Did you know that there are new technology rules for Financial Planners?
In July 2021, the FP Canada Standards Council added two new rules to their Standards of Professional Responsibility.
Certified financial planners (CFPs) & qualified associate financial planners (QAFPs) have some new expectations and requirements pertaining to the technology they use as part of their financial planning process. We’re going to break these two new rules down for you and demonstrate how Snap Projections helps to satisfy these requirements. We enable planners to easily comply and meet these requirements, so if you’re a Snap user, we’ve got you covered for these changes.
Download your free digital marketing guide for Canadian Financial Advisors, Planners, and Investment Managers here.
Let’s start with Rule 28, which you will find on page 16 of the updated set of standards.
It states that:
(28) When relying on or using technology in the financial planning process, a Certificant:
a) Must take reasonable proactive steps to gain a general understanding of the methodologies underlying the technology that have a direct impact on financial planning projections and recommendations;
b) Must have an understanding of the financial assumptions underlying the technology that have a direct impact on financial planning projections and recommendations;
c) Must validate that the inputs and assumptions used are reasonable and appropriate based on the client’s circumstances; and
d) Must validate that the outputs generated are reasonable and appropriate for the client before relying on them, or presenting the final recommendations or strategies to the client.
In laymen’s terms, this new rule simply means that Financial Planners need to understand what data goes into a financial planning software, and whether or not the numbers that go both in and come out, are reasonable. It means that you need to understand how things are calculated, and be able to validate that the assumptions and outputs are reasonable. The other layer here is that all of this pertains to what is reasonable and appropriate for your individual client, which means you really need to “know your customer”. If you use financial planning software that you don’t understand because it isn’t transparent, or don’t invest the proper time in client discovery and awareness, you may find yourself in breach of these new rules.
How does Snap Projections help with this new expectation?
Snap Projections takes great care to document and share the methodologies and assumptions that underlie the software. We believe a thorough understanding of these inputs is important to ensure the outputs of the software are as intended for your needs. We use current government-provided inputs where available (e.g., tax rates, CPP benefits) and use reasonable and customizable assumptions where required (e.g., inflation, portfolio holdings). Where possible, we use industry-recommended inputs (e.g., the FP Canada Projection Assumption Guidelines (PAG) for the rate of return assumptions). Additionally, our data entry flow encourages the review and validation of many of these assumptions as the plan is initially being created. In addition to the resources you’ll find below, it’s worth mentioning that we have a stellar Customer Support team that is available to answer any questions you have. If you’re wondering where a number is coming from, or how something was calculated, all you need to do is ask. You won’t be left in the dark and we will ensure you have the information you need to be confident in the numbers and plans you present to your clients. Articles outlining our methodologies and assumptions can be found throughout our Help section of the website. Some of the most relevant articles are included below:
- Basic Definitions and Assumptions
- Contributions and Withdrawals Default Logic
- Adjusting Rates of Return throughout the Projections
- Canada Pension Plan (CPP)
Once we cover the data and numbers, we also need to consider the human element here, which is the responsibility to know your customer, and to know what is reasonable and appropriate for each individual. We provide you with a Financial Planning Questionnaire to obtain the relevant information that you need to not only serve your clients but remain compliant.
Next, let’s cover Rule 29, which you will find on page 17 of the updated set of standards.
It states that:
This one is a bit simpler to digest, and is essentially stating that you must be able to both demonstrate and document your assumptions and reasonings, and also show you’ve shared this information with your clients in a manner they can understand.
How does Snap Projections support managing this requirement?
Snap Projections includes a dedicated page in the Report section for assumptions used in the projection. In addition to these values, advisors can add their own comments in this section for any other material details not captured in the default tables. If assumptions are more appropriate in reference to specific figures (e.g., tables, charts) you can add comments to any section of the Report. Assumptions currently included are listed below:
- Start year
- End year
- Inflation rate
- Province for tax purposes
- Rate of return on capital assets
- Appreciation rate on real assets
- Retirement age
- CPP start age
- OAS start age
- CPP % of maximum
- OAS % of maximum
Other assumptions may be included depending on additional functionality added to the projection (e.g., education goal, insurance). There is also the option to export the plan as an Excel file, which documents 100+ different assumptions/parameters used in the plan. Our reports are simple and easy to understand for clients. For sharing the plan and communicating with your client, you have several options. You can present the plan and charts in real-time, either in-person or through screen-sharing, and then download a PDF of the report to email or print and provide it to your clients.
At the end of the day, even though this may be a lot to digest, these changes are good. These new rules, which are timely and relevant to the changing environment, are designed to protect not only the clients but the Advisors as well. And in the spirit of complete transparency, these resources and features in Snap are not new and were not built to accommodate these new rules. For us, this is business as usual because we fundamentally believe in having a tool that advisors/planners and clients alike can understand. We believe in transparency, and ensuring everyone involved understands the assumptions and methodology.
