Financial Planning For Canadians

Essential Elements of Financial Planning as a Canadian

Written by John Woodfield, Portfolio Manager, CIM® CFP® and Tiffany Woodfield, Associate Portfolio Manager, CIM®, CRPC®, STEP Associate

Financial planning is the cornerstone of building wealth.

It will show you how much money you will accumulate by specific dates. Financial planning will also drive investment and insurance decisions, so a portfolio manager and insurance advisor should be included in your planning process.

Suppose you would like to build generational wealth, retire comfortably, or save for large purchases like a home or vacation property. In that case, you need to have a financial plan.

A financial plan, though dynamic, drives investment and savings decisions.

Without a well-thought-out plan, it is impossible to properly allocate resources that will enable you to reach your financial and life goals.

TABLE OF CONTENTS

1. Financial Planning in Canada
2. Benefits of Having a Financial Plan That's Up to Date
3. Financial Planning Steps
4. Canadian Financial Advisor Designations and Titles Explained
5. Retirement Planning in Canada
6. Financial Planning Services in Canada
7. Financial Planning for Small Business Owners
8. Financial Planning for Entrepreneurs
9. Financial Planning for Ultra-High-Net-Worth Individuals
10. Do You Need a Financial Plan?
11. Common Questions about Financial Planning for Canadians
12. How Much Does a Financial Plan Cost in Canada?
13. How Do I Choose a Financial Planner in Canada?
14. Are Financial Planners fiduciaries?
15. What Is the Difference between Financial Planning and Financial Advice?
16. Will a Financial Planner Help You with Your Investing?

Financial Planning in Canada

The four basic pillars of financial planning are as follows:

1. Savings planning
2. Investment planning
3. Tax and insurance planning
4. Estate planning

Savings refer to what is left over from earnings once taxes and bills have been paid.

Investments are property purchased, such as stocks (company shares), bonds, or real estate.

Tax planning includes receiving more favourable forms of income, such as capital gains or dividends. It includes utilizing the unique tax breaks available only to insurance. In addition, tax planning includes higher-level planning around income splitting, trusts and corporations.

Estate planning centers around what happens to your estate when you are no longer here to make decisions.

Benefits of Having a Financial Plan That's Up to Date

I've been a financial advisor for over 30 years, so I've spoken with hundreds of clients about financial planning.

At SWAN Wealth, we tell our clients that every financial plan is immediately out of date. As soon as your financial plan is printed, it's out of date. But, just because it is out of date does not mean it is irrelevant. This "snapshot" tells us where you are at a particular time.

Your financial plan can be updated annually. A well-structured plan generally only needs to compare the present numbers with the initial numbers to see if you are on track or need to make adjustments.

Financial Planning Steps

At SWAN Wealth, we take a different view of financial planning than most firms.

We do not believe that having a hundred-page document serves the goals set out by most clients. Most people want to see where they are, where they want to go, and how to get there. Those three things are the core goals of financial planning.

The planning process should be as simple and comprehensive as possible without including unnecessary steps, charts or paragraphs. It isn't that we don't like charts and details. But rather, too often, using many charts and details can overwhelm people. Instead, we want to create a map that is easy to read and follow.

The first step in financial planning is collecting data about where you are and where you want to go.

At SWAN, this data is then analyzed by our planners, and a preliminary plan is constructed. From there, a meeting is booked so we can review the plan together. After this meeting, adjustments are made if necessary, and a final plan is delivered.

From our perspective, the most important step in financial planning is understanding a client's goals. Your goals are very personal, and everyone's goals are different. Only with your goals in mind can an advisor effectively guide you toward your destination.

Canadian Financial Advisor Designations and Titles Explained

Many people are offering various financial planning services in Canada and the USA.

These plans range in quality and complexity. Also, the advisors making financial plans have various designations and skills. It is important to align yourself with professionals with the proper skills and designations. They will be best able to help their clients achieve their goals.

Below is an overview of the key titles and roles to look for when hiring a financial advisor or financial planner.

FINANCIAL PLANNER

The term financial planner is very loosely used in Canada. A financial planner could be a teller at the bank, a stock broker or an insurance salesperson. Many people in financial services use the prospect of having a plan as a hook to bring in clients. We recommend seeking out advisors with titles beyond simply "financial planner."

When looking for help creating a financial plan, the gold standard is a CFP (Certified Financial Planner). CFPs are fiduciaries, meaning they have a legal obligation to put their clients' needs first.

FINANCIAL ADVISOR

A financial advisor is typically someone who can sell investments, such as a stockbroker. A financial advisor does not have a planning or portfolio management designation; in Canada, financial advisors are not fiduciaries. Not being a fiduciary means there is no legal obligation to put one's clients' needs first.

When looking for a financial advisor, the gold standard is a portfolio manager.

PORTFOLIO MANAGER

A portfolio manager has many years of experience and extensive qualifications. They have taken several exams and must have a significant number of clients. Often their clients are high net worth. Also, portfolio managers are fiduciaries meaning they have a legal duty to put a client's needs ahead of their own.

Portfolio manager, however, is not a planning designation. So this designation does not mean they have planning skills or insurance knowledge. Some also have the CFP designation and insurance licensing.

CFP

A Certified Financial Planner has the highest planning designation available. To obtain this designation, a candidate must have years of experience working with clients and pass multiple exams. Please note that this is not an investment designation. To obtain the necessary planning to build out an investment strategy and have an advisor who can enact the strategy for you means you need a financial advisor or portfolio manager with a CFP designation.

DUAL-LICENSED FINANCIAL ADVISOR

Interestingly, there is a unique and rare type of advisor who is licensed and experienced in working with Canadian and U.S. tax and investment systems. These advisors exist almost solely on the Canadian side of the border due to regulatory reasons.

Advisors, and portfolio managers, who carry a dual license can work with clients in Canada and the U.S. since they have passed the educational and designation requirements in both countries. These advisors work with cross-border clients who have moved to or from Canada and clients in either country who prefer their specialized services. They often work with cross-border accountants and lawyers to create a team around their clients.

CIM®

The CIM is the Chartered Investment Manager designation. The CIM is one of the building blocks for having a Portfolio Manager designation. It is a course designed by the Canadian Securities Institute and involves several exams and courses. Utilizing an advisor or Portfolio Manager with a CIM should give clients additional comfort.

CRPC®

The CRPC is a US-based designation focused on retirement planning, and it differs from a CFP, which has a more broad-based focus. The College of Financial Planning awards this designation, and the training consists of a study program and a final exam. The CRPC is especially valuable for clients who are U.S. based or have cross-border investments since it gives the advisor an excellent knowledge of U.S.-based structures and taxation.

TEP

The TEP designation stands for Trust and Estate Practitioner for full members of STEP, a global professional body of lawyers, financial advisors, accountants, and other practitioners who help families plan their futures. The designation is internationally recognized, and practitioners must understand inheritance and succession planning at a high level.

Retirement Planning in Canada

When deciding who to work with when doing your retirement planning in Canada, you should know the most important plans and tools.

Canadian Pension Plan (CPP)

CPP is the government of Canada's plan where those working in Canada contribute, as do their employers, so they can receive a fixed amount per year once they reach 60. Participants can delay their receipt of the Canada Pension Plan to, at most, the age of 70.

Old Age Security (OAS)

OAS is a government plan where each legal resident receives a small monthly payment once they reach the age of 65. Those that earn over a certain amount per annum have the OAS clawed back until they no longer receive this benefit. OAS is an entitlement available to all Canadian citizens, though the actual payment per year is quite small.

Guaranteed Income Supplement (GIS)

The GIS is a tax-free government of Canada plan where those who are above age 65, receive OAS, and earn below a certain threshold receive payments.

Registered Retirement Savings Plan (RRSP)

An RRSP is a plan where funds can be accumulated tax-free until they are withdrawn. Any funds added to the RRSP are fully tax deductible so long as the participant has enough income to utilize the tax break and the amount contributed is within the participant's limit. Withdrawals are fully taxable, and the withdrawal limit is a percentage of the previous year's income. In subsequent years, missed contributions can be used for a full deduction from taxable income.

Tax-Free Savings Account (TFSA)

A TFSA is a government plan where funds can be added each year and accumulate tax-free even when withdrawn. TFSA contributions are not tax-deductible, and withdrawals are not taxable. Each year, each Canadian over age 17 gets an allowed limit that accumulates if not used.

Employer Pension Plans

Many employers offer various forms of pension plans as an incentive to employees. One common type of pension is a defined benefit plan, where the amounts going in and the amount one will receive when retired is known. Meanwhile, a defined contribution plan is where the amount put in is known but not the amount one will receive. Pension plans are very popular but not all created equal, so we advise clients to look closely at what is being offered by employers so that they fully understand the benefits.

Financial Planning Services in Canada

There are a variety of financial planning services in Canada, so investors have a range of options.

There are traditional fee-only financial planners as well as financial planners associated with banks and independent investment services. Financial planners are typically not involved in the placing of investments or asset management. They look at things from a different angle. It is important first to understand your needs and choose the planning service that fits them.

Financial Planning for Small Business Owners

You have many more planning opportunities if you have a business, especially an incorporated business.

For example, insurance is an excellent tool for incorporated business owners since it can be purchased with the lightly taxed dollars in the corporation and paid out tax-free to the beneficiaries of the policy. Small business owners may also qualify to take advantage of the lifetime capital gains exemptions LCGE, a cumulative once-in-a-lifetime deduction. The current exemption limit is $913,630 for 2022. The LCGE can be used alongside an estate freeze and a crystallization of capital gains.

To utilize these advanced tools, a client must choose a financial planner with expertise in corporate taxation, investments, insurance and estate planning. Basic financial planners generally do not have the expertise needed in these areas.

Financial Planning for Entrepreneurs

Typically, entrepreneurs take on much more risk than regular business owners or professionals.

The fact that they take greater risks with their businesses means that protecting their family and creating some form of a safety net is more important than a general planner would typically focus on. Insurance and advanced strategies have to be incorporated. Advanced planning, investment, insurance and estate planning skills are needed to create a solid plan for an entrepreneur. When a client is cross-border, things become even more difficult, and a cross-border advisory team is needed.

Financial Planning for Ultra-High-Net-Worth Individuals

Once a person has reached a high-net-worth status, the financial plans become more about protecting assets from taxation and risk management.

The investment portfolio for these ultra-high-net-worth individuals generally produces enough income to fund needs. However, taxes can quickly eat away at this nest egg, so structuring ways to minimize or reduce taxes is vital. Minimizing taxes can be done by incorporating trusts, insurance, estate freezes and investment selection. The planning team requires investment, taxation, insurance and estate experts working closely to structure what is needed.

Do You Need a Financial Plan?

We believe that everyone can benefit from a financial plan.

Most plans should be simple. High-net-worth families, business owners and entrepreneurs need more complex plans since they have complex needs. However, most people's needs are simple.

A simple financial plan can be revisited each year to tweak the numbers, but little change needs to be made. More complex plans may need to be revisited more often depending on a person's changing needs.

How to Choose a Financial Advisor in Canada

Choosing a financial advisor in Canada can be daunting.

You might not have a clear understanding of what the measuring stick is. The result is clear if I hire an estate lawyer to prepare my will. Likewise, I know what I should get if I hire an accountant to prepare my taxes. But when you hire a financial advisor, what is your desired result? Should you hire a financial advisor to get you the biggest return? If not, then what is the measuring stick?

It may be difficult to pinpoint the results you are looking for from a financial advisor. But here are some of the questions you should ask and things you should look for in a financial advisor:

1. Are they fiduciaries?
2. What are their qualifications?
3. Do they specialize in helping clients similar to me?
4. What other services do they offer?
5. Are they portfolio managers?
6. Are they CFPs?

Common Questions about Financial Planning for Canadians

How much does a financial plan cost in Canada?

Basic plans from fee-for-service planners can cost a few thousand dollars. Portfolio managers typically have planning services as part of their service offerings, and there is no cost. For investors who utilize a portfolio manager, this is a huge saving. Also, it ensures that your investment plan, insurance plan, and planning structure are properly aligned. Planners and Portfolio Managers have a fiduciary duty to do what is in the client's best interests.

How do I choose a financial planner in Canada?

The best place to start finding a financial planner is with your present investment provider. A financial plan should be offered free of charge if you have a portfolio over the $1 million mark. If your present advisory team does not offer planning and portfolio management, we suggest seeking out a team that does offer this without an additional cost. You may wish to work with a portfolio manager since they are always fiduciaries, as are the planners on staff. We cannot stress this point enough, especially when complex strategies like estate planning are needed.

Are financial planners fiduciaries?

If a financial planner holds the CFP designation, they have an ethical obligation and a fiduciary duty to do what is in a client's best interest. Being a fiduciary means there is a legal obligation. Many advisors and planners are not fiduciaries, so it is important to double-check and look for the CFP designation when seeking out a planner.

What is the difference between financial planning and financial advice?

Financial planning is structuring cash flow, minimizing taxes and estimating how much someone can safely withdraw over a time frame. Financial advising is structuring the investments. A Certified Financial Planner designation (CFP) is the gold standard of planning in both Canada and the USA. At the same time, a Portfolio Manager is the gold standard for investment advice.

Will a financial planner help you with your investing?

There is a distinct difference in responsibilities between a financial planner and a portfolio manager. Planners build a plan to reduce taxes and make a client's funds last. A portfolio manager designs the investment portfolio based on a client's needs and risk tolerance. Ideally, the planner and the portfolio manager are involved in the planning process. The financial plan is a key factor in driving investment decisions.

Summary of Key Points:

• Financial planning and portfolio management are different functions requiring different skills.
• Obtaining a financial plan can be costly but does not have to be.
• Working with a planner, portfolio manager, and insurance specialist is necessary for more complex plans.
• We recommend that you seek advisors who are fiduciaries.
• Make sure that you take the time to summarize your needs and goals. Knowing your goals is the most vital part of the planning process since each plan is designed for the long-term needs of an individual and this family.

Next Steps

If you're a Canadian resident or are planning on moving to Canada and need assistance with moving and optimizing your investments, estate planning, wealth management and portfolio management, please get in touch. At SWAN Wealth, we specialize in Canadian financial planning, cross-border financial planning and cross-border wealth management.

More Canadian Financial Planning Articles & Guides

If you’re planning a cross-border move, these articles and guides will help you simplify your move and ensure you’ve covered everything.

🔹 The Ultimate Financial Planning Resource for Dual Citizens Living in Canada

🔹 Cross-Border Estate Planning Guide

🔹 Retiring to Canada - A Financial Planning Guide

🔹 Financial and Tax Planning for U.S. Citizens Living in Canada

🔹 Canadian RRSP Facts for Dual Citizens, Expats and Canadians

About the Authors

Tiffany Woodfield is an Associate Portfolio Manager licensed in Canada and the USA, a Chartered Investment Manager (CIM), a Chartered Retirement Planning Counselor (CRPC) a STEP Associate and the co-founder of SWAN Wealth Management, along with her husband, John Woodfield. Tiffany advises clients who live in Canada and the United States and want to simplify their cross-border financial plan, move their assets across the border, and optimize their investments to minimize their tax burden. Together Tiffany and John Woodfield help their clients simplify their cross-border finances and create long-term revenue streams that will keep their assets safe whether they live in Canada or the U.S.

John Woodfield is a Financial Management Advisor (FMA), a Chartered Investment Manager (CIM), and a Certified Financial Planner (CFP), and in 2007 was inducted as a fellow of the Canadian Securities Institute (FCSI). As a portfolio manager and CFP®, he works with clients across Canada. John Woodfield’s clients are families, individuals and business owners who understand the importance of comprehensive wealth and investment plans driven by the lifestyle they want to lead.

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