Try 12 focused AFP 2 Companion case questions on Investment Planning, with explanations, then continue with Securities Prep.
| Field | Detail |
|---|---|
| Exam route | AFP 2 Companion |
| Topic area | Investment Planning |
| Blueprint weight | 15% |
| Page purpose | Focused case questions before returning to mixed practice |
Use this page to isolate Investment Planning for AFP 2 Companion. Work through the 12 case questions first, then review the explanations and return to mixed practice in Securities Prep.
| Pass | What to do | What to record |
|---|---|---|
| First attempt | Answer without checking the explanation first. | The fact, rule, calculation, or judgment point that controlled your answer. |
| Review | Read the explanation even when you were correct. | Why the best answer is stronger than the closest distractor. |
| Repair | Repeat only missed or uncertain items after a short break. | The pattern behind misses, not the answer letter. |
| Transfer | Return to mixed practice once the topic feels stable. | Whether the same skill holds up when the topic is no longer obvious. |
Blueprint context: 15% of the practice outline. A focused topic score can overstate readiness if you recognize the pattern too quickly, so use it as repair work before timed mixed sets.
Investment cases should be read through the whole plan, not only the portfolio. Tie the recommendation to objective, horizon, cash flow, tax, risk capacity, and implementation constraints.
| Case signal | What to check first | Common AFP 2 trap |
|---|---|---|
| Client wants higher return | Objective, risk capacity, horizon, liquidity, and downside tolerance | Increasing risk to solve a cash-flow problem |
| Portfolio has fallen in value | Time horizon, original purpose, needed withdrawals, and suitability update | Recommending immediate changes before reviewing goals and complaints |
| Concentrated holding or employer shares | Diversification, tax cost, liquidity, risk capacity, and behavioural attachment | Holding for familiarity without quantifying concentration risk |
| Non-registered account strategy | Tax character, ACB, turnover, fees, and after-tax return | Comparing investments only by gross return |
| Portfolio supports retirement or estate goal | Withdrawal timing, registered-account order, beneficiary goals, and risk level | Optimizing investments without checking tax and estate consequences |
| If you missed… | Drill next | Reasoning habit to build |
|---|---|---|
| Risk tolerance vs risk capacity | Client relationship and asset/liability cases | Separate what the client wants from what the plan can absorb. |
| After-tax result | Tax planning cases | Compare after-tax outcome, not only investment return. |
| Retirement drawdown interaction | Retirement planning cases | Coordinate account type, withdrawal timing, and portfolio risk. |
| Complaint or disclosure issue | Conduct cases | Address the client concern and documentation before proposing a fix. |
These cases are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.
Topic: Investment Planning
Leah Roy, 56, is a salaried HR executive. Her spouse, Ian Roy, 59, is a self-employed architect with uneven annual cash flow. They live in Ontario and expect to retire in about 8 years. After selling a rental property, they now have $620,000 cash to invest. Their existing TFSAs are already concentrated in Canadian bank and energy stocks, and their RRSPs total $770,000, mostly in branch mutual funds with MERs above 2%. They are willing to keep only those products that solve a real planning problem.
Leah and Ian’s priorities are:
Planning summary
| Sleeve | Amount | Main objective |
|---|---|---|
| Near-term reserve | $180,000 | Capital stability for 24 months |
| Long-term taxable growth | $440,000 | Diversified growth, low cost |
| Ongoing RRSP savings | $1,000/month | Automated disciplined investing |
| Legacy sleeve | $100,000 | Direct transfer to spouse with death-benefit focus |
Which structure is most suitable for the $180,000 near-term reserve?
Best answer: A
What this tests: Investment Planning
Explanation: Because the $180,000 is earmarked for use within 24 months, the planner should prioritize capital stability and liquidity over return maximization. Short-term, high-quality fixed income is the structure that best matches a known near-term liability.
Fixed income is the core structure for money with a short time horizon and a defined spending date. Leah and Ian need this reserve within 24 months for a renovation and to smooth uneven business cash flow, so the main job of the sleeve is preservation, not growth. A short-term, high-quality fixed-income allocation typically offers:
Equity and alternative strategies may have higher return potential, but that is not the right objective for this portion of the portfolio.
High-quality short-term fixed income best preserves capital for a known near-term cash need.
For the $440,000 taxable growth sleeve, which structure best fits their stated objectives?
Best answer: C
What this tests: Investment Planning
Explanation: For a large taxable lump sum with a 10+ year horizon, a broad-market equity ETF best matches their need for diversification, daily liquidity, and low ongoing cost. It also avoids adding more single-stock concentration to a household that already has sector-heavy TFSA holdings.
When the client’s core objective is long-term growth from a taxable lump sum, the strongest structure is usually the one that delivers broad exposure at low cost and with simple implementation. A diversified equity ETF fits because Leah and Ian want global growth, daily liquidity, and minimal fee drag, and their brokerage does not charge ETF commissions. Compared with concentrated individual equities, an ETF reduces idiosyncratic risk. Compared with a high-fee mutual fund, it preserves more return through lower costs. Compared with a hedge fund, it offers clearer transparency and a more appropriate core-portfolio role. The key distinction is that ETFs are especially effective when the client wants market exposure rather than a specialized contract feature or strategy.
A broad-market equity ETF gives diversified long-term exposure, daily liquidity, and low cost for this taxable lump sum.
Given their dealer setup, which feature most strongly supports using a mutual fund for ongoing RRSP contributions?
Best answer: A
What this tests: Investment Planning
Explanation: A mutual fund can still be appropriate when the client values disciplined, automated contributions and the platform supports that process better than ETFs. Here, the dealer allows pre-authorized mutual fund purchases but not automatic or fractional ETF purchases, so the mutual fund solves an operational problem.
A mutual fund can be the better structure when the operational benefit is the point. Here, the dealer supports pre-authorized mutual fund purchases but not automatic or fractional ETF purchases, and Leah and Ian want disciplined monthly RRSP saving rather than trading flexibility. Mutual funds are priced once daily at net asset value, but they are well suited to small recurring contributions, automatic investment plans, and behavioural consistency. Those practical features can justify keeping some mutual fund exposure even when ETFs are cheaper for larger lump sums. The key takeaway is that the best structure depends not only on cost, but also on how the client will actually fund and maintain the account.
On this platform, mutual funds support the pre-authorized small-dollar RRSP purchases that Leah and Ian want.
For Leah’s $100,000 legacy sleeve, which structure most directly meets the estate objective?
Best answer: A
What this tests: Investment Planning
Explanation: A segregated fund is the only structure in this case that directly addresses both of Leah’s stated goals: a direct transfer to Ian outside registered plans and some contractual protection if markets are down at death. The higher cost may be reasonable for a small, purpose-built sleeve.
A segregated fund is an insurance contract, not just an investment fund, so its relevant benefits differ from ETFs, mutual funds, and hedge funds. In Leah’s case, the goal is a small non-registered legacy sleeve that can name Ian directly as beneficiary and provide a contractual death-benefit feature if markets are down when she dies. That makes the higher cost potentially reasonable for this limited-purpose allocation, even though it would not be efficient for the whole portfolio. A hedge fund may pursue alternative return patterns, but it does not solve the estate-transfer or contractual guarantee objective. The planning lesson is to use specialized structures selectively, only where their unique contract features matter.
A segregated fund can name Ian as beneficiary outside registered plans and adds a contractual death-benefit feature for this targeted sleeve.
Topic: Investment Planning
Nicole Harrington, 56, is an accountant in Halifax. Four years ago, she and her late spouse adopted an investment policy statement focused on long-term growth. The plan assumed retirement at 65, no large withdrawals before retirement, and a willingness to tolerate a temporary portfolio decline of about 20%. Because household employment income exceeded spending, they also used a $180,000 investment loan to expand their non-registered equity portfolio.
Paul died 10 months ago. Nicole’s salary is $118,000, and household cash flow is much tighter than before. She now expects to retire at 60, not 65. She may contribute up to $75,000 toward her daughter’s home down payment within 18 months, and she may need about $60,000 for accessibility renovations if her father moves in within two years. She says last year’s market volatility left her ‘watching the account every day,’ and she no longer wants to rely on borrowing to invest.
Her planner is reviewing whether the portfolio still fits her objectives.
| Item | Amount | Notes |
|---|---|---|
| RRSP | $620,000 | 85% equity ETFs, 15% bond ETF |
| TFSA | $158,000 | all-equity ETF |
| Non-registered portfolio | $410,000 | Canadian bank stocks + U.S. tech ETF; unrealized capital gains about $95,000 |
| High-interest savings | $522,000 | includes life insurance proceeds not yet invested |
| Mortgage | $240,000 | fixed 3.2%, 2 years remaining |
| Investment loan | $180,000 | variable 7.1%, interest-only; proceeds invested in non-registered portfolio |
Nicole’s estimated spending is $7,800 per month. She has no defined benefit pension, expects CPP and OAS later, and wants the portfolio to support retirement income in about four years. Her priorities are now capital preservation, flexibility for near-term withdrawals, and simpler management. She asks whether she should wait for markets to recover before changing anything.
Which factor most clearly shows Nicole’s existing portfolio is no longer suitable?
Best answer: A
What this tests: Investment Planning
Explanation: The main trigger is a material change in Nicole’s client profile, not a security-specific issue. Her retirement horizon is shorter, her need for liquidity is higher, and her willingness to absorb volatility and leverage has clearly fallen, so the old growth-oriented portfolio no longer fits.
Portfolio reviews should begin with the client, not with market performance. When retirement moves closer, near-term spending needs appear, income changes, or comfort with losses declines, the target asset mix and use of leverage must be revisited.
Nicole’s prior portfolio was built for a dual-income household with no meaningful withdrawals for several years. Now she may need funds within 18 to 24 months, wants retirement support in about four years, and no longer wants to borrow to invest. Those facts reduce both her risk capacity and her risk tolerance. Tax issues and individual holdings matter later, but the first conclusion is that the existing aggressive, leveraged posture is no longer aligned.
Suitability must be reassessed because her retirement date moved closer, liquidity needs emerged, and her tolerance for loss and leverage dropped.
Before setting a new target asset mix, which detail most needs to be clarified?
Best answer: C
What this tests: Investment Planning
Explanation: Before choosing a new mix, the planner needs a precise liquidity map. Money needed within 18 to 24 months should usually not remain exposed to full equity risk, so the exact withdrawal schedule is the most important missing input.
Asset allocation should reflect when each dollar may be needed. A client approaching retirement may still need long-term growth for later years, but funds earmarked for short-term goals should be carved out into cash or short-term fixed income.
Nicole has possible withdrawals for her daughter’s home down payment and accessibility renovations before retirement, plus retirement income needs beginning in about four years. The planner therefore needs to confirm the amount, timing, and likelihood of each withdrawal before setting the new target mix. Once the liquidity schedule is clear, the remaining assets can be positioned for medium- and long-term goals. Product rankings and dividend data come after that planning step.
The size and timing of cash needs determine how much must be held in low-volatility assets rather than growth assets.
Which portfolio update is most appropriate under the stated facts?
Best answer: C
What this tests: Investment Planning
Explanation: Nicole needs a portfolio that fits a four-year transition to retirement, protects near-term cash needs, and removes a leverage strategy she no longer wants. Retiring the investment loan, setting aside a short-term reserve, and shifting the remaining assets to a diversified balanced mix best aligns risk with her updated objectives.
A suitable update should address three things at once: leverage, liquidity, and long-term sustainability. Nicole’s variable-rate investment loan amplifies downside risk and no longer matches her tolerance or circumstances. Her expected withdrawals over the next two years should be held in low-volatility assets, not left in a mostly equity portfolio.
After those short-term needs are separated, the remaining portfolio should still stay invested in a diversified balanced mix because retirement may last decades and inflation remains a risk. That is why moving everything to cash is too extreme, while keeping or increasing leverage is inconsistent with her revised goals. The key is better alignment, not maximum growth or total risk elimination.
This removes unsuitable leverage, protects near-term spending needs, and still leaves the long-term portfolio invested for retirement.
If Nicole adopts a lower-risk target mix, which implementation approach is best?
Best answer: C
What this tests: Investment Planning
Explanation: Implementation should correct the mismatch quickly while limiting unnecessary tax. Because Nicole already holds significant cash, the planner can remove leverage immediately and use RRSP and TFSA trades first before deciding how much of the appreciated non-registered account must be sold.
When a client has embedded capital gains in a taxable account and also has available cash, sequencing matters. The most efficient first step is to use cash to repay the unsuitable investment loan rather than forcing a taxable sale. Next, the planner can do much of the rebalancing inside the RRSP and TFSA, where trades do not create current capital gains.
Only after the leverage is removed and the target allocation is clear should the planner decide how much of the non-registered portfolio needs to be sold or trimmed. Waiting for markets to recover is market timing, and relying only on future contributions leaves today’s mismatch in place. The best implementation is fast, suitable, and tax-aware.
Her available cash allows immediate removal of leverage while registered-account trades can reduce risk without triggering current taxable gains.
Topic: Investment Planning
Priya Bouchard, 52, is CFO of Norwell Life. Her spouse, Marc, 50, is an architect. They do not expect to draw from their long-term portfolio for at least seven years. Their emergency reserve and RESP are separate from the accounts below. In their last planning meeting, they confirmed a long-term target of 60% equity, 30% fixed income, and 10% cash/short term. They also said they want less dependence on Priya’s employer over time and prefer not to hold more than about 10% of investable assets in any one issuer where practical.
Priya still owns Norwell shares accumulated from bonuses and share-purchase plans. Those shares have an adjusted cost base of $165,000. She also has unvested Norwell RSUs currently worth about $230,000; the RSUs are not included in the statement totals below.
| Account | Holding | Value | Role |
|---|---|---|---|
| Joint taxable | Norwell Life common shares | $420,000 | Equity |
| Joint taxable | Canadian bank ETF | $210,000 | Equity |
| Joint taxable | High-yield bond fund | $160,000 | Fixed income |
| Priya RRSP | Global equity ETF | $260,000 | Equity |
| Priya RRSP | U.S. equity ETF | $170,000 | Equity |
| Priya RRSP | Canadian aggregate bond ETF | $90,000 | Fixed income |
| Marc RRSP | International equity ETF | $130,000 | Equity |
| Marc RRSP | Short-term bond ETF | $70,000 | Fixed income |
| Priya TFSA | Nasdaq-100 ETF | $150,000 | Equity |
| Marc TFSA | Cashable GIC | $140,000 | Cash/short term |
| Holdco account | Global REIT ETF | $160,000 | Equity |
| Holdco account | Corporate bond ETF | $80,000 | Fixed income |
| Holdco account | Money market ETF | $60,000 | Cash/short term |
Total statement value: $2,100,000
Which concentration concern is most serious in the statements?
Best answer: D
What this tests: Investment Planning
Explanation: The clearest problem is concentration risk. Norwell shares alone are about 20% of the stated portfolio, above their preferred single-issuer limit, and the Canadian bank ETF adds more exposure to the same financial sector. Priya’s unvested RSUs make the household’s dependence on one employer even larger than the statements first suggest.
When reviewing holdings statements, start with exposures that could dominate total portfolio outcomes. Here, the key issue is stacked concentration: Priya’s employment income is tied to Norwell, her taxable account holds $420,000 of Norwell shares, and the portfolio also holds $210,000 in a Canadian bank ETF. On the stated assets alone, Norwell is about 20% of the portfolio, already well above the couple’s preferred single-issuer ceiling of about 10%. If Priya’s unvested RSUs are included, effective exposure to her employer becomes even more significant. This concentration matters more than the portfolio’s cash sleeve or foreign equity because one adverse development could affect both family income and investment capital at the same time.
Norwell alone is about 20% of stated assets, and the bank ETF plus unvested RSUs further increase exposure to the same employer and sector.
Relative to their 60/30/10 target, which asset-mix issue is most evident?
Best answer: D
What this tests: Investment Planning
Explanation: The portfolio is clearly equity-heavy. The holdings add up to roughly 71% equity, 19% fixed income, and 10% cash, compared with the target of 60/30/10. That means the main mix problem is too much equity risk and too little stabilizing fixed income.
Asset-mix analysis requires grouping each holding by its portfolio role and comparing the totals with the target policy. In this case, the equity holdings total $1,500,000, fixed income totals $400,000, and cash or short-term assets total $200,000 out of $2,100,000. That is approximately 71% equity, 19% fixed income, and 10% cash. The portfolio is therefore materially overweight equities and materially underweight fixed income, while cash is essentially on target. This matters because the household is taking more volatility and drawdown risk than intended. The closest competing interpretation is that the mix is close enough, but an 11-point deviation in both equity and fixed income is significant for an agreed strategic allocation.
Equity is about $1.5 million or 71% of the portfolio, while fixed income is only about $400,000 or 19%.
Which holding location most clearly points to a tax-inefficient account structure?
Best answer: A
What this tests: Investment Planning
Explanation: The strongest account-structure issue is the high-yield bond fund sitting in the joint taxable account. Interest-bearing holdings generally create more annual tax drag outside registered plans than broad equity holdings do. The other placements may be debatable, but this one is the most clearly inefficient from a tax-location perspective.
Analyzing account structure means looking beyond total allocation and asking whether each holding is in a sensible account type. In Canadian planning, interest income from bond funds is usually less tax-efficient in a non-registered account than equity returns that may be deferred as capital gains or paid as eligible dividends. Here, the joint taxable account holds a high-yield bond fund while the registered accounts still contain significant equity exposure. That does not mean every bond must be moved immediately, but it is the clearest signal that account location could be improved over time. By contrast, a GIC inside a TFSA may limit growth potential, yet it does not create the same annual taxable-income leakage as a bond fund held outside registered plans.
Interest-paying bond funds in non-registered accounts usually create the clearest ongoing annual tax drag.
Given the unrealized gain on Norwell shares, what is the best rebalancing step?
Best answer: C
What this tests: Investment Planning
Explanation: The best answer is a controlled, staged rebalance. Trimming Norwell over time reduces the largest concentration risk while directing the portfolio toward more diversified fixed income helps restore the target mix. That approach is more suitable than a full liquidation or a transfer that still triggers a taxable disposition.
Good holdings analysis should lead to an implementation sequence, not just a diagnosis. This portfolio has two linked problems: an oversized employer and financial-sector concentration, and an overall allocation that is too equity-heavy. Because the Norwell shares have a large unrealized gain, a gradual sell-down is more prudent than an immediate full exit if the goal is to reduce risk without creating an avoidable one-time tax spike. At the same time, rebalancing within RRSPs and TFSAs can usually improve the fixed-income weight without immediate tax cost, and new savings can be directed away from Canadian financials. Selling everything to cash would overshoot the risk objective, while selling bonds or attempting a so-called tax-free TFSA transfer would move the plan in the wrong direction.
A staged reduction addresses the main concentration risk while rebuilding the underweight fixed-income allocation without forcing one large taxable sale.
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