AFP Exam 2 — CSI Applied Financial Planning (AFP®) Exam 2 Quick Reference

Exam-prep orientation

This Quick Reference is independent review support for candidates preparing for the Canadian Securities Institute CSI Applied Financial Planning (AFP®) Exam 2 using exam code AFP Exam 2.

Use it as a compact planning checklist for applied case questions. The highest-yield skill is not memorizing isolated product facts; it is selecting, justifying, and sequencing recommendations from a client fact pattern.

Applied case answer pattern

For each recommendation, connect the client fact to the planning issue and the action.

    flowchart TD
	    A[Client facts] --> B[Goals and constraints]
	    B --> C[Quantify gaps]
	    C --> D[Rank by urgency and impact]
	    D --> E[Select strategy]
	    E --> F[Explain trade-offs]
	    F --> G[Implementation steps]
	    G --> H[Review triggers]

Core planning fact finder

Core formulas and calculation rules

Time value and return formulas

\[ FV = PV(1+r)^n \]\[ PV = \frac{FV}{(1+r)^n} \]\[ PV_{\text{annuity}} = PMT \times \frac{1-(1+r)^{-n}}{r} \]\[ FV_{\text{annuity}} = PMT \times \frac{(1+r)^n-1}{r} \]\[ r_{\text{real}} = \frac{1+r_{\text{nominal}}}{1+i}-1 \]\[ \text{Capital need} = \text{debts}+\text{final costs}+\text{PV income need}+\text{goal funds}-\text{available assets}-\text{existing insurance} \]

Ratio and metric reference

Calculation traps

• Match compounding period to payment period.
• Distinguish nominal dollars from inflation-adjusted dollars.
• Use marginal tax rate for incremental planning decisions, not average tax rate.
• Do not compare pre-tax RRSP balances directly with after-tax TFSA balances.
• Retirement spending often changes by phase: active retirement, slower retirement, care years.
• A low-risk client may still have high risk capacity; a high-risk client may have low risk capacity if goals are fragile.

Tax and account selection

Tax treatment by income type

Registered plan comparison

For exam calculations, use the tax rates, contribution limits, and plan limits provided in the case or exam materials. Current statutory limits and thresholds can change.

Account location decision rules

Retirement planning quick reference

Retirement income sources

Retirement decision table

Retirement traps

• Treating retirement as a single date instead of a multi-stage cash-flow plan.
• Ignoring inflation on expenses but not on income.
• Forgetting tax on RRSP/RRIF withdrawals.
• Overlooking survivor income after first death.
• Assuming the higher-return portfolio is better without testing sequence-of-returns risk.
• Ignoring health, long-term care, and housing changes.

Investment planning and suitability

Suitability hierarchy

Investment product distinctions

Fixed income rules

Portfolio recommendation traps

• Do not recommend equities for money needed soon unless the case supports risk.
• Do not use past performance as the main rationale.
• Do not ignore taxes when moving non-registered holdings.
• Rebalancing can create taxable gains in non-registered accounts.
• Concentrated employer stock creates both employment and investment risk.
• A client’s stated risk tolerance may conflict with their behaviour or goal capacity.

Insurance and risk management

Risk management order

1. Avoid unnecessary risk.
2. Reduce risk through behaviour or planning.
3. Retain affordable risk with emergency reserves.
4. Transfer catastrophic risk through insurance.

Insurance needs table

Life insurance selection

Insurance taxation and ownership traps

• Confirm policy owner, life insured, beneficiary, and premium payer.
• Employer-paid disability benefits are often taxed differently than employee-paid personally owned coverage.
• Corporate-owned insurance can create business, tax, and estate implications; avoid casual recommendations without analysis.
• Creditor insurance may decline with debt and may be less flexible than individual coverage.
• Beneficiary designations must coordinate with wills and family law considerations.

Estate planning reference

Estate planning tools

Estate tax logic in planning cases

Estate traps

• A will does not control assets that pass by valid beneficiary designation or survivorship.
• Joint ownership added for convenience can create unintended beneficial ownership disputes.
• Naming a minor directly can complicate administration.
• Equal division is not always equitable if assets have different tax liabilities.
• Executor choice should consider competence, neutrality, location, age, and workload.
• Estate planning recommendations often require legal advice; identify referral points.

Business owner and incorporated professional planning

Family, education, and life-event planning

Recommendation priority framework

When multiple issues appear in a case, rank them by urgency and consequence.

High-yield distinction table

Common case traps checklist

Before finalizing an answer, check:

• Did you use the client’s actual goals, ages, dependants, and constraints?
• Did you identify the most urgent risk first?
• Did you account for income tax on withdrawals and investment income?
• Did you separate short-term funds from long-term growth assets?
• Did you explain why the recommendation fits risk tolerance and capacity?
• Did you consider spouse/partner income, survivor needs, and beneficiary designations?
• Did you coordinate registered plans, insurance, wills, and business agreements?
• Did you avoid recommending a strategy that requires liquidity the client does not have?
• Did you state when legal, tax, insurance, or estate specialist advice is needed?
• Did you give implementation steps rather than only a conclusion?

Practical next step

Use this Quick Reference as a one-page planning map, then practise full AFP Exam 2 case sets under timed conditions. For each missed question, classify the error as fact-finding, calculation, tax logic, product selection, prioritization, or recommendation wording, then drill that category before your next practice set.