Допущения при финансовом планировании

From Planipedia

Thanks to PlanPlus and WEA for sharing their material for this Best Practices Guide.

Typically you might expect to see a discussion of planning guidelines in a section dealing with analysis of the client’s situation (Clarify Current Position/Identify Problems and Opportunities). It is dealt with here simply because it has such a huge impact on the Client’s Expectations – not just short term, but long term as well.

In order to do a financial plan a number of assumptions must be made. The nature of the assumptions can totally alter the expectations that a client may have. To underscore this point it is critical that any financial plan have a disclaimer similar to one that states:

Financial projections are made for illustration only, and there is no guarantee, implied or otherwise that these will come true.

Note that it is also a good practice to make certain that the Engagement Agreement also contains such a disclaimer.

What follows is a list of assumptions that may be contained in a typical financial plan along with the best practice guidelines for each assumption. It is important that each of these assumptions be clearly stated as such. Comments are also included on the impact of altering the number used in the assumption.

Anticipated retirement age – After discussion with the client about the reasonableness of their desired retirement age, use the date agreed upon. Altering the age will, obviously, understate or overstate the projected capital available and its corresponding retirement income.

Life expectancy – Best practice is to assume age 100, unless there are specific circumstances, such as ill health or family history that suggest the client’s longevity may be negatively affected. Note, however, that shortening the life expectancy raises the danger of having the client run out of income if, in fact, they live beyond their expected years. If a shorter life expectancy is used, it is wise to have the client initial that assumption in your copy of the plan.

Retirement income requirements – Whether the requirement is stated gross dollars or net of tax is a critical assumption. Most people plan their budgets based on net numbers and thus their retirement lifestyle income requirement has to be grossed-up to accommodate taxation. If calculations are made with software, be aware of how the software treats this issue and make sure that the client understands the basis on which the numbers are calculated as well.

Many people will tend to understate their requirements. That, of course, could ultimately lead to a shortage during their retirement years. To avoid this, it is best to work with a client at least three years prior to retirement so that you can actually tell them “what it costs to live.” (This issue is more fully addressed in the Develop and Present Financial Plan section.)

Government Benefits – Be careful in the assumptions used by CPP for spouses who have stayed at home for extended periods, or have not always reached the YMPE threshold when they were employed outside of the home. It is important to state the level of CPP benefits that have been assumed in your calculations. There are a growing number of planners who reduce or eliminate CPP benefits entirely from their projections due to the growing trend to make benefits means tested, which disqualifies many clients from partial or full benefits.

Assumptions for OAS are even more problematic with the “claw backs” that have been used in recent years. The more robust financial planning software programs will automatically make these calculations, however, advisors should not make assumptions about what the software does without knowing for sure.

Naturally, the level of indexing of government benefits used in your assumptions is also critical. It is suggested that you use the same level of indexing as you assume for inflation (which follows).

Rates of Return - Many client expectations have been dashed because of an advisor’s overly aggressive rate of return assumptions. For a younger person, even a rate of return assumption difference of 0.5% can lead to a flaw in long-term results. This can mean the difference between telling the client that they need not save anymore, as they will have an estate surplus (at age 100), to advising them that they need to continue to save $1,000 per month for the next 40 years.

Rate of return assumptions should be used with considerable due diligence. The best practice is to base assumptions on the asset allocation that the client will endeavour to maintain over the long term. Use a weighted rate of return based on returns for the indices that most closely represent each asset class in the portfolio. Ideally, averages for rates of return that extend over 5-7 market cycles, say 40 years will be used. Even then, prudence would dictate that projected returns greater than single digit projections might be excessive over the long term.

Clients must also understand that all portfolios (other than 100% cash or GICs) will experience some volatility in their market value. It is wise to educate the client as to the range of returns they can typically expect through a 10-year period, on a year-by-year basis. For example, historical performance data indicates that many portfolios have under-performed Government of Canada Treasury Bills, on average, 3 out of 10 years. Through illustration of this type of data, clients will not be surprised and be better able to keep short-term market anomalies in perspective.

Inflation – In recent years, the impact of inflation on a year-by-year basis has been very subtle. Consequently, it is often minimized or ignored altogether, yet the cumulative affect over time can be devastating. If planning assumptions are based on expectations of a currently low inflation level continuing and that does not happen, the client has the very real risk of not setting enough money aside to meet their long-term needs. The best practice is to use long-term inflation history as a guide, normally the same period of time used for the investment return history.

Income Tax Rates – The financial planning projections that you make for clients will either assume an average tax rate or an actual tax calculation should be performed every year. For some situations, it may not make a significant difference. However, in others, using average tax rate projections may not reflect the reality of a client’s situation on a year-to-year basis.

Again, if software is being used, it’s imperative to know how the software does the calculation. In turn, clients should understand what impact taxes would have on their year-to-year reality as well as their long-term projections.

Pension Benefits – Similar to our review of inflation, determining if a pension includes indexed benefits is an issue that could dramatically impact the client’s situation. If a projection is made assuming the pension was indexed and then it was subsequently discovered it was not, the consequence is likely that the client would be “under funding” their retirement savings.

Not discovered until “retirement”, the error could mean severe belt tightening for the client when they are least likely to do anything about it. Such an omission could create a legal liability as financial advisors are seemingly held more and more accountable each year to guide the people who trust them in a competent manner.

Capital Gains – Often a Net Worth statement prepared for a client will ignore the contingent tax liability that may be imbedded in certain accounts (non-RRSP, etc.) should they be liquidated. In the same vein, the contingent tax liability is typically ignored with respect to tax-sheltered investment situations where the client may be planning a disposition of, for example, their RRSP as part of their “early retirement” plan. In these situations, the tax liability must be factored into the client’s long-term projection.

As an example, suppose we have a client whose major asset is stock in their own closely held business and their plans are to sell the business and use the proceeds to fund a large part of their retirement. Even with the exceptions that may be available for tax on capital gains, the impact to the long-term projections of suddenly losing a significant portion of the proceeds to tax will be most obvious. Thus, the best practice is to take the approach of subtracting the contingent tax liability from the long-term illustrations. This will keep the client’s expectations in check.

Estate Settlement Costs - In calculating needs in the event of death, the issue of contingent tax liability also can play a major part. Make certain it’s taken into consideration and communicated to the client.