Methodology and Assumptions - Documentation and Communication
As of July 1, 2021, FP Canada introduced two new rules of conduct to the Standards of Professional Responsibility related to the use of technology. This article outlines resources available to Snap Projections clients to meet these new requirements.
Rule 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.
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).
Articles outlining our methodologies and assumptions can be found throughout our Help section of the website. Some of the most relevant sections and articles are included below:
- Basic Definitions and Assumptions
- Default Logic for Automatic Contributions and Withdrawals
- How to Adjust Rates of Return and Asset Mix throughout the Projections
- Canada Pension Plan (CPP)
Our data entry flow encourages the review and validation of many of these assumptions as the plan is initially being created.
Rule 29: In all cases, irrespective of the data used, the material assumptions used as well as the rationale must be documented, and clearly communicated to clients.
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
- Rate of return on corporate assets
- Appreciation rate on real assets
- Debt interest rate
- 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 on the input parameters tab.
Here is an example of a portion of the Assumptions section of the Report.