Advisors interested in making long-term financial projections of 10 years or more for their clients have the most recent Projection Assumption Guidelines from FP Canada and the Institut québécois de planification financière (IQPF) at their disposal after the two organizations released their 2020 assumption guidelines for financial planners across Canada.
“It is important to note the long-term nature of these projections,” FP Canada said in a statement released April 30. “The 2020 guidelines were developed prior to the significant market volatility that began in February 2020.” The organizations say the guidelines are designed to help financial planners make long-term financial projections that are free from potential biases or predispositions.
The guidelines are drawn from publicly available data sources, including the Canada Pension Plan actuarial report, the Québec Pension Plan actuarial valuation, historical market data and a joint annual survey of investment professionals. “Armed with these guidelines, planners can help their clients build and implement long-term financial plans that are rooted in unbiased and objective financial projections,” says guideline committee member Martin Dupras. An addendum containing the data sources on which the guidelines are based, along with specific calculations for inflation and rates of return, was also released April 30.
“To make projections, financial planners must estimate future inflation and borrowing rates, investment returns,” say the guideline’s authors. “In short, they must make assumptions. That is why the IQPF and FP Canada Standards Council publish the Projection Assumption Guidelines: to help financial planners make realistic financial projections.”
In addition to inflation, rates of return on different equities and projections about future borrowing rates, the report also includes detailed mortality tables and a list of projections from previous years.
The Projection Assumption Guidelines for 2020 are as follows: