TORONTO and MONTRÉAL, April 23, 2024 /CNW/ - FP Canada and the Institute of Financial Planning (the Institute), formerly the Institut québécois de planification financière (IQPF), today announced the joint release of the 2024 Projection Assumption Guidelines and Addendum for professional financial planners across Canada. The new guidelines take effect April 30, 2024. 

"The Projection Assumption Guidelines are established using a variety of trusted and publicly available external data sources, as well as results from a survey of investment and financial services firms," says Julie Seberras, CFP^®, MBA, FCSI and Chair of the FP Canada Standard Council™ Standards Panel. "Use of the Projection Assumption Guidelines is strongly encouraged to promote trust and confidence in the financial planner's projections, given their objectivity and basis in reliable sources."

Designed to look beyond the current day rate environment, the Guidelines are intended to be used when making long-term projections of 10 years or more. For shorter-term financial projections (less than 10 years), financial planners may use actual rates of return on fixed-term investments held to maturity and dividend yields on equities. When applying the Projection Assumption Guidelines to client situations, professional financial planners must always use their professional judgement and should document and clearly communicate the assumptions used to the client. In times when markets or economic conditions are changing, including in high-interest-rate environments, it is particularly important to note the long-term nature of these projections.  

The Projection Assumption Guidelines for 2024 are as follows: 

While stability is an important consideration in setting the Projection Assumption Guidelines, significant changes in expected returns may occur from year to year. To account for this, as of 2024, the market-based expected returns reflected in asset prices are included in Projection Assumption Guidelines. Asset class yields have historically varied in their ability to predict future asset class returns. Fixed income yields have historically been strongly predictive of 10+ year fixed income returns, Shiller earnings yields, which is the ratio of 10-year smoothed real earnings to market prices, have been moderately predictive of 10+ year future equity returns, and cash yields have had low predictive power over future cash returns. This information is reflected in the Guidelines which include a market-based expected return figure in the calculation of fixed income and equity expected returns. Due to the stronger observed predictive power in fixed income, a 40% weight has been assigned to the market-based expected return for this asset class. A market-based expected return has not been included in the calculation for cash.

The Projection Assumption Guidelines are accompanied by an Addendum containing the data sources on which they are based. The Addendum offers financial planners an opportunity to fully understand and replicate the recommended calculations. The Addendum now includes a correlation matrix demonstrating the relationship of return patterns between asset classes. Further, the Addendum includes a chart outlining the Projection Assumption Guidelines results from 2009 and how they've tracked compared to real rates of return over the years. "When looking at the actual rates from January 2009 to January 2024, the Projection Assumption Guideline rates are within the expected range of outcomes, which speaks to the reliability and validity of the projections," says Derek Dedman, CFP^®, M.Sc., CFA, and Chair of the Projection Assumption Guidelines Committee. FP Canada also publishes an FAQ document, which is a useful resource for those who wish to learn more about the development and appropriate usage of the Guidelines. 

The Projection Assumption Guidelines Committee is comprised of individuals who are professional financial planners (through either Certified Financial Planner^® certification or the F.Pl. designation in Québec) in addition to being actuaries or Chartered Financial Analyst charterholders. The Standards Panel is an independent panel comprised of CFP professionals, at least one licensed financial planner from Québec, and a member of the public. The Panel's mandate includes oversight of the Projection Assumptions Guidelines Committee, which develops and maintains the Guidelines and Addendum.  

You can find the 2024 Projection Assumption Guidelines the Addendum, and the FAQs on the FP Canada website.

Established in 1995, FP Canada is a national not-for-profit education, certification and professional oversight organization working in the public interest. FP Canada is dedicated to championing better financial wellness for all Canadians by leading the advancement of professional financial planning in Canada. 

In 2023, in keeping with its new mission and vision, the Institut québécois de planification financière became the Institute of Financial Planning. As a leader in developing and promoting personal financial planning, the Institute's mission is to ensure that today's and tomorrow's financial services professionals have the knowledge, the know-how and the social skills required to contribute to the financial well-being of people, families, and communities. For more information, visit institutefp.org. 

SOURCE FP Canada