Exam Identity and Study Focus
This independent Quick Reference supports candidates preparing for the Canadian Securities Institute CSI Financial Planning I (FP I) exam. Use it to review high-yield planning concepts, calculations, account comparisons, and applied decision rules. Confirm current tax limits, contribution limits, and legislative details in your current course materials.
| Item | Reference |
|---|
| Provider | Canadian Securities Institute |
| Official exam title | CSI Financial Planning I (FP I) |
| Official exam code | FP I |
| Core candidate task | Apply Canadian financial planning concepts to client scenarios |
| Best study approach | Practise integrated cases: cash flow, tax, investment, retirement, insurance, and estate trade-offs |
Financial Planning Process
Process Map
| Step | What to do | Exam cues | Common trap |
|---|
| 1. Establish the relationship | Define scope, roles, compensation, conflicts, confidentiality, and deliverables | “What should the planner do first?” | Jumping to product recommendations |
| 2. Gather client information | Collect quantitative and qualitative facts | Incomplete net worth, cash flow, goals, risk profile | Using assumptions before confirming facts |
| 3. Analyze current position | Identify gaps, risks, tax issues, cash flow constraints, and goal feasibility | “Client wants X but cash flow shows Y” | Ignoring tax, inflation, or timing |
| 4. Develop recommendations | Create prioritized, suitable strategies | Compare alternatives and consequences | Choosing the highest return instead of the best fit |
| 5. Present recommendations | Explain rationale, risks, assumptions, and trade-offs | Client needs to understand action plan | Presenting technical answer without client linkage |
| 6. Implement | Coordinate accounts, insurance, legal documents, investments, contributions, debt actions | Action sequence matters | Planner acting outside authority or expertise |
| 7. Monitor and review | Update for life events, markets, tax changes, and goal changes | Marriage, child, job loss, inheritance, retirement | Treating the plan as static |
Core Client Data
| Data category | Examples | Why it matters |
|---|
| Personal/family | Age, dependants, marital status, health, residency, family obligations | Planning horizon, estate needs, insurance, benefits |
| Goals | Home purchase, education, retirement, debt reduction, legacy, business succession | Drives strategy selection and priority |
| Net worth | Assets, liabilities, ownership, liquidity, tax attributes | Measures solvency, collateral, estate exposure |
| Cash flow | Income, fixed costs, variable costs, savings, debt payments | Determines feasibility and action timing |
| Tax | Marginal tax rate, income type, deductions, credits, registered room | Affects account choice and after-tax outcome |
| Investments | Holdings, ACB, asset allocation, risk, fees, liquidity | Determines suitability and rebalancing |
| Insurance | Life, disability, critical illness, property, liability, group benefits | Identifies risk transfer gaps |
| Retirement | CPP/QPP, OAS, pensions, RRSP/RRIF, TFSA, non-registered assets | Determines retirement income sustainability |
| Estate | Will, powers of attorney, beneficiaries, trusts, business agreements | Coordinates tax, liquidity, control, dependants |
High-Yield Ratios and Measures
| Measure | Plain formula | Use | Exam trap |
|---|
| Net worth | Assets − liabilities | Snapshot of financial position | High net worth can still mean poor liquidity |
| Liquidity ratio | Liquid assets ÷ monthly expenses | Emergency fund strength | Use essential expenses if scenario asks for survival period |
| Savings ratio | Annual savings ÷ income | Progress toward goals | Be consistent: gross income vs net income |
| Debt-to-asset ratio | Total debt ÷ total assets | Leverage and solvency | Asset values can be volatile or illiquid |
| Debt service ratio | Required debt payments ÷ income | Cash flow pressure | Do not treat ratio alone as advice |
| Emergency reserve months | Liquid reserve ÷ monthly essential expenses | Resilience to job loss or shock | Registered withdrawals may create tax or penalties |
| Investment return gap | Required return − expected return | Goal feasibility | Higher required return may exceed risk capacity |
| Insurance gap | Need − existing coverage | Amount of additional protection | Employer coverage may be non-portable |
Use consistent periods: if payments are monthly, use monthly rate and number of months. Distinguish ordinary annuity payments at period-end from annuity due payments at period-beginning.
Single Sum
\[
FV = PV(1+r)^n
\]\[
PV = \frac{FV}{(1+r)^n}
\]
Ordinary Annuity
\[
FV_{\text{ordinary}} = PMT \times \frac{(1+r)^n-1}{r}
\]\[
PV_{\text{ordinary}} = PMT \times \frac{1-(1+r)^{-n}}{r}
\]
Annuity Due
\[
FV_{\text{due}} = FV_{\text{ordinary}}(1+r)
\]\[
PV_{\text{due}} = PV_{\text{ordinary}}(1+r)
\]
Loan Payment
\[
PMT = PV \times \frac{r}{1-(1+r)^{-n}}
\]
Real Return and Inflation
\[
r_{\text{real}} = \frac{1+r_{\text{nominal}}}{1+i}-1
\]
Approximation:
\[
r_{\text{real}} \approx r_{\text{nominal}} - i
\]
After-Tax Return for Fully Taxable Income
\[
r_{\text{after tax}} = r_{\text{pre tax}}(1-t)
\]
where \(t\) is the investor’s marginal tax rate.
Holding Period Return
\[
HPR = \frac{\text{ending value} - \text{beginning value} + \text{income}}{\text{beginning value}}
\]
Portfolio Expected Return
\[
E(R_p)=\sum w_iE(R_i)
\]
| Calculation issue | Correct approach |
|---|
| Nominal goal with inflation | Inflate the future cost before discounting or funding |
| Retirement spending | Convert desired after-tax spending to pre-tax income if withdrawals are taxable |
| Monthly contributions | Use monthly rate and monthly periods |
| Beginning-of-period deposits | Treat as annuity due |
| Comparing RRSP and TFSA | Compare after-tax values, not account balances only |
Canadian Tax Planning Reference
Tax Calculation Logic
| Concept | Meaning | Exam significance |
|---|
| Total income | Income from all taxable sources before deductions | Starting point |
| Net income | Total income after certain deductions | Used for some income-tested benefits and credits |
| Taxable income | Net income after additional permitted deductions | Tax brackets apply here |
| Marginal tax rate | Tax rate on the next dollar of income | Used for RRSP deductions, interest income, and planning decisions |
| Average tax rate | Total tax ÷ total income | Not the rate used for next-dollar decisions |
| Deduction | Reduces taxable income | Value generally depends on marginal tax rate |
| Non-refundable credit | Reduces tax otherwise payable | Cannot usually create a refund by itself |
| Refundable credit | Can create or increase refund | Distinguish from non-refundable credits |
| Tax deferral | Tax paid later, not eliminated | RRSP/RRIF are classic examples |
| Tax-free growth | No tax on qualifying growth/withdrawals | TFSA is the core example |
Income Type Treatment
| Income type | General Canadian tax treatment | Planning cue |
|---|
| Employment income | Taxable; limited deductions | Cash flow and withholding matter |
| Business income | Net profit taxable after allowable expenses | Timing, instalments, records, and risk matter |
| Interest income | Generally fully taxable as earned or accrued | Least tax-efficient in non-registered accounts |
| Foreign income | Generally taxable in Canada, with possible foreign tax credit treatment | Watch currency and withholding tax |
| Canadian dividends | Gross-up and dividend tax credit system may apply | Different from interest; tax efficiency depends on client |
| Capital gains | Realized gains included in income at the applicable inclusion rate | Tax deferral until sale can be valuable |
| Capital losses | Generally useful against capital gains, subject to tax rules | Beware superficial loss rules |
| Return of capital | Not immediate income; reduces adjusted cost base | Can create larger future gain |
Adjusted Cost Base and Taxable Dispositions
| Item | Effect on ACB |
|---|
| Purchase cost | Increases ACB |
| Purchase commissions/transaction costs | Usually increase ACB |
| Reinvested distributions | Usually increase ACB |
| Return of capital distributions | Decrease ACB |
| Partial sale | Use average ACB for identical properties |
| ACB below zero | Can trigger capital gain treatment |
Common exam trap: cash received is not always income. A return of capital distribution reduces ACB; interest and dividends are income; capital gains arise on disposition or deemed disposition.
Registered and Tax-Advantaged Accounts
| Account | Contributions | Growth | Withdrawals | Best use | Common trap |
|---|
| RRSP | May be deductible, subject to available room | Tax-deferred | Taxable when withdrawn | High current tax rate, retirement saving | Refund is not “free money”; reinvest it for full benefit |
| Spousal RRSP | Contributing spouse may claim deduction | Tax-deferred | Taxable to annuitant, subject to attribution rules | Income splitting in retirement | Ignoring attribution rules |
| RRIF | Funded from RRSP or similar assets | Tax-deferred | Taxable; minimum withdrawals apply | Retirement income stream | Minimum withdrawal may exceed spending need |
| TFSA | No deduction | Generally tax-free | Generally tax-free | Flexible savings, emergency fund, low future tax uncertainty | Withdrawing and recontributing too soon can cause issues |
| RESP | No deduction | Tax-deferred; education assistance payments taxable to student | Contribution withdrawals not taxable; earnings/grants taxable to student when paid as education assistance | Education funding | Confusing subscriber, beneficiary, and tax treatment |
| RDSP | No deduction | Tax-deferred | Withdrawals may include taxable and non-taxable components | Long-term disability support | Grant/bond and repayment rules require care |
| Non-registered account | No deduction | Taxable by income type | No registered withdrawal tax | Flexibility and tax-efficient investing | Ignoring ACB and taxable distributions |
| Pension plan | Employer/employee rules vary by plan | Tax-deferred | Taxable pension income | Retirement income and possible employer matching | DB and DC risk allocation differ |
RRSP vs TFSA Decision Rules
| Scenario | Often favours | Why |
|---|
| Current marginal tax rate high; expected retirement rate lower | RRSP | Deduction valuable now; withdrawals may be taxed lower later |
| Current marginal tax rate low; expected future rate higher | TFSA | Avoids using RRSP room at a low deduction value |
| Need flexible access before retirement | TFSA | Withdrawals generally do not create taxable income |
| Employer match available in group plan | Employer plan first | Matching is part of compensation |
| Income-tested benefits matter | TFSA may help | Withdrawals generally do not increase taxable income |
| Behavioural risk of spending refund | TFSA may be simpler | RRSP advantage weakens if refund is spent |
| Same contribution room decision with same current and future tax rate | Often economically similar if RRSP refund is invested | Compare after-tax values |
RRSP/TFSA equivalence concept, where \(C\) is after-tax cash available:
\[
FV_{\text{TFSA}} = C(1+r)^n
\]\[
FV_{\text{RRSP after tax}} = \frac{C}{1-t_0}(1+r)^n(1-t_n)
\]
If \(t_0=t_n\), the after-tax values are generally equivalent, assuming the RRSP tax refund is invested.
Tax Planning Techniques and Traps
| Technique | Purpose | Watch for |
|---|
| Defer income | Delay tax payment | May increase future marginal rate |
| Accelerate deductions | Use deduction when tax rate is high | Must be permitted and supportable |
| Income split | Move income to lower-tax family member where allowed | Attribution and anti-avoidance rules |
| Asset location | Hold tax-inefficient assets in registered accounts where suitable | Do not let tax override risk profile |
| Loss harvesting | Realize capital losses to offset gains | Superficial loss rules |
| Charitable giving | Tax credit and estate planning benefits | Confirm eligible donation and timing |
| Pension income planning | Improve after-tax retirement cash flow | Eligibility and splitting rules vary |
| Capital gains timing | Control realization timing | Market risk and concentration risk remain |
Investment Planning Reference
Risk Types
| Risk | Meaning | Typical exam cue |
|---|
| Market risk | Broad market decline | Diversification cannot eliminate it |
| Unsystematic risk | Company/sector-specific risk | Diversification can reduce it |
| Interest rate risk | Bond prices fall when rates rise | Longer duration means more sensitivity |
| Reinvestment risk | Future cash flows reinvest at lower rates | High for callable bonds and income portfolios |
| Credit/default risk | Issuer fails to pay | Ratings, spreads, diversification |
| Inflation risk | Purchasing power falls | Cash and fixed income may lag inflation |
| Liquidity risk | Cannot sell quickly at fair value | Private investments, thin markets |
| Currency risk | Exchange rate changes affect return | Foreign investments |
| Concentration risk | Too much exposure to one asset/employer/sector | Employer stock plus employment income |
| Sequence-of-returns risk | Poor returns early in withdrawal phase damage sustainability | Retirement income planning |
| Longevity risk | Client outlives assets | Annuities, pensions, withdrawal planning |
Product and Strategy Matrix
| Product/strategy | Core features | Suitable when | Key caution |
|---|
| Cash/high-interest savings | Liquidity, low volatility | Emergency fund, near-term goals | Inflation risk |
| Money market | Short-term debt exposure | Parking cash, short horizon | Return may be low after tax/inflation |
| GIC/term deposit | Known rate, term commitment | Capital preservation and known maturity | Liquidity and reinvestment risk |
| Bonds | Interest income and maturity value | Income, diversification, liability matching | Price moves inversely with yield |
| Bond funds/ETFs | Diversified fixed income | Ongoing allocation exposure | No fixed maturity unless structured that way |
| Common shares | Ownership, dividends, capital growth | Long horizon, growth objective | Volatility and business risk |
| Preferred shares | Dividend income, hybrid features | Income with equity-like tax features | Rate sensitivity and issuer risk |
| Mutual funds | Pooled professional management | Diversification and access | Fees, tax distributions, style drift |
| ETFs | Exchange-traded pooled exposure | Low-cost indexing or targeted exposure | Trading spread and tracking error |
| Segregated funds | Insurance contract with investment exposure and guarantees | Estate/insurance features needed | Fees and guarantee conditions |
| Annuities | Convert capital to income stream | Longevity risk transfer | Irreversible or limited flexibility |
| Dollar-cost averaging | Invest fixed amounts over time | Behavioural discipline, volatile markets | Does not guarantee profit |
| Rebalancing | Restore target allocation | Risk control | Taxable dispositions in non-registered accounts |
Bond Price Relationships
| If this changes | Bond price effect | High-yield rule |
|---|
| Market yields rise | Existing bond prices fall | Inverse relationship |
| Market yields fall | Existing bond prices rise | Longer duration rises more |
| Coupon is higher | Duration usually lower | Less price sensitivity |
| Maturity is longer | Duration usually higher | More price sensitivity |
| Credit quality worsens | Price usually falls | Spread widens |
| Callable bond rates fall | Call risk increases | Upside may be capped |
Approximate bond price sensitivity:
\[
\%\Delta P \approx -D_{\text{modified}} \times \Delta y
\]
Suitability and Portfolio Construction
| Planning factor | Investment implication |
|---|
| Time horizon | Longer horizon can support more volatility; short horizon needs liquidity/stability |
| Risk tolerance | Emotional willingness to accept loss |
| Risk capacity | Financial ability to absorb loss |
| Required return | Return needed to meet goal |
| Tax position | Determines account type and asset location |
| Liquidity need | Avoid locking funds needed soon |
| Knowledge/experience | Product complexity must match client understanding |
| Legal/ethical constraints | Avoid unsuitable, conflicted, or unauthorized recommendations |
Common distinction: risk tolerance is willingness, risk capacity is ability, and risk need is the risk required to reach the goal. Suitability requires all three to be considered.
Retirement Planning Reference
Retirement Income Sources
| Source | Nature | Planning issue |
|---|
| CPP/QPP | Earnings-related public pension | Start timing affects income level |
| OAS | Residency-based public pension | Taxable and may be affected by income recovery rules |
| GIS | Income-tested benefit | Taxable income planning can matter |
| Defined benefit pension | Formula-based lifetime pension | Indexation, survivor options, commuted value choices |
| Defined contribution pension | Account balance-based | Member bears investment and longevity risk |
| Group RRSP/DPSP | Employer-sponsored accumulation plans | Employer contributions and vesting rules matter |
| RRSP/RRIF | Tax-deferred personal retirement assets | Withdrawal timing and tax brackets |
| TFSA | Tax-free flexible savings | Useful for tax-efficient retirement withdrawals |
| Non-registered portfolio | Taxable but flexible | ACB, capital gains, income type |
| Annuity | Guaranteed income stream from capital | Transfers longevity/investment risk |
| Home equity | Potential downsizing, borrowing, sale | Liquidity, housing risk, emotional constraints |
Accumulation vs Decumulation
| Phase | Main question | Primary risks | Planning focus |
|---|
| Accumulation | “How much must be saved?” | Low savings, inflation, underperformance | Contribution rate, asset allocation, tax sheltering |
| Pre-retirement | “Can the client retire when planned?” | Market decline, job loss, sequence risk | Stress testing, debt reduction, pension choices |
| Decumulation | “How can income last?” | Longevity, sequence, inflation, tax | Withdrawal order, guaranteed income, rebalancing |
| Late retirement | “How are care and estate goals funded?” | Health costs, incapacity, fraud | Powers of attorney, liquidity, simplification |
Retirement Gap Method
| Step | Action |
|---|
| 1 | Estimate desired retirement spending in today’s dollars |
| 2 | Inflate spending to retirement date if using nominal dollars |
| 3 | Subtract expected secure income sources |
| 4 | Convert after-tax spending need to pre-tax withdrawals where applicable |
| 5 | Calculate capital needed at retirement |
| 6 | Compare projected capital to required capital |
| 7 | Adjust savings, retirement age, spending, risk, or income sources |
Common traps:
- Mixing real and nominal rates.
- Ignoring tax on RRSP/RRIF withdrawals.
- Ignoring survivor income needs.
- Assuming average return is enough without considering sequence risk.
- Treating home equity as liquid without a sale or borrowing plan.
Insurance and Risk Management
Risk Management Choices
| Method | Meaning | Example |
|---|
| Avoid | Eliminate activity | Do not engage in high-risk activity |
| Reduce | Lower frequency or severity | Safety systems, diversification, disability prevention |
| Retain | Self-insure | Emergency fund, deductibles |
| Transfer | Shift financial risk | Insurance contract |
Life Insurance Needs Analysis
Capital needs approach:
\[
\text{Insurance need} = \text{debts} + \text{final expenses} + \text{education fund} + \text{PV income need} + \text{tax/estate liquidity} - \text{available assets} - \text{existing insurance}
\]
| Need | Include when |
|---|
| Debt repayment | Surviving family should not carry mortgage or high-interest debt |
| Income replacement | Dependants rely on insured’s earnings or unpaid labour |
| Education funding | Children or dependants have future education goals |
| Final expenses | Estate needs liquidity |
| Tax liability | Death triggers taxable dispositions or registered account income |
| Business continuity | Owner/key person death affects business value or financing |
Insurance Product Matrix
| Product | Main purpose | Suitable when | Key trap |
|---|
| Term life | Temporary death benefit | Mortgage, young family, temporary income need | Coverage may expire before permanent need |
| Permanent life | Lifetime coverage with additional features | Estate liquidity, permanent dependants, tax/legacy planning | Higher premium; do not recommend solely for investment return |
| Universal life | Flexible permanent insurance with investment component | Client needs flexibility and understands risk | Investment performance affects policy |
| Whole life | Permanent coverage with level premiums and cash values | Long-term estate or conservative permanent need | Less flexibility than some alternatives |
| Group life | Employer-provided coverage | Basic employment benefit | May end or reduce when employment changes |
| Creditor insurance | Pays lender or debt obligation | Simple debt-linked need | Beneficiary and underwriting features differ from personal coverage |
| Disability insurance | Replaces income if disabled | Anyone dependent on earned income | Definition of disability matters |
| Critical illness | Lump sum on covered illness | Liquidity for recovery or lifestyle adjustment | Not income replacement by itself |
| Long-term care | Care cost support | Concern about extended care needs | Benefit triggers and exclusions matter |
| Property and casualty | Protects property/liability | Home, auto, business, umbrella liability | Deductibles and exclusions matter |
Disability Insurance Features
| Feature | Why it matters |
|---|
| Definition of disability | Own occupation vs regular occupation vs any occupation changes claim likelihood |
| Elimination period | Waiting period before benefits begin |
| Benefit period | How long benefits may continue |
| Benefit amount | Income replacement level |
| Tax treatment | Depends on who pays premiums and plan structure |
| Non-cancellable/guaranteed renewable features | Protect insurability and premium stability |
| Cost-of-living adjustment | Helps protect purchasing power |
| Waiver of premium | Premiums waived during qualifying disability |
Estate Planning Reference
Estate Documents and Roles
| Item | Purpose | Exam cue |
|---|
| Will | Directs estate distribution and executor appointment | Needed for control and clarity |
| Executor/liquidator | Administers estate | Fiduciary responsibility and practical workload |
| Power of attorney for property | Allows financial decisions during incapacity | Avoids court appointment delays |
| Personal care directive/mandate | Health and personal care decisions | Incapacity planning is not only financial |
| Beneficiary designation | Directs certain registered plans or insurance proceeds | Must coordinate with will |
| Trust | Separates legal control from beneficial enjoyment | Minors, disabled beneficiaries, tax/control goals |
| Shareholder/buy-sell agreement | Business succession | Prevents ownership disputes |
| Marriage/cohabitation agreement | Family property expectations | Blended family and second marriage planning |
Estate Planning Concepts
| Concept | Meaning | Common trap |
|---|
| Probate/estate administration | Court process validating authority to administer estate | Probate fees are not the same as income tax |
| Intestacy | Dying without a valid will | Distribution follows provincial/territorial rules, not personal wishes |
| Deemed disposition at death | Assets generally treated as disposed of at fair market value | Estate may need liquidity for tax |
| Spousal rollover | Tax deferral may be available for transfers to spouse or qualifying trust | Deferral is not tax elimination |
| Registered account on death | RRSP/RRIF value may be included in income unless rollover treatment applies | Beneficiary designation does not always solve tax |
| Joint ownership | May pass outside estate depending on structure | Can create tax, creditor, control, or family law issues |
| Minor beneficiary | Cannot directly manage assets | Trust or trustee planning may be required |
| Blended family | Competing spouse/child expectations | Simple will may not meet all goals |
| Charitable legacy | Donation planning at death or during life | Timing affects estate and tax result |
Family, Education, and Special Planning
| Planning area | Common tools | Decision points |
|---|
| New child | RESP, life insurance, disability insurance, will update, guardian planning | Protect income first, then fund education |
| Education funding | RESP, informal trust, TFSA, non-registered savings | Grants, tax treatment, flexibility, beneficiary risk |
| Disability support | RDSP, trusts, insurance, government benefits planning | Benefit interaction and long-term control |
| Aging parents | Powers of attorney, care funding, estate coordination | Capacity, family conflict, liquidity |
| Separation/divorce | Beneficiary changes, support obligations, tax, property division | Old designations and joint ownership can conflict |
| Business owner family | Buy-sell agreement, key person insurance, estate freeze concepts, succession plan | Liquidity and control matter as much as tax |
Integrated Scenario Decision Table
| Scenario | First analysis | Likely planning priorities | Exam trap |
|---|
| Young professional with credit card debt | Cash flow, interest rate, emergency reserve | Budget, high-interest debt repayment, basic insurance, TFSA emergency fund | Investing while carrying expensive debt |
| Couple with new child | Dependants, income replacement, estate documents | Life/disability insurance, will, guardian, RESP | Funding RESP before protecting income |
| High-income employee | Marginal tax rate, pension adjustment, registered room | RRSP, employer plan, tax-efficient non-registered investing | Ignoring future tax rate |
| Self-employed client | Income volatility, tax instalments, insurance gaps | Emergency fund, disability insurance, retirement savings, business records | Assuming employee-style benefits exist |
| Client near retirement | Spending need, pensions, debt, asset allocation | Retirement projection, CPP/QPP/OAS timing, withdrawal plan | Using account balance before after-tax income |
| Retiree with low taxable income | Benefits, withdrawal mix, liquidity | TFSA use, careful RRIF/non-registered withdrawals, benefit preservation | Creating unnecessary taxable income |
| Business owner | Corporate structure, family, key people, succession | Buy-sell funding, key person insurance, estate liquidity | Treating business value as liquid retirement capital |
| Widowed or divorced client | Beneficiaries, estate documents, income change | Update plan, cash flow, risk profile, tax filing changes | Leaving old beneficiary designations |
| Client receives inheritance | Goals, debt, tax, risk capacity | Pause, update plan, repay high-interest debt, invest according to IPS | Immediate product recommendation |
| Concentrated employer stock | Employment and portfolio risk linked | Diversify gradually, manage tax, review compensation | Confusing loyalty with suitability |
High-Yield Distinctions
| Distinction | Know this |
|---|
| Goal vs strategy | “Retire at 60” is a goal; RRSP contribution is a strategy |
| Need vs want | Needs affect plan viability; wants affect preferences |
| Risk tolerance vs risk capacity | Willingness vs financial ability |
| Nominal vs real | Nominal includes inflation; real removes inflation |
| Marginal vs average tax rate | Use marginal rate for next-dollar decisions |
| Deduction vs credit | Deduction reduces income; credit reduces tax |
| Tax-deferred vs tax-free | RRSP defers; TFSA generally eliminates tax on qualifying growth |
| Asset allocation vs product selection | Allocation drives most risk/return; products implement allocation |
| Term vs permanent insurance | Temporary need vs lifetime/estate need |
| Probate vs income tax | Separate issues; reducing one may not reduce the other |
| Beneficiary designation vs will | Designations may override or bypass estate instructions |
| Retirement income vs retirement assets | Spendable after-tax income is the planning target |
Common FP I Answer Traps
- Recommending investments before collecting sufficient client information.
- Ignoring cash flow when proposing retirement or education contributions.
- Using pre-tax returns to solve after-tax goals.
- Comparing RRSP and TFSA by contribution amount only, not after-tax outcome.
- Treating all investment income as taxed the same way.
- Ignoring ACB adjustments from reinvested distributions or return of capital.
- Assuming higher expected return solves an unrealistic plan.
- Focusing on life insurance while ignoring disability risk for income earners.
- Treating group benefits as permanent personal coverage.
- Forgetting to update wills and beneficiaries after major life events.
- Confusing probate avoidance with comprehensive estate planning.
- Recommending tax minimization that increases liquidity, risk, or family conflict problems.
Last-Week Review Checklist
| Task | Can you do it quickly? |
|---|
| Calculate FV, PV, annuity, loan payment, real return, and after-tax return | Yes / No |
| Explain marginal vs average tax rate | Yes / No |
| Compare RRSP, TFSA, RESP, RDSP, RRIF, and non-registered accounts | Yes / No |
| Identify tax treatment of interest, dividends, capital gains, losses, and ROC | Yes / No |
| Match investment products to horizon, liquidity, risk, and tax needs | Yes / No |
| Explain bond price/yield/duration relationships | Yes / No |
| Build a basic retirement gap analysis | Yes / No |
| Calculate a life insurance need using capital needs logic | Yes / No |
| Distinguish term, permanent, disability, critical illness, and long-term care insurance | Yes / No |
| Identify estate documents and common beneficiary traps | Yes / No |
| Prioritize recommendations in an integrated client scenario | Yes / No |
Practical Next Step
Work through mixed FP I-style planning cases under timed conditions. For each case, force yourself to identify the client goal, missing facts, tax consequences, risk constraints, suitable strategy, and the most likely exam trap before looking at the answer.