF Fellow, and Chair of the Projection Assumptions Guidelines Committee that develops and updates the Guidelines annually. The committee comprises individuals who are licensed financial planners (through either CFP certification or the F.Pl. license in Québec) in addition to being actuaries or CFA charterholders.
“Some clients may be feeling uncertain or anxious amidst market volatility and rising inflation. The Projection Assumption Guidelines are a useful tool for financial planners when preparing financial plans and projections for their clients to assist clients in realizing their long-term goals with confidence,” says Lesley Poole, CFP
®, Chair of the FP Canada Standard Council
™ Standards Panel. The Standards Panel is an independent panel comprising CFP professionals, a licensed financial planner from Québec, and a member of the public. The Panel’s mandate includes oversight of the Projection Assumptions Guidelines Committee, which develops and maintains the Guidelines.
Financial planners must always use professional judgement in the application of the Guidelines for long-term projections and document their assumptions while clearly communicating with clients. In times of turbulent and volatile markets, it is important to note the long-term nature of these projections. Professional financial planners can provide perspective on shorter-term events as they relate to clients and their individual circumstances.
The Projection Assumption Guidelines for 2022 are as follows:
Inflation rate: 2.10%
Return rates (nominal rates)
Short-term: 2.30%
Fixed-income: 2.80%
Canadian equities: 6.30%
Foreign developed market equities: 6.60%
Emerging market equities: 7.70%
Borrowing rate: 4.30%
YMPE, MPE growth rate or salary: 3.10%
After an extended period of stable and relatively low inflation, global economies are currently experiencing a rapid rise in inflation, prompted in part by COVID-related supply issues and recent geopolitical pressures from the Russian invasion of Ukraine.
This year’s release of the Projection Assumption Guidelines includes a chart in the Addendum showing the Consumer Price Index (CPI) results from 1997 to 2021 to offer context and perspective in the face of recent inflation increases. Inflation can show more marked movements in some shorter-term time frames. However, in looking at inflation rates over a longer period, it is noted that previous higher levels are not sustained for the long term. As of December 2021, the CPI has averaged 2.32% over the last five years and 1.82% over the last 10 years.
For projections with a time frame of 10+ years, it is recommended that the inflation rate provided in the Projection Assumption Guidelines be used. Current rapidly rising inflation is unlikely to continue over a longer-term time frame of 10+ years (see the CPI Rates chart provided in the Addendum). It should also be noted that increasing just one data point (like inflation) when preparing client projections would ignore the corresponding shifts in interest rates, fixed income, and equity-based assets and their resulting impact on the projections. While, under current conditions, it may be tempting to significantly change one assumption, it is unwise to do so given the correlation between classes. Rather than change one assumption, The Committee recommends that financial planners present alternate scenarios and projections to clients.
Where appropriate, financial planners may deviate within plus or minus 0.5% from the rate of return assumptions and continue to comply with the Guidelines. Any deviation in excess of 0.5% in either direction should be reasonable and supportable by a written explanation. Assumptions used should also be documented with sound rationale, clearly communicated to clients, and supported by a written explanation.
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; Québec Pension Plan Actuarial Valuation; and historical data based on the S&P/TSX Composite index (Canadian equities), the S&P 500 Composite index (U.S. equities), the MSCI EAFE (Europe, Australia, Far East) index, and the MSCI Emerging Markets index. To support the development of the Guidelines, the FP Canada Standards Council and IQPF also conduct a joint annual survey of industry firms and a second survey of professional financial planners who hold both the CFP designation (or the F.Pl. license in Québec) and the CFA designation.
The Guidelines are accompanied by 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. The Addendum offers financial planners an opportunity to fully understand and replicate the recommended calculations for their own use.
About the IQPF
For more than 30 years, the Institut québécois de planification financière (IQPF) has been protecting the financial well-being of Québec consumers by overseeing the training and qualification of financial planners according to the highest standards of quality. In Québec, only professionals holding a diploma issued by IQPF are authorized to use the title of Financial Planner (F.Pl.). IQPF is the only organization in the province entirely dedicated to and reserved for financial planners, setting their professional standards of practice and raising public awareness about their important role. More information is available at
IQPF.org.
About FP Canada
A national certification and professional oversight body working in the public interest, FP Canada is dedicated to championing better financial wellness for all Canadians by leading the advancement of professional financial planning in Canada. There are about 17,000 CERTIFIED FINANCIAL PLANNER
® professionals and about 2,000 QUALIFIED ASSOCIATE FINANCIAL PLANNER
™ professionals (as at March 31, 2022), who meet FP Canada’s rigorous professional and ethical standards. Visit the
FP Canada website for more information.
Source:
Luc Landry,
Vice-president, communications and marketing
Institut québécois de planification financière
514-767-4040 or 1-800-640-4050, ext. 237
llandry@iqpf.org
Liette Pitre,
Communications coordinator
Institut québécois de planification financière
514-767-4040 or 1-800-640-4050, ext. 235
lpitre@iqpf.org