FINANCIAL PLANNING FINANCIAL PLANNING IN CANADAIN CANADA

FPAFPASeptember 10September 10thth, 2009, 2009

Jim RogersJim RogersMichael SamotisMichael Samotis

Clay GillespieClay Gillespie

AgendaAgenda

1. Demographics

2. Regulation of Financial Services in Canada

3. Financial Planning in Canada

4. The Canadian Stock Market

DemographicsDemographics

• Fastest growth rate amongst the G8 nations from 2001 to 2006 (5.2%)

• Canada’s population currently 33 million

• 2/3 of Canada’s population growth is due to immigration

• Canadian women have an average of 1.5 children

Demographics (cont’d)Demographics (cont’d)

• Canada is nearly 10 million square kms.

• 3.5 people per square km.

• Northwest Territories, Yukon, and Nunavut make up 39% of Canada’s total area but has 0.3% of its population

• Canada has the longest Coastline in the world (243,042 kms.)

Demographics (cont’d)Demographics (cont’d)

• 80% of the population lives within 4% of the land area

• Country consists of 10 provinces and 3 territories

• Border with the U.S. is the longest common border in the world

• 90% of the population lives within 100 miles of the U.S. border

Demographics (cont’d)Demographics (cont’d)

• $1 Canadian = 0.92 USD (approx.)• 77% of Canadian trade goes to the U.S.• Trading patterns of Canada are shifting towards non-

U.S. countries (grew 16% in 2007 alone)• Canada is one of the world's wealthiest nations with

Gross Domestic Product measured on purchasing power parity basis at $1.2 trillion (USD)

• The nation has one of the highest GDP per capita, more than $43,000 (USD) according to the International Monetary Fund

• The Canadian GDP reading for June (2009) showed a 0.1% expansion, the first positive number in 10 months

Demographics (cont’d)Demographics (cont’d)

• “If some countries have too much history, we have too much geography” said former Prime Minister William Lyon Mackenzie King (1936)

• It is considered a federal state since the various powers are divided between the federal and provincial governments

Demographics (cont’d)Demographics (cont’d)

• The Federal Government is responsible for matters that concern Canada as a whole: 1. Inter-provincial and international trade

2. National defense

3. Criminal law

4. Agricultural and fisheries

5. Banking and monetary systems

Demographics (cont’d)Demographics (cont’d)

• The Provincial Governments are responsible for: 1. Education

2. Property and the administration of justice

3. Hospitals

4. Municipalities

5. Securities regulations

Regulation of Financial Services in Regulation of Financial Services in CanadaCanada

• Securities - we do not have a national securities regulator. Each province has a securities commission that establishes the rules (many are common), by which advisors who are securities licensed are regulated

• The Investment Industry Regulatory Organization of Canada (IIROC) is a national organization which oversees individuals and firms in the securities business

• Currently, there is an initiative to consolidate these various regulators into a single (SEC like) federal regulator

Regulation of Financial Services in Regulation of Financial Services in CanadaCanada

• Life insurance is also regulated by provincial regulators in each province. Again, provincial regulators are very similar.

• Banks are regulated by a single federal regulator – the Office of the Superintendent of Financial Institutions.

Financial Planning in CanadaFinancial Planning in Canada

Canadian Pension System

OAS• Based on number of years resident in Canada –

starts at age 65• Current maximum benefit = $516.96/ mo• A clawback starts when net income is above

$66,335 (at a rate of 0.15 per dollar); the full OAS pension is eliminated when a pensioner's net income is $107,692

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

Canadian Pension System

CPP• Benefit is earnings-based• Current maximum benefit = $908.75/ mo at age

65• Can take a reduced pension at age 60 or delay

until age 70 and receive an increased pension• Provides for survivor and disability benefits

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

Canadian Pension SystemCompany Pension Plans• There are 2 types available in Canada:

1. Defined Benefit Pension Plans 2. Defined Contribution Pension Plans– there is currently a trend towards Defined

Contribution Pension Plans, away from Defined Benefit Pension Plans

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

Canadian Pension SystemPersonal Retirement Savings• Registered Retirement Savings Plans

– Maximum of 18% of the previous year’s earned income up to a dollar maximum of $21,000 (2009)

– Earnings within the plan are tax-sheltered– Must be converted to a retirement vehicle in

the year the annuitant turns age 71

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

Canadian Pension System

Personal Retirement Savings

• Tax-Free Savings Account– $5,000 per year; no income tax deduction for

the contributions– Earnings within the plan are tax-sheltered– Withdrawals are tax-free

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

• Combined Federal and Provincial tax rates vary from 39% to 48.3%

• Capital gains are taxed at 50% of the regular tax rate

• Canadian dividends also have a reduced tax rate

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

• Canadian controlled private corporations (CCPCs) have a reduced tax rate on the first $500,000 of income (range from 12% to 19%)

• There is no estate tax in Canada, but deemed disposition of capital property at death. Most provinces levy a probate tax based on the value of the deceased's estate

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

• There is no one regulatory body in Canada that regulates the financial planning profession in Canada. You do not need a financial planning designation to call yourself a financial planner (or any variation thereof)

• Approximately 17,000 individuals have the CFP designation in Canada (highest penetration per 1000 population in the world). It is administered by the Financial Planning Standards Council (FPSC)

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

• The FPA does not exist as a separate entity in Canada, but Canadians constitute the largest number of non-US FPA members.

• There is not one industry organization that represents financial planning in Canada. The largest is The Financial Advisors Association of Canada (Advocis), which has 9000 members. It has its own designations that it promotes (CLU and RHU) but does recognize the CFP as a financial planning designation. The only organization that recognizes the CFP solely as a financial planning designation is the Canadian Institute of Financial Planners (CIFPS). But they only have approximately 3500 members

Financial Planning in Canada Financial Planning in Canada (cont’d)(cont’d)

• Financial planning is starting to be viewed as a profession. It is also recognized by the financial press in Canada.

• We do not have a shortage of securities products in Canada. We can invest all over the world. We also have some of the most advanced life insurance products in the world.

• There is a significant amount of financial planning knowledge in Canada

Stock MarketStock Market• Market capitalization of the TSX as of Dec 2008: $1.279

trillion• The top 10 holdings comprise 36.31% of market cap

share. • The largest company % weight on the index is 5.36%

(Royal Bank)• Sector breakdown: Financials (29.19%), Energy

(27.44%), Materials (17.56%)• Number of issuers listed on the TSX: 1570 as of Dec

2008 • The S&P/ TSX Composite Index is up nearly 25% year

to date (August 31st, 2009), but is still down about 21% from a year ago, and is off over 25% from the all-time high reached in May of 2008