FP Canada Standards Council™ Rule Interpretation Bulletins

Use of Technology When Providing Financial Planning Services

This Rule Interpretation Bulletin provides information about the interpretation and application of the Use of Technology Rules 28 and 29 in the FP Canada Standards Council™ Standards of Professional Responsibility

Rule 28 means that QAFP^® professionals and CFP^® professionals must understand the data, including the assumptions that go into the financial planning technology they use to make their planning recommendations. Professional financial planners must understand which inputs the technology is using for calculations and projections, including:

• The Projection Assumption Guidelines, as a reliable data source for the long-term rates of investment return, inflation and longevity assumptions
• Current and accurate tax rates for the client’s province or territory of residence
• Current interest rates to be charged on debt
• Tax settings, customizable by the user, that can account for features such as splitting or sharing pension benefits, pro-rated CPP/OAS benefits when a client retires mid-year, or the pooling of charitable donations with a spouse.

Knowing about a technology’s methodologies and embedded financial assumptions can help a QAFP professional or CFP professional validate that technology’s outputs, as required by Rule 28.

Professional financial planners must also ensure that the assumptions and outputs are reasonable and appropriate for each client’s unique circumstances (current situation, goals, needs, planning time-horizon). They also must ensure the client’s financial and personal situations are taken into consideration when using technology in the financial planning process. As stated in Rule 28, professional financial planners must understand the technology they use well enough to validate that its outputs are reasonable and appropriate for a client before they rely on that technology for the financial planning process.

A QAFP professional or CFP professional must document the rationale behind all material assumptions they use in the financial planning process. Material assumptions include any assumption that is key to the financial plan itself such as, but not limited to, future expenses like university tuition; date of retirement; employment income projections; or date for the sale of a primary residence related to downsizing.

Documenting assumptions helps professional financial planners ensure the correctness of the assumptions they use, and validate the reasonability of the output the technology produces. Furthermore, to ensure full transparency, professional financial planners must communicate their rationale and the assumptions they have made to the client in a way the client can understand. For example, QAFP professionals and CFP professionals should find out about their clients’ comfort with financial tools and technologies and take that level of comfort into consideration when providing financial planning recommendations.

Professional financial planners should discuss assumptions with their client(s) to ensure they understand them and are comfortable with their use. To comply with Rules 28 and 29 on the Use of Technology requires professional financial planners to ensure the technology, and the assumptions and methodology they use in the financial planning process are transparent; to make an independent analysis of each client’s unique situation; and to apply their professional judgment. Transparency also enhances the financial planner-client relationship by encouraging dialogue and engagement which build trust.

Complying with Rules 28 and 29 helps professional financial planners to fulfill their obligations under Practice Standard 8, which says that a QAFP professional or a CFP professional must:

• PS.8: Compile and Present the Financial Planning Assumptions and Recommendations and Supporting Rationale
• Document and present the financial planning assumptions and recommendations and supporting rationale in a way that allows the client to make an informed decision.

QAFP professionals and CFP professionals also can find helpful information in the Standards of Professional Responsibility section on Use of Technology to further guide their understanding of Rules 28 and 29.