CFP® Cases: Investment Planning

Try 12 focused CFP® Cases case questions on Investment Planning, with explanations, then continue with Securities Prep.

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Practice cases

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.

Case 1

Topic: Investment Planning

The Lams’ investment policy review

Amelia Lam, 57, and Victor Lam, 59, live in Ontario and plan to retire in about six years. Their financial plan still meets their target retirement income using the investment policy statement they signed two years ago. The IPS sets a long-term strategic asset allocation of 65% growth assets and 35% defensive assets, with rebalancing when growth assets move outside a 60% to 70% range. The IPS says the strategic allocation should be reviewed if their objectives, time horizon, risk tolerance, risk capacity, liquidity needs, tax situation, or family responsibilities materially change.

After a strong equity market, their $1.64 million portfolio is now 76% growth assets and 24% defensive assets. Amelia wants to change the IPS to 80% growth assets because recent technology returns have been high. Victor is uncomfortable with losses larger than about 20% and suggests waiting until markets fall before selling equities. Neither client has had a change in health, income, debt, retirement date, or family obligations.

The planner is preparing recommendations for the review meeting and wants to distinguish market-driven drift from a genuine need to change the strategic asset allocation.

Question 1

Which recommendation best addresses Amelia’s request to change the IPS to 80% growth assets?

• A. Move immediately to 50/50 for Victor
• B. Wait for a market decline before trading
• C. Adopt 80% growth to reflect recent returns
• D. Retain 65/35 and rebalance toward target

Best answer: D

What this tests: Investment Planning

Explanation: The facts point to portfolio drift, not a changed strategic need. Their plan still works at 65/35, their circumstances are unchanged, and the current 76% growth allocation is outside the IPS rebalancing band.

The core distinction is between strategic asset allocation and rebalancing. A strategic allocation should reflect durable factors such as goals, time horizon, risk tolerance, risk capacity, liquidity needs, and tax circumstances. Here, the only meaningful change is market performance, which pushed growth assets above the 70% upper band. Performance chasing would increase risk when the existing plan remains suitable, while market timing would leave the clients exposed to more risk than they agreed to take. The appropriate recommendation is to restore the portfolio toward the approved long-term allocation and document the rationale.

• Performance chasing: Strong recent returns may feel persuasive, but they do not establish higher risk capacity or a new objective.
• Market timing: Waiting for a decline substitutes a forecast for the IPS discipline.
• Overreacting defensively: Victor’s discomfort matters, but the case does not show a need to abandon the existing strategic allocation.

The allocation drifted beyond the IPS band while the clients’ objectives and risk profile are unchanged.

Question 2

Assuming the clients confirm no material changes and accept the 65/35 target, which implementation sequence is most appropriate?

• A. Sell taxable equity ETFs first
• B. Pause all trades until the annual review
• C. Change the IPS before placing trades
• D. Use contributions, then registered trades, taxable last

Best answer: D

What this tests: Investment Planning

Explanation: Implementation should follow the IPS while controlling avoidable tax costs. Using new registered contributions and registered-account trades before taxable sales is a practical way to rebalance without unnecessarily realizing gains.

Rebalancing is not just choosing the target; it also requires tax-aware implementation. Because the Lams have upcoming RRSP and TFSA contributions and significant unrealized gains in their joint non-registered equity ETFs, the planner should first use available cash flows to move toward the defensive allocation, then adjust inside registered accounts where trades do not immediately create taxable capital gains. Taxable sales can still be used if needed, but they should be considered after lower-friction steps.

• Confirm the IPS still applies.

• Direct new contributions toward underweight defensive assets.

• Trade within registered accounts where appropriate.

• Use taxable sales only after reviewing tax impact. The key is disciplined rebalancing without creating unnecessary implementation costs.

• Taxable-first trading: It may achieve the allocation quickly but ignores the embedded gains in the joint account.

• IPS revision first: Rewriting the policy is unnecessary when the policy already identifies the required action.

• Review delay: Annual scheduling should not override a stated rebalancing trigger.

This sequence reduces drift while managing tax and transaction impacts.

Question 3

If taxable equity ETF sales are needed to complete the rebalance, which implementation risk should the planner discuss first?

• A. Loss of RRSP contribution room
• B. Immediate OAS recovery tax
• C. Loss of CDIC deposit coverage
• D. Realized taxable capital gains

Best answer: D

What this tests: Investment Planning

Explanation: The joint non-registered equity ETFs have a fair market value of $480,000 and an adjusted cost base of $330,000. Selling them could realize capital gains, so the planner should address the tax and after-tax implementation impact before trading.

In a taxable account, rebalancing can create a trade-off between reducing portfolio risk and realizing gains. The Lams’ non-registered equity ETFs have a substantial embedded gain, so immediate sales may generate taxable capital gains even though the investment recommendation is sound. This does not mean taxable sales are prohibited; it means the planner should evaluate partial sales, use registered-account trades where possible, coordinate with expected cash flows, and explain the after-tax consequences. The closest misconception is treating rebalancing as purely mechanical; in practice, the implementation method matters.

• Registered-plan mechanics: RRSP room is driven by contribution rules, not by selling assets in a joint taxable account.
• Deposit insurance: CDIC coverage is not the key issue when the proposed transaction involves ETF sales.
• Benefit clawback concerns: OAS may matter later, but the immediate implementation issue is the taxable gain on disposition.

The non-registered ETFs have a large unrealized gain that could create tax on sale.

Question 4

Which future development would most strongly trigger a strategic asset allocation review rather than a routine rebalance?

• A. Amelia retires three years earlier
• B. A lower-cost ETF becomes available
• C. Growth assets again reach 76%
• D. Technology stocks outperform another year

Best answer: A

What this tests: Investment Planning

Explanation: A strategic allocation review is warranted when client circumstances or planning assumptions materially change. Amelia retiring three years earlier could alter savings, withdrawal timing, and risk capacity, which are core inputs to the long-term allocation.

Strategic asset allocation should be reviewed when the client’s objectives, constraints, or ability to bear risk changes materially. An earlier retirement can shorten the accumulation period, accelerate portfolio withdrawals, reduce employment income, and change the acceptable level of volatility. By contrast, another allocation drift beyond the band calls for rebalancing under the existing IPS, and market headlines or fund availability usually affect tactics or implementation rather than the strategic risk level. The key distinction is whether the event changes the client profile or merely changes the portfolio’s current weights.

• Allocation drift: A band breach is exactly what the rebalancing rule is designed to handle.
• Recent outperformance: Market returns may influence current weights but do not prove a new long-term objective.
• Product changes: Lower costs can improve implementation while leaving the strategic mix unchanged.

An earlier retirement could materially change time horizon, savings, withdrawals, and risk capacity.

Case 2

Topic: Investment Planning

The Desjardins’ product-selection meeting

Nadia Desjardins, 58, and Marc Desjardins, 61, live in Ontario. They recently sold a rental property and now have $520,000 after tax sitting in a chequing account. Marc plans to retire in about 30 months with a defined benefit pension. Nadia, a self-employed consultant, has high taxable income now but expects much lower income once Marc retires and she reduces her workload.

They have a $30,000 emergency fund, $64,000 of combined unused TFSA room, and $18,000 of unused RRSP room for Nadia. They need $85,000 in 16 months for accessibility renovations to their home; this cost cannot be delayed. The remaining funds are intended to supplement retirement over an 8- to 15-year horizon. They describe themselves as moderate-risk investors, dislike high fees, and are worried about another market downturn. Their wills and powers of attorney are current. They have two adult children, straightforward estate goals, and no creditor-protection concern.

A product summary prepared for the meeting shows:

Question 5

What planning issue should the planner address first before comparing the products’ expected returns?

• A. Maximum death benefit protection
• B. Short-term liquidity and capital stability
• C. The lowest available product fee
• D. The highest advertised upside cap

Best answer: B

What this tests: Investment Planning

Explanation: The first priority is matching the product to the time horizon and liquidity need. Because the renovation requires $85,000 in 16 months, that portion should be kept accessible and stable before the planner evaluates longer-term return trade-offs.

Product suitability starts with the purpose and timing of the money. A short, non-deferrable liability should not be funded with a non-redeemable product or a market-exposed investment, even if those products appear attractive for return, tax, or guarantee reasons. The Desjardins can then evaluate tax efficiency, fees, and guarantees for the longer-term retirement portion separately. The key takeaway is to segment the proceeds by goal before selecting products.

• Estate-first framing: Death benefit features may be useful in some cases, but they do not solve a fixed cash need due in 16 months.
• Return chasing: A higher upside cap is not useful if the funds cannot be accessed when needed.
• Fee-only framing: Low fees improve net returns, but suitability also requires the right liquidity and risk profile.

The $85,000 renovation is required in 16 months and cannot prudently be exposed to illiquidity or market loss.

Question 6

How should the 5-year market-linked GIC be interpreted if considered for the non-registered account?

• A. Any gain receives capital gains treatment
• B. Principal protection applies only at maturity
• C. It can fund the renovation if needed
• D. The guarantee removes opportunity risk

Best answer: B

What this tests: Investment Planning

Explanation: The market-linked GIC offers a guarantee, but the guarantee is conditional on holding to maturity. In a non-registered account, the stated return is taxed as interest, and the non-redeemable term creates a liquidity mismatch for short-term needs.

A market-linked GIC can look attractive because it combines principal protection with equity-linked upside, but the trade-off is important. The capital guarantee usually applies only at maturity, the upside is capped, and liquidity can be very limited. In this case, the 5-year non-redeemable term conflicts with the renovation timeline, and the non-registered tax treatment is less favourable than capital gains treatment. The guarantee should be evaluated alongside tax drag, opportunity cost, and access to funds.

• Tax misconception: Equity-linked return does not automatically mean capital gains treatment.
• Liquidity misconception: A maturity guarantee does not make the product suitable for a 16-month funding need.
• Guarantee misconception: Principal protection reduces one risk but leaves capped upside, tax drag, and lock-in risk.

The product protects principal only if held for the full 5-year term and its return is taxed as interest.

Question 7

Which implementation best balances tax treatment, fees, and product fit for the long-term portion of the proceeds?

• A. Use registered room, then low-cost diversified investments
• B. Invest all proceeds in market-linked GICs
• C. Invest all proceeds in the segregated fund
• D. Keep all proceeds in high-interest deposits

Best answer: A

What this tests: Investment Planning

Explanation: For money not needed in 16 months, the planner should consider account location and after-fee, after-tax implementation. Using TFSA room and Nadia’s RRSP room where appropriate, then investing the remaining long-term funds in a diversified low-cost portfolio, better fits their retirement horizon than locking everything into guarantee products.

Account location should be integrated with product choice. TFSA room can shelter future growth and income from tax, and Nadia’s RRSP room may be valuable while her income is high relative to expected retirement income. For non-registered long-term funds, a diversified low-cost ETF portfolio may provide better after-fee and after-tax efficiency than high-fee insurance products or interest-heavy products, assuming it matches their risk tolerance. The planner should still reserve the short-term renovation funds separately. The key is not one product for all dollars, but matching each account and product to the goal.

• Guarantee overuse: Insurance guarantees may comfort anxious investors, but using them for all funds can impose unnecessary cost.
• Lock-in overuse: Market-linked GICs protect principal at maturity but create concentration in capped, interest-taxed, illiquid products.
• Cash overuse: High-interest deposits fit short-term liabilities, not an 8- to 15-year retirement supplement.

Available TFSA and RRSP room can improve tax efficiency while a low-cost diversified portfolio fits the long-term retirement objective.

Question 8

If the Desjardins still want to consider the segregated fund, what should the planner do before implementation?

• A. Recommend it solely to avoid probate
• B. Document the fee, guarantee, and liquidity trade-offs
• C. Rely on the death guarantee as full risk disclosure
• D. Skip beneficiary review until the next annual meeting

Best answer: B

What this tests: Investment Planning

Explanation: A segregated fund may be suitable for some clients, but only after the planner explains and documents the trade-offs. In this case, the higher MER, guarantee conditions, beneficiary features, and withdrawal effects must be weighed against the Desjardins’ simple estate goals and liquidity needs.

Professional product implementation requires informed consent and suitability documentation, especially when recommending a higher-cost product with embedded insurance features. The planner should compare the segregated fund with lower-cost alternatives, explain the 10-year maturity guarantee, death benefit guarantee, beneficiary designation, and how withdrawals reduce guarantees. The discussion should also address whether the clients’ anxiety about markets is better managed through education, asset allocation, or a product guarantee. The key takeaway is that guarantees are features with costs and conditions, not automatic reasons to buy.

• Guarantee-as-disclosure error: A guarantee feature does not replace a full discussion of risk, fees, and conditions.
• Probate-only reasoning: Estate bypass may have value, but it must be proportionate to cost and client need.
• Implementation gap: Beneficiary designations are central to the product’s estate feature and should not be deferred.

Clear comparison and documentation are needed so the clients understand what they are paying for and what constraints apply.

Case 3

Topic: Investment Planning

Rina and Marc Chen: one portfolio, three timelines

Rina (49) is a vice-principal with a secure salary and a defined benefit pension. Marc (51) is a product manager at a public technology company; his annual bonus and restricted share units depend on the same employer’s results. They live in Ontario, spend about $8,500 per month on essentials, and have $18,000 in cash outside investment accounts.

Their daughter Ava starts an out-of-province university program in 14 months. They expect to withdraw about $30,000 per year for four years from an $88,000 RESP that is currently 85% global equity and 15% cash. They also want to build a $140,000 accessible basement suite for Marc’s father in about 30 months. Their non-registered account is $212,000, including $145,000 of Marc’s employer shares.

Their RRSPs and TFSAs total $706,000 and are intended mainly for retirement in 12 to 14 years. The household’s overall investment mix is approximately 82% equities, 13% fixed income, and 5% cash, with the employer shares included in equities. Their online risk questionnaire scored them as aggressive, and they say they dislike “money sitting idle.” However, they also say a market drop just before Ava’s first tuition payment or the suite construction would force them to borrow or postpone the goal.

They ask whether the current allocation is still suitable as one household portfolio.

Question 9

What is the best diagnosis of the current household asset allocation?

• A. The main concern is the use of registered accounts
• B. The allocation is suitable because risk tolerance is aggressive
• C. The retirement assets are clearly too conservative
• D. Near-term goals are carrying excessive equity risk

Best answer: D

What this tests: Investment Planning

Explanation: The main inconsistency is that assets needed within 14 to 30 months are exposed to substantial equity volatility. Risk capacity depends on whether the clients can absorb a loss without compromising the goal, not only on their stated comfort with risk.

Asset allocation should reflect both risk tolerance and risk capacity. Rina and Marc may be emotionally willing to take risk, but the RESP withdrawals and basement-suite funding have short, specific timelines. If those assets fall sharply just before they are needed, the family may have to borrow or delay a stated goal. The longer retirement horizon can support more growth exposure, but that does not justify using the same aggressive allocation for near-term liabilities. The key takeaway is that one household-level equity percentage can hide unsuitable risk in goal-specific assets.

• Tolerance versus capacity: An aggressive questionnaire score does not make short-term liabilities able to absorb volatility.
• Goal segmentation: Retirement assets may have a longer horizon, but RESP and suite funds have much shorter deadlines.
• Account wrapper confusion: Registered status does not by itself determine asset-allocation suitability.

The RESP and suite funds have short deadlines and limited capacity to recover from market losses.

Question 10

Which asset pool should be prioritized for immediate review before discussing long-term retirement changes?

• A. Rina’s defined benefit pension entitlement
• B. TFSAs intended mainly for retirement
• C. RESP funds needed as Ava starts school
• D. RRSP assets earmarked for retirement

Best answer: C

What this tests: Investment Planning

Explanation: The RESP should be reviewed first because the first withdrawal is only 14 months away. A short, fixed spending deadline creates low capacity for equity losses, even when the household has other longer-term investment assets.

Prioritization in asset allocation often starts with the nearest required cash flow. Ava’s education funding is imminent and partly dependent on an RESP that is mostly invested in equities. A material decline shortly before school starts could force borrowing or a change in plans. By contrast, RRSPs and retirement-oriented TFSAs have a 12- to 14-year horizon, and Rina’s pension is not the account being liquidated for tuition. The closest deadline usually deserves the first suitability review.

• Shortest horizon: The first tuition payments are closest and have limited time to recover from losses.
• Longer-horizon assets: RRSP and retirement-focused TFSA assets can be reviewed after urgent goal-matched assets.
• Pension context: Rina’s pension affects household capacity but is not the immediate volatile asset pool funding Ava’s costs.

The first RESP withdrawal is expected in 14 months, making loss recovery time very limited.

Question 11

How should the planner interpret Marc’s employer-share concentration in the non-registered account?

• A. It is risk-free because shares are compensation
• B. It improves diversification as Canadian equity
• C. It raises correlated employment and portfolio risk
• D. It eliminates the need for fixed income

Best answer: C

What this tests: Investment Planning

Explanation: Marc’s employer shares create concentration risk and also link his human capital to the same company. If the employer performs poorly, his bonus and portfolio value could decline at the same time, reducing the household’s ability to fund the suite goal.

Risk capacity includes the household’s ability to withstand losses from all related sources, not just the investment account in isolation. Marc’s non-registered account holds a large position in his employer, while his bonus and restricted share units also depend on that employer. This creates correlated risk: job-related cash flow and portfolio value may deteriorate together. Because the non-registered account is intended for a 30-month suite project, the concentration is especially problematic. Diversification and tax-aware reduction of the position should be considered before relying on that account for near-term spending.

• Concentration risk: A large holding in the employer creates exposure that is not solved by being publicly traded.
• Human-capital link: Marc’s bonus and share value can weaken at the same time.
• Diversification misconception: A single Canadian stock does not provide broad equity diversification.

Marc’s income, bonus, and share value are all linked to the same employer’s performance.

Question 12

If they adopt goal-based sleeves, what is the most appropriate planning implication for the retirement assets?

• A. Retirement assets can retain suitable growth exposure
• B. The suite goal can rely on equity returns
• C. The same RESP allocation should apply everywhere
• D. All retirement assets should move to cash

Best answer: A

What this tests: Investment Planning

Explanation: Goal-based sleeves allow different parts of the portfolio to match different time horizons. Once near-term education and suite funds are protected, the retirement assets can be assessed using the longer retirement horizon, pension context, and the clients’ overall risk profile.

A goal-based allocation separates assets by purpose and time horizon rather than forcing one household-wide mix onto every objective. The RESP and suite funds need lower volatility because their cash-flow dates are close and the clients cannot easily absorb a loss. Retirement assets, however, have a longer horizon and may appropriately retain growth exposure if consistent with the full risk profile. This does not mean the retirement portfolio should be aggressive automatically; it means the analysis should be specific to the retirement goal rather than dominated by near-term spending needs.

• Over-conservatism: De-risking short-term sleeves does not require making every asset cash-like.
• One-portfolio thinking: Applying a single allocation across every goal ignores distinct timelines.
• Return chasing: Funding a near-term construction goal from equity markets can increase the chance of borrowing or delay.

Segregating near-term funds allows the longer-term retirement assets to be risk-profiled on their own horizon and capacity.

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