1.2 Client's Personal & Financial Situation: Documents and Financial Statements
Key Takeaways
The client's personal situation (health, expected longevity, power of attorney and will) shapes product choice: poor health may favour an impaired annuity, long family longevity a life annuity.
The tax return and CRA Notice of Assessment show income, marginal tax rate and unused RRSP contribution room; pension statements show vesting, locked-in money and the pension adjustment.
Net worth equals total assets minus total liabilities; a cash-flow statement shows whether income covers spending and how much can be saved.
An emergency fund of about three to six months of expenses should be in place before money is committed to long-term or illiquid products such as segregated funds held for their 10-year guarantee or annuities.
A power of attorney for property lets the attorney act on the client's contracts during incapacity, but it ends on death, when the will and beneficiary designations take over.
The Client's Personal and Financial Situation
Sub-component 1.1 of the curriculum asks you to determine the client's situation, investment objectives and investor profile. Before any product discussion, the agent gathers facts. Exam questions often hand you a short fact pattern and ask what conclusion you can (or cannot) draw from it.
1. The Client's Personal Situation
| Personal factor | Why it matters for segregated funds and annuities |
|---|---|
| Health concerns | Serious health problems may qualify the client for an impaired (enhanced) annuity paying more income; good health and a long family history favour lifetime income. Health also affects the need for liquidity for future care. |
| Longevity of the client | Family history and current health suggest how long the money must last. Longevity risk (outliving savings) is the main reason to consider a life annuity. |
| Power of attorney | A power of attorney for property (a mandate in case of incapacity in Quebec) names someone who can manage the client's financial affairs, including contracts, if the client becomes incapable. Without one, a family may need a court or public guardian process. A power of attorney ends on death. |
| Will | The will governs assets that pass through the estate. Beneficiary designations on segregated funds and annuities pass outside the will, so they must be coordinated with it. A will also names the executor (liquidator in Quebec). |
2. Documents for Review
The curriculum lists the documents an agent should ask for. Each one answers specific questions:
| Document | What it tells the agent |
|---|---|
| Income tax return (client, spouse, and the small business for an owner) and CRA Notice of Assessment | Total income, marginal tax rate, sources of income, and the RRSP deduction limit (unused contribution room) |
| Mortgage statement | Balance, rate, renewal date, payment amount and remaining amortization |
| RRSP contribution statements | Amounts already contributed this year and where registered money is held |
| Pension plan statements | Type of plan (defined benefit or defined contribution), vesting, locked-in balances, projected pension and the pension adjustment that reduces RRSP room |
| Credit card statements | Revolving debt at high interest; spending patterns |
| Bank statements | Cash on hand, regular inflows and outflows, emergency reserves |
| Line of credit or HELOC statement | Secured and unsecured borrowing, available credit, interest-only exposure |
| Other income and debt | Rental real estate, royalties, family support obligations (support payments owed or received), personal loans |
| Non-registered investment statements | Holdings, unrealized gains and the adjusted cost base (ACB), which matter if assets are sold to buy a segregated fund |
3. Preparation and Analysis: Four Statements
From these documents the agent prepares four working statements:
- Balance sheet: a list of what the client owns (assets) and owes (liabilities), including amounts owed to creditors.
- Net worth statement: total assets minus total liabilities at a point in time.
- Budget: planned spending by category for the coming year.
- Cash-flow statement: actual money in and out over a period, showing the monthly surplus or shortfall available for saving.
4. Worked Example: Priya and Martin
Priya (54) and Martin (56) provide the following information.
| Assets | Amount | Liabilities | Amount |
|---|---|---|---|
| Home | $650,000 | Mortgage | $310,000 |
| RRSPs | $210,000 | HELOC | $40,000 |
| TFSAs | $48,000 | Car loan | $14,000 |
| Non-registered investments | $35,000 | Credit cards | $3,500 |
| Chequing and savings | $12,000 | ||
| Car | $25,000 | ||
| Total assets | $980,000 | Total liabilities | $367,500 |
- Net worth: $980,000 − $367,500 = $612,500.
- Liquid assets: chequing $12,000 + TFSAs $48,000 + non-registered $35,000 = $95,000. The home, car and RRSPs are not readily available without tax or a sale.
- Cash flow: After-tax income is $9,800 a month; fixed costs are $6,900 and variable spending $2,100, leaving a surplus of $800 a month ($9,600 a year).
- Emergency fund: Monthly expenses are $9,000, so the $12,000 in the bank covers only about 1.3 months. Before recommending a long-term segregated fund deposit, the agent would suggest building cash reserves (or keeping part of the TFSA liquid) to reach three to six months, about $27,000 to $54,000.
- Debt: The credit card balance should be cleared first; paying off 20% interest beats almost any investment return.
5. Drawing Only the Conclusions the Facts Support
A CISRO sample question gives a client with a $420,000 RRIF entirely in GICs, a home, a cottage, a savings account and a small mortgage. The correct conclusion is that she has low risk tolerance: all her investments are guaranteed and she prefers paying down debt. You cannot conclude that she has enough to retire, that she needs no life insurance, or even her exact age (a RRIF can be opened before 71). The lesson: answer from the facts given, and recognize when more information (age, income, goals, family situation) is needed.
A client has total assets of $820,000, including a $540,000 home, and total liabilities of $295,000. What is the client's net worth?
$280,000, which is total assets less the value of the home
$525,000, which is total assets minus total liabilities
$245,000, which is liabilities subtracted from the non-home assets
$1,115,000, which is total assets plus total liabilities
Which document will most directly show a client's unused RRSP contribution room?
The CRA Notice of Assessment issued after the client's income tax return
The client's most recent credit card statement
The client's mortgage renewal statement
The client's annual non-registered investment account statement
Henri, the owner of a segregated fund contract, has become mentally incapable of managing his affairs. He signed a valid power of attorney for property several years ago. Who can request a withdrawal from the contract on his behalf?
Henri's named beneficiary, because the beneficiary takes control when the owner becomes incapable
The executor named in Henri's will, because the will applies as soon as the owner is incapable
The attorney named in the power of attorney for property, acting for Henri while he is alive
Nobody, because a segregated fund contract cannot be changed until the owner dies
Sections you finish are checked off in the contents.