The Financial Advisor Guide to Financial Services Definitions
Self-Study Course # 14
INTRODUCTION
The Canadian Financial Services Sector
The Canadian financial services sector is made up of banks, trust and loan companies,
credit unions and caisses populaires, life and health insurance companies, property and
casualty (P&C) insurance companies, securities dealers and exchanges, mutual fund
companies and distributors, finance and leasing companies, as well as independent
financial advisors, pension fund managers and independent insurance agents and
brokers.
The financial services sector is significantly integrated as different players offer similar
services and "financial groups" or conglomerates offer a variety of financial products and
services that cut across what was known as the four "pillars" (banks, trust companies,
insurers and securities dealers). This integration trend is particularly prevalent in the
banking and life and health insurance sectors, where companies have established
specialized subsidiaries to provide many different financial service products.
However, following a period of significant product convergence when most financial
institutions, particularly in the banking and life and health insurance sectors, widened the
financial services offered outside their traditional business lines, 2003 saw a slight
departure from this trend, as most sectors increased their share of income generated
from traditional financial product lines.
The financial services sector is a significant contributor to Canada’s economic growth,
employing over 600,000 Canadians in 2003 and having a yearly payroll of over $35
billion. The sector represented 6 per cent of Canada’s gross domestic product in 2003
and contributed close to $13 billion in taxes to all levels of government.
Banks represent the largest portion of the Canadian financial services sector, reporting
$1,257 billion in domestic assets in 2003, or over 55 per cent of the sector’s total assets
in Canada. Mutual fund companies and life and health insurers were next in terms of
asset size, reporting $439 billion and $315 billion in domestic assets respectively in
2003, followed by the credit union sector at $155 billion and P&C insurers with domestic
assets of $88 billion.
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Canada’s banks and life and health insurers are significant participants in international
markets. The six largest banks generated 33 per cent of their net income from foreign
sources in 2003, while 58 per cent of the life and health insurance sector’s premium
income was derived from foreign sources.
Deposit-taking institutions and insurance companies all enjoyed similar performance
levels in 2003. Banks reported an average return on equity (ROE) of 14.6 per cent, the
credit union sector almost 12 per cent and life and health insurers about 13 per cent.
P&C insurers reported an ROE of 11.6 per cent. While slightly lower than the ROE of
other institutions, P&C insurers’ return did mark a substantial increase from the previous
five years, largely due to higher premiums.
The federal and provincial governments share jurisdiction over the financial services
sector. The Government of Canada has sole jurisdiction for banks while credit
unions/caisses populaires, securities dealers and mutual funds are largely regulated by
provincial governments. Both levels of government regulate insurance and trust and loan
companies.
Overall, the financial services sector is competitive. Over the past few years competition
in the sector has further increased due in part to recent changes to the federal regulatory
framework and to technological innovations.
A CRITICAL ROLE IN A MARKET ECONOMY
The financial services sector plays a critical role in a market economy, providing a
means of channeling savings into various investment opportunities and driving economic
growth. It provides the capital necessary for the growth of existing businesses and the
start-up capital needed for new businesses. It also allows governments to finance new
debt issues and support programs and services. At the same time, the sector enables
Canadians to carry out their everyday financial transactions, including chequing, savings
and wealth management, and to insure against risk and unexpected events.
The sector is also a significant contributor to Canada’s economic growth and to job
creation. It employs over 600,000 Canadians and has a yearly payroll of over $35 billion.
In addition, the sector represents 6 per cent of Canada’s gross domestic product and
contributes close to $13 billion in taxes to all levels of government.
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Overview of the financial services sector, 2003
Sector
Banks
Number of Active Firms
69
Employment
237,000
1,298
29
53,000
n/a
108
230
270
207
118,000
100,000
70,000
37,000
250
n/a
Credit unions/caisses
populaires
Trust companies
Life and health insurance
companies
P&C insurance companies
Mutual fund companies
Securities dealers
Finance and leasing
companies
Above sources came from - Office of the Superintendent of Financial Institutions,
Canadian Bankers Association, Credit Union Central of Canada, Canadian Life and
Health Insurance Association, Insurance Bureau of Canada, Mutual Fund Dealers
Association of Canada, Investment Funds Institute of Canada, Investment Dealers
Association of Canada, Canadian Finance & Leasing Association and the Department of
Finance Canada website
STRUCTURE OF THE INDUSTRY
The Canadian financial services industry is made up of banks, trust and loan companies,
credit unions and caisses populaires, insurance companies, securities dealers and
exchanges, mutual fund companies and distributors, finance and leasing companies, as
well as independent financial advisors, pension fund managers and independent
insurance agents and brokers.
The deposit-taking institutions include banks, trust and loan companies, and credit
unions and caisses populaires. In 2003 the banking sector comprised 18 domestic banks
(up from 14 in 2000), 29 foreign bank subsidiaries (down from 33 in 2000) and 22 foreign
bank branches (up from 16 in 2000) for a total of 69 banks. The increase in the number
of banks in Canada is the result of changes to the ownership regime and the reduction in
the capital required to open a small bank, both of which were introduced with Bill C-8 in
2001. However, the 6 largest Canadian banks still account for more than 90 per cent of
total bank assets and for about 76 per cent of the total assets of the deposit-taking
sector.
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Canada’s banks operate through an extensive network that includes close to 9,000
branches and close to 16,500 automated teller machines (ATMs) across Canada.
Canada’s banks also provide a range of services beyond deposit taking and lending.
They are major players in the securities sector, helping private companies and
governments raise equity and debt financing, and in the mutual fund sector. Indeed, 3 of
the 10 largest mutual fund companies and all of the large securities dealers are bankowned. Banks also own insurance companies.
Trust and loan companies offer similar services to banks, including accepting deposits
and making personal and mortgage loans. Trust companies can also administer estates,
trusts, pension plans and agency contracts. While banks are not permitted to undertake
these activities directly, the largest trust companies are subsidiaries of the major banks.
Canada’s credit unions and caisses populaires differ from banks in that they are
provincially incorporated cooperative financial institutions that are owned and controlled
by their members. Their ownership and corporate governance are based on cooperative
principles, and each individual credit union and caisse populaire maintains a separate
identity. Because of their autonomous local structure, credit unions and caisses
populaires are generally much smaller in terms of asset size than other deposit-taking
institutions. They are part of a three-tiered structure composed of credit unions,
provincial centrals (whose main purpose is to provide liquidity support to local
cooperatives), and a national association. They also differ in that they do not operate
outside provincial boundaries. At the end of 2003, Canada’s credit union sector
consisted of about 600 credit unions and almost 700 caisses populaires, with almost
3,600 locations and more than 4,500 ATMs.
As in other areas of the financial services sector, there is a trend towards consolidation,
with the total number of credit unions and caisses populaires declining by half from
about 2,700 in 1990 to close to 1,300 by the end of 2003. At the same time, the sector is
maximizing member opportunities through the purchase of bank branches in
communities where banks have withdrawn from the market. Credit unions and caisses
populaires have also broadened their services in non-traditional areas including fullservice brokerage, mutual funds, commercial lending and wealth management.
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Since 2001 legislation enables credit unions to incorporate a federal association with
enhanced business powers, including the potential to offer retail services through a
"retail association" to clients outside the credit union system. The first retail association
was established at the end of 2004.
The life and health insurance sector comprises 108 companies providing group and
individual life and health insurance, as well as group and individual retirement products
such as annuities, pension plans, registered retirement savings plans and registered
retirement income funds. The sector is somewhat less concentrated than the banking
sector, with the four largest companies accounting for 69 per cent of the sector’s
domestic general assets. Wealth management products such as annuities accounted for
51 per cent of premium income in 2000, and by 2003 still accounted for a substantial,
although smaller, portion of the sector’s income (40 per cent).
Canada’s P&C insurance sector comprises over 200 insurers. Product lines generally
include automobile, property and liability insurance, with a few companies selling a
limited amount of sickness and accident insurance and underwriting a small amount of
aviation and marine insurance. The sector is diversified and competitive, with the 5
largest insurers accounting for less than 35 per cent of total domestic assets, and the top
10 companies having an estimated market share of almost 50 per cent. The P&C market
has attracted considerable interest from foreign companies, which accounted for over
60 per cent of the sector’s net premium income in 2003.
The mutual fund sector consists of the manufacturers of mutual funds and the
distributors, with a number of mutual fund companies involved in both segments of the
business, notably those owned by the banks and the credit unions/caisses populaires. At
the end of 2003, there were over 70 mutual fund companies sponsoring close to 1,900
mutual funds, and close to 200 firms involved in the sale of funds. The majority of mutual
funds are either managed by the manufacturers (50 per cent) or by bank-owned
companies (35 per cent).
The securities sector plays a key role in Canada’s financial system by raising debt and
equity capital for businesses and governments and allowing investors to trade with
confidence in open and fair capital markets.
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The sector is made up of integrated, institutional and retail firms, with institutional firms
providing services exclusively to institutions, such as insurance companies and pension
funds, and retail firms offering services to individual or retail investors. The integrated
firms, which represent mainly the securities dealer affiliates of the six largest domestic
banks, offer services that cover all aspects of the industry, including raising debt and
equity capital for companies, helping governments raise debt to fund their operations
and serving retail investors. In 2003 there were 207 securities firms operating in Canada,
with the 6 large integrated firms accounting for 73 per cent of total industry revenue.
The finance and leasing sector finances equipment and vehicles primarily by way of
lease, but also by secured loan or conditional sales. The leasing company retains the
ownership of the leased equipment or vehicle until the end of the lease, at which time
the lessee can purchase the equipment or vehicle or return it to the lessor without further
obligation.
After banks and credit unions, the finance and leasing sector is the most important
supplier of debt financing to Canadians.
It is estimated that this industry has over $100 billion in financing in place, with small and
medium-sized businesses representing approximately 60 per cent of its customers.
While many finance companies are subsidiaries of manufacturers, or "captives,"
assisting in the financing of their parent company’s products, there has been significant
growth in the last decade, with the number of players in the Canadian marketplace, both
domestic and foreign, continuing to increase.
THE INTERNATIONAL DIMENSION
Canada’s banks and life and health insurers are significant players in international
markets. The six largest banks are particularly active in the United States, Latin America,
the Caribbean and Asia, with approximately 33 per cent of their revenue generated
outside Canada in 2003. This figure is significantly lower than the 45 per cent generated
abroad in 2000 for three reasons. First, revenue earned in Canada has grown
significantly faster than revenue earned abroad. Second, after the capital market
declines in 2000, several large banks refocused on domestic retail banking and exited or
downsized their international lines of business. And last, the U.S. currency depreciation
affected the value of revenues earned in the U.S.
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The Canadian life and health insurance sector is even more internationally oriented, with
branches and subsidiaries in more than 20 countries around the world. Life and health
insurers’ share of total premium income from foreign sources increased from 37 per cent
in 1990 to 58 per cent in 2003.
Canadian-owned banks and life and health insurers are also strong in the domestic
market. In 2003 Canadian-owned banks accounted for 93 per cent of the domestic
revenue of the banking sector. The market share for foreign banks increased from 6 to 7
per cent between 2000 and 2003. Canadian-owned life and health insurers had a 73per-cent domestic market share in 2003, up slightly from 71 per cent in 2000.
The P&C insurance sector has a much higher involvement of foreign companies than
other sectors: in 2003, 5 of the 10 largest P&C insurers were foreign-owned, and foreign
P&C insurers accounted for about 62 per cent of net premiums earned in Canada, down
somewhat from 66 per cent in 2000.
Given the governance structure of the credit union sector (i.e. it is made up of memberowned cooperatives), it is 100-per-cent Canadian-owned.
RETURN ON EQUITY
Most industries in the sector improved their overall profitability in 2003, with banks and
P&C insurers recording the largest increases in return on equity (ROE).
Banks recorded an ROE of 14.6 per cent in 2003, up from an ROE of 9.5 per cent in
2002 that was largely due to financial markets’ poor performance and the deterioration of
corporate loan portfolios. Life and health insurers posted an ROE of 13.1 per cent in
2003.
P&C insurers’ ROE increased substantially, jumping from their worst result on record of
less than 2 per cent in 2002 to 11.6 per cent in 2003. This result marked the end of a
five-year trend of a steadily decreasing ROE. This reversal is largely due to increased
premiums, but also to a slowdown in claims growth and rising investment income.
The credit union sector recorded an ROE of almost 12 per cent in 2003, down from
slightly more than 14 per cent in 2002, but substantially improved from 8.4 per cent in
2000.
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REGULATION AND SUPERVISION
Under the Constitution, the Government of Canada is solely responsible for the
prudential and market conduct regulation of banks in Canada. However, given the
evolution of the business of banking, some of the banks’ activities, such as trustee
services and securities dealing, which are carried out by bank subsidiaries, are
provincially regulated.
The life and health insurance sector is largely regulated for financial soundness by the
Government of Canada. Over 90 per cent of firms in this sector are federally
incorporated under the Insurance Companies Act since most of them operate in more
than one province or are subsidiaries of foreign companies. Smaller companies
operating in only one province may also incorporate at the federal level if they so
choose. Similarly, about three-quarters of companies operating in the P&C insurance
sector are regulated for financial soundness by the Government of Canada under the
Insurance Companies Act. While provinces reserve the power to ensure that federally
incorporated insurance companies conducting business in their respective jurisdictions
are financially sound, all provinces except Quebec accept federal regulation in this
regard. All insurers are subject to market conduct regulation by the province in which
they carry on business.
Trust and loan companies can be regulated by both levels of government. Market
conduct is regulated at the provincial level, and companies that are federally
incorporated are regulated for prudential purposes by the Government of Canada under
the Trust and Loan Companies Act. Ontario, for example no longer provides for the
incorporation of new trust and loan companies in its jurisdiction.
All credit unions and caisses populaires are provincially incorporated, as the powers of
these institutions do not extend beyond their respective provincial borders.
Consequently, this sector is almost exclusively regulated at the provincial level for both
prudential soundness and market conduct purposes. However, the Government of
Canada does play a regulatory role in the credit union movement outside Quebec
through the national and provincial centrals.
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The national central, Credit Union Central of Canada, is chartered and regulated by the
Government of Canada under the Cooperative Credit Associations Act. In addition,
provincial centrals (except those in New Brunswick, Prince Edward Island and
Newfoundland and Labrador) are regulated at the federal level under the Cooperative
Credit Associations Act, as well as at the provincial level.
The securities and mutual fund sectors are governed by provincial legislation regulating
the underwriting, distribution and sale of securities, with a major emphasis in the various
provincial acts on full disclosure. While each province has its own legislation, provincial
regulators meet on a regular basis in an effort to coordinate and harmonize provincial
regulation of the securities industry and markets. There is also extensive industry selfregulation by the Investment Dealers Association of Canada, the Mutual Fund Dealers
Association of Canada and Market Regulation Services Inc.
Currently the securities regulatory framework in Canada is under review. In December
2003 the Wise Persons’ Committee presented its report recommending that the federal
and provincial governments collaborate to establish a single securities regulator in
Canada. The Government of Canada committed to improve the efficiency and
effectiveness of Canada’s capital markets and, in this regard, continues to work with the
provinces towards the development of a new, enhanced system of securities regulation.
Finance and leasing companies are not regulated as financial institutions as they do not
carry out certain "core activities" such as fiduciary activities, underwriting insurance,
dealing in securities and deposit taking.
The Government of Canada provides prudential oversight through the Office of the
Superintendent of Financial Institutions (OSFI). OSFI is responsible for supervising
federally regulated financial institutions, including the banks and federally incorporated
insurance and trust and loan companies, to ensure that they are in sound financial
condition and in compliance with the laws that govern federally regulated financial
institutions.
The legislation governing Canada’s federally regulated financial institutions is subject to
review every five years. The last scheduled review was completed in 2001, and
amendments to the relevant financial statutes came into force in October of that year.
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The legislated five-year review provision ensures that the regulatory framework remains
current and that the financial services sector has the flexibility it needs to react to
changing times. The next legislative review will be completed in 2006.
CONSUMER PROTECTION
The Financial Consumer Agency of Canada has a legislative mandate to enforce the
consumer-oriented provisions of the federal financial institution statutes, to monitor the
industry’s self-regulatory initiatives designed to protect the interests of consumers and
small businesses, to promote consumer awareness, and to respond to general
consumer enquiries.
In addition, the Canada Deposit Insurance Corporation (CDIC), a federal Crown
corporation, insures deposits in banks and trust and loan companies against loss in the
event of member failure. In particular, it insures eligible deposits up to $100,000 per
depositor in each member institution, which must pay premiums to cover CDIC’s
insurance obligations. Deposits of credit unions and caisses populaires are protected
under provincial stabilization funds and/or deposit insurance and guarantee
corporations. Deposit insurance coverage ranges from $60,000 to unlimited coverage,
with the amount varying by province.
Life insurance policies, accident and sickness policies and annuity contracts are
guaranteed up to certain limits by the Canadian Life and Health Insurance
Compensation Corporation, a private non-profit corporation created and financed by the
life and health insurance sector. Similarly, the industry-run Property and Casualty
Insurance Compensation Corporation guarantees most P&C insurance policies up to
certain limits.
Within the securities sector the Canadian Investor Protection Fund, sponsored by the
Investment Dealers Association of Canada and the stock exchanges, protects investors
in the event of the insolvency of a member firm for up to $1 million per account.
To aid consumers in their dealings with financial institutions, the Government of Canada
requires all federally regulated financial institutions to have dedicated procedures and
personnel in place to handle consumer complaints, and belong to an independent thirdparty dispute resolution system.
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Additionally, the recently established Centre for the Financial Services OmbudsNetwork
(CFSON) provides consumers of banking, life and health insurance, P&C insurance,
securities and mutual fund services with single-window access to a network of industrylevel ombudsman services. These ombudsmen provide independent and impartial
dispute resolution and redress services at no cost to consumers. The CFSON’s mandate
also includes the development and promotion of industry standards and best practices
relating to financial consumer complaint handling.
NOW ON TO SOME FINANCIAL SERVICES DEFINITIONS
It is considered prudent Financial Planning that as an Agent / Broker Financial Service
Professional, you are familiar with the different terms and meanings that affect all areas
of your business dealings with your clients and prospects.
In this course, we have tried to accumulate as many definitions as possible. While you
are completing this course, if you feel that there should be some additions, please
contact us so that we can add them to the list.
Glossary of Terms & Definitions
-AAccounting
This term refers to a system of recording, analyzing and explaining the financial
transactions of a business.
Accountancy (profession) or accounting (methodology) is the measurement, statement
or provision of assurance about financial information primarily used by managers,
investors, tax authorities and other decision makers to make resource allocation
decisions within companies, organizations, and public agencies.
The terms derive from the use of financial accounts. Accounting is the discipline of
measuring, communicating and interpreting financial activity. Accounting is also widely
referred to as the "language of business.
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Accrual Basis
The most commonly used accounting method, which reports income when earned and
expenses when incurred, as opposed to cash basis accounting, which reports income
when received and expenses when paid. Under the accrual method, companies do have
some discretion as to when income and expenses are recognized, but there are rules
governing the recognition. In addition, companies are required to make prudent
estimates against revenues that are recorded but may not be received, called a bad debt
expense.
Accrual Rate - The rate usually specified in the benefit formula of a defined benefit
pension plan as a percentage of earnings, at which pension benefits are earned.
Example: 1.4% of pensionable earnings for each year of service.
Accrue - To accumulate over a period of time. For example, service accrues with each
month worked.
Accrued Interest - All earned interest even if the interest was not received in cash. In
other words, accrued interest is unpaid interest that accumulates on the principal
balance of a loan, adding to the total amount owed in a loan.
Achiever - This person will make confident decisions only after much deliberate and
research. This personality type rarely needs Long Term advice from a planner and is
more likely to need the services of a Financial Specialist for investment or taxes only.
Active Investment Strategies - A method of managing a portfolio that requires regular
decisions and adjustments to the portfolio by the investor. Decisions involve how much
to buy when to buy and sell and how to reinvest.
Active Plan Member - Plan member making (or deemed to be making) regular
contributions to the plan, including those on an approved leave of absence (with or
without pay).
Actuarial Assumptions - Factors used by the actuary in forecasting uncertain future
events affecting pension cost. They include such things as salary growth, interest,
investment earnings, and mortality rates.
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Actuarial Cost - A cost is characterized as an actuarial cost if it is determined by use of
present values which in turn are calculated on the basis of certain assumptions
(mortality, interest, retirement age, etc.). An actuarial cost is often used to associate the
costs of benefits under a pension plan with the time the benefits are earned.
Actuarial Valuation - Assessment of the financial health of a pension plan by an
independent actuarial consulting firm.
Actuary - A person who is a Fellow of the Canadian Institute of Actuaries. Actuaries
are business professionals who apply their knowledge of mathematics, probability,
statistics, and risk theory, to real-life financial problems involving future uncertainty.
These uncertainties are usually associated with life insurance, property and casualty
insurance, annuities, pension or other employee benefit plans, or providing evidence, in
courts of law, on the value of lost future earnings.
Additional Benefits (Riders) - Additional clauses can be added to the basic benefit to
provide increased levels of coverage. Each additional rider increases the premium.
Adjusted Cost Basis - Adjusted cost base for your property is generally the amount you
paid for it, plus the cost of any capital improvements you have made over the years. If
you acquired the property before 1972, there are special rules for determining your cost
base. These rules will exempt from tax, gains acquired before 1972.
Administratrix - The female form of administrator, it is the person who is appointed by
the probate court (rather than named in the will) to take over and manage the estate
during the probate proceedings.
Aggregate Demand - The total amount of goods and services demanded in the
economy at a given overall price level and in a given time period. It is represented by the
aggregate-demand curve, which describes the relationship between price levels and the
quantity of output that firms are willing to provide. Normally there is a negative
relationship between aggregate demand and the price level. Also known as "total
spending".
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Aggregate demand is the demand for the gross domestic product (GDP) of a country,
and is represented by this formula: Aggregate Demand (AD) = C + I + G (X-M).
C = Consumers' expenditures on goods and services.
I = Investment spending by companies on capital goods.
G = Government expenditures on publicly provided goods and services.
X = Exports of goods and services.
M = Imports of goods and services.
Aggregate Supply - Aggregate Supply (AS) measures the volume of goods and
services produced within the economy at a given overall price level. There is a positive
relationship between AS and the general price level. Rising prices are a signal for
businesses to expand production to meet a higher level of AD. An increase in demand
should lead to an expansion of aggregate supply in the economy.
Amended Pension Adjustment Statement - A Pension Adjustment that has been
amended after reporting to Canada Customs and Revenue Agency. For example, if a
plan member purchases a leave of absence and pays for it before April 30 of the year
following the end of the leave, an amended pension adjustment is submitted to include
the increased benefit from the leave. (See Pension Adjustment)
Amortization Schedule - A numeric table (usually computer generated) that shows how
much principal and interest you must pay, how often and for how long to repay a loan.
Annual Benefit Statement - Once a year, plan members receive a benefit statement
through their employer that describes their status in the plan.
The statement gives many details including:

normal retirement date, early retirement date

an estimate of the amount of a plan member's pension benefit at the statement
date, assuming they are already eligible

survivor pension entitlement

credited pensionable service

accumulated contributions in the plan (including interest), and

balance owing on purchase of service contracts.
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Annual Renewable Term (ART) - A term policy that is renewable each year. The face
amount remains the same and the rate per thousand of protection increases each year.
Annuitant - For RRSP purposes, the individual who is entitled to receive the retirement
income generated by an RRSP when the assets of the plan are invested in an annuity,
life income fund (LIF), or registered retirement income fund (RRIF).
Annuity - A series of payments of a fixed amount for a specified period. A life annuity
will continue for the lifetime of the recipient.
Annuitizing or Annuitization - The shift in an annuity from accumulation to payout.
Payout is usually on a monthly basis, but may be quarterly or yearly as well. Once
Annuitization has begun, payments are "set" and do not allow additional withdrawals.
Antenuptial Agreement - Usually called premarital agreements, these are legal
agreements regarding premarital assets and their distribution should divorce occur.
Any Occupation - Unable to engage in all occupations qualified by educators, training
or experience.
Arm’s Length - Two parties to an agreement who are dealing at arm’s length and are
independent of each other, while people who deal at non-arm’s length may be operating
in collusion.
Arrears - These are interest or dividend payments, accrued since the last payment,
which are still owed but have not been paid yet.
Asset - Anything of value owned by an individual including real property, financial assets
and other financial resources.
Asset Mix - The allocation of your money among the different investment options.
Assuris (formerly CompCorp) - CompCorp, the organization that protects Canadian
policyholders in the event their life insurance company becomes insolvent, changed its
name to Assuris on December 1, 2005. Assuris provides Canadian life insurance
policyholders with specified levels of protection against loss of benefits due to the
financial failure of a Company who is a Member Company.
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Your deposit type products will also be transferred to a solvent company. For these
products, Assuris guarantees that you will retain 100% of your Accumulated Value up to
$100,000.
Automatic Premium Loans - In cash value life insurance policies, there may be
provisions to pay the premium due out of the policy's cash value, if the policyholder
neglects to do so. This provision does so to prevent the policy from lapsing for
nonpayment.
-BBaby Boom / Baby Boomers
These terms are used to refer to the group of people who were born between 1947 and
1966 in Canada. During this period, the rate of births increased from about 240,000 per
year until it peaked at about 480,000 in 1959. The boom ended in 1966 as the birth rate
fell to 360,000.
Balanced Mutual Fund
A fund that combines a stock component, a bond component and, sometimes, a money
market component, in a single portfolio. Generally, these hybrid funds stick to a relatively
fixed mix of stocks and bonds that reflects either a moderate (higher equity component)
or conservative (higher fixed-income component) orientation.
A balanced fund is geared toward investors who are looking for a mixture of safety,
income and modest capital appreciation. The amounts that such a mutual fund invests
into each asset class usually must remain within a set minimum and
maximum. Although they are in the "asset allocation" family, balanced fund portfolios do
not materially change their asset mix. This is unlike life-cycle, target-date and actively
managed asset-allocation funds, which make changes in response to an investor's
changing risk-return appetite and age, or overall investment market conditions.
Balance Sheet
A statement of assets, liabilities and any owner’s equity at a given date.
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Bankrupt
You are bankrupt if you are insolvent and either you voluntarily file a petition for
bankruptcy under the Bankruptcy and Insolvency Act or your creditors are successful in
lodging a receiving order against you.
Bank of Canada
Canada’s central bank The Bank of Canada (in French: Banque du Canada) is Canada's
central bank. It was created by the Bank of Canada Act of 1934, to "promote the
economic and financial well-being of Canada. . .” It is the sole issuer of banknotes in
Canada, and the central bank for the Canadian dollar.
The bank's headquarters are located in the Bank of Canada Building at the corner of
Wellington and Bank Streets in downtown Ottawa.
Bank Rate
The rate of interest that the Bank of Canada is prepared to lend to the chartered banks.
The bank rate is closely related to the Target for the Overnight Rate, which is the main
tool the Bank of Canada uses to conduct monetary policy. The Bank Rate — which is
the rate of interest that the Bank of Canada charges on one-day loans to financial
institutions — is part of a range called the Operating Band for the overnight rate. The
overnight rate is the rate at which major financial institutions borrow and lend one-day
funds among themselves.
Bear Market
A prolonged period in which investment prices fall, accompanied by widespread
pessimism. If the period of falling stock prices is short and immediately follows a period
of rising stock prices, it is instead called a correction. Bear markets usually occur when
the economy is in a recession and unemployment is high, or when inflation is rising
quickly. The most famous bear market in Canadian history was the Great Depression of
the 1930s.
The term "bear" has been used in a financial context since at least the early 18th
century. While its origins are unclear, the term may have originated from traders who
sold bear skins with the expectations that prices would fall in the future. This is the
opposite of bull market
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Bearer Bonds
An unregistered, negotiable bond on which interest and principal are payable to the
holder, regardless of whom it was originally issued to. The coupons are attached to the
bond, and each coupon represents a single interest payment. The holder submits a
coupon, usually semi-annually, to the issuer or paying agent to receive payment. Bearer
bonds are being phased out in favor of registered bonds. This can also called a coupon
bond.
Beneficiary (Death)
The person designated as the recipient of the benefits in an insurance policy or other
assets upon death.
Beneficiary (RESP)
Of an RESP contract is the person named by the subscriber as the intended recipient of
the educational assistance payments from an RESP plan.
Benefit - A commuted value, pension, refund or any other entitlement payable to the plan
member (or a survivor of the plan member) by the pension plan.
Benefit Period
Benefit is paid for a stated number of years as per contract. 1, 5, 10 and to age 65 are
common. Lower classification (1A) may only qualify for 1-5 years, while higher classes
(5A) will qualify for age 65 limits. The longer the benefit period, the higher the premium.
A good “rule of thumb” is the longer the elimination and benefit period, the better the
plan, especially if premium dollars are a consideration.
Best-earnings Plan
A defined benefit plan that calculates a persons retirement benefit based on the best
earning of an employee’s career, usually over a three or five year period.
Binding Agreement
This is a form of buy-sell agreement; a binding agreement is the most effective means of
guaranteeing a fair price from the point of view of the deceased’s family or the disabled
shareholder.
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The purchase of the deceased or selling shareholder’s interest by the remaining
shareholders protects the surviving or remaining shareholders in that no other parties
can become involved in the business without their consent.
Blanket Insurance
Any insurance policy that covers one or more broad classes of persons or property,
without identifying the specific subjects of insurance in the contract.
A broad medical expense policy that covers all medical expenses (except those that are
specifically excluded), up to a maximum limit without any limitation on specific types of
medical expenses.
A single property insurance policy that provides coverage for multiple classes of property
at one location or one or more classes of property at multiple locations. Coverage under
this form is written for one total amount of insurance. No single item (e.g., a building or
machine) is assigned a specific amount of insurance, although different amounts may be
shown for buildings in general, equipment in general, and other items.
Blue Chip Stock
A leading, highly regarded equity issue. The company is generally known and is
recognized for its ability to make money and pay dividends and is financially sound and
secure in good and bad times.
Bond
A contract or agreement under which the first party, the surety, agrees to answer to the
second party, the obligee, for the default, failure to perform, or dishonesty of a third
party, the principal.
Bonds
Debt issued by a corporation, government or government agency on which interest is
paid in a specific period. The value of a bond is guaranteed at its stated maturity date,
before then, it may trade above or below its “book value”.
Bond Swap Strategy
A strategy that sells long bonds and buys short-bonds during periods of rising interest
rates. It also does the opposite during periods of falling interest rates.
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There are several reasons why people use a bond swap: to seek tax benefits, to change
investment objectives, to upgrade a portfolio's credit quality or to speculate on the
performance of a particular bond.
Book Value
The value at which an asset is carried on a balance sheet. In other words, the cost of an
asset minus accumulated depreciation. The net asset value of a company, calculated by
total assets minus intangible assets (patents, goodwill) and liabilities. The initial outlay
for an investment. This number may be net or gross of expenses such as trading costs,
sales taxes, service charges and so on.
In personal finance, the book value of an investment is the price paid for a security or
debt investment. When a stock is sold, the selling price less the book value is the capital
gain (or loss) from the investment.
Bouncing Cheques
Writing cheques with insufficient funds in the account to cover a cheque amount.
Break in Service - Any interruption or irregularity in your accumulation of pensionable
service, for example:

periods during which neither you nor your employer made contributions and no
contributory service was accumulated, or

periods when you worked less than full time, even though your employment contract
was full time.
Bridge Benefit - Formerly called CPP Offset. A temporary supplement to a pension, paid
from the earliest retirement date until age 65 or death, whichever comes first.
Budget
A plan for how you are going to allocate your money.
Bull Market
A financial market of a certain group of securities in which prices are rising or are
expected to rise. The term "bull market" is most often used in respect to the stock
market, but really can be applied to anything that is traded, such as bonds, currencies,
commodities, etc.
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Bull markets are characterized by optimism, investor confidence and expectations that
strong results will continue. Of course, no bull market can last forever, and sooner or
later a bear market (in which prices fall) will come. It's tough if not impossible to predict
consistently when the trends in the market will change. Part of the difficulty is that
psychological effects and speculation can sometimes play a large (if not dominant) role
in the markets. The extreme on the high end is a stock-market bubble, and on the low
end a crash.
The use of “bull" and "bear" to describe markets comes from the way in which each
animal attacks its opponents. That is, a bull thrusts its horns up into the air, and a
bear swipes its paws down. These actions are metaphors for the movement of a market:
if the trend is up, it is considered a bull market. And if the trend is down, it is considered
a bear market.
Business Buy-Out (Disability)
These disability contracts bought by business owners or shareholders on the life (lives)
of the other partner (s) / owner (s) to provide money to buy out a disabled partner.
Benefit Amounts.
Benefit is based on a percentage of pre-disability income and is
determined by the companies Issue and Participation Limit tables. Coverage can be
less than maximum allowed and all companies have minimum issue limits.
Business Cycle
Business Cycles are fluctuations in economic activity that occur in most modern
economies. They trace out a wavelike pattern with a length of between 3.5 and 7 years.
Since 1945 the duration of periods of above-average economic performance has usually
been greater than that of below-average performance with a general rise in the longterm average. The peaks in economic activity are normally higher in successive cycles.
Buy-and-hold Strategy
A passive investment strategy in which an investor buys stocks and holds them for a
long period of time, regardless of fluctuations in the market. An investor who employs a
buy-and-hold strategy actively selects stocks, but once in a position, is not concerned
with short-term price movements and technical indicators.
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Conventional investing wisdom tells us that with a long time horizon, equities render a
higher return than other asset classes such as bonds. There is, however, a debate over
whether a buy-and-hold strategy is actually superior to an active investing strategy; both
sides have valid arguments. A buy-and-hold strategy has tax benefits, however, because
long-term investments tend to be taxed at a lower rate than short-term investments.
Buy-Sell Agreement
An agreement between shareholders and business partners to purchase each other’s
shares in specified circumstances.
-CCallable Bonds
A bond which the issuer has the right to redeem prior to its maturity date, under certain
conditions. When issued, the bond will explain when it can be redeemed and what the
price will be. In most cases, the price will be slightly above the par value for the bond
and will increase the earlier the bond is called. A company will often call a bond if it is
paying a higher coupon than the current market interest rates. Basically, the company
can reissue the same bonds at a lower interest rate, saving them some amount on all
the coupon payments; this process is called "refunding."
Unfortunately, these are also the same circumstances in which the bonds have the
highest price; interest rates have decreased since the bonds were issued, increasing the
price. In many cases, the company will have the right to call the bonds at a lower price
than the market price. If a bond is called, the bondholder will be notified by mail and
have no choice in the matter. The bond will stop paying interest shortly after the bond is
called, so there is no reason to hold on to it.
Companies also typically advertise in major financial publications to notify bondholders.
Generally, callable bonds will carry something called call protection. This means that
there is some period of time during which the bond cannot be called. This type of bond
can also be called redeemable bond. It is the opposite of irredeemable bond or noncallable bond.
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Canada Pension Plan
This plan is administered by the Federal Government and designed to provide a monthly
retirement pension to contributors, disabled individuals and their children. It is also paid
to the widows, widowers, and orphaned children of the deceased contributors.
Canada Pension Integration - the adjustment of your pension to reflect your lower
contribution rate up to the YMPE for the period of time you contributed to the Public
Service Pension Plan.
Canada Premium Bond (CPB)
A new savings product for individual Canadians, introduced by the Government of
Canada in 1998. It offers a higher interest rate compared to the Canada Savings Bond
and is redeemable once a year on the anniversary of the issue date or during the 30
days thereafter without penalty. (Source: Department of Finance Canada)
Canada Revenue Agency (CRA)
Formerly Revenue Canada. Among other functions, this federal organization issues
regulations regarding registered plans in Canada and frequently audits and monitors
them.
Canada Savings Bond (CSB)
CSBs are currently offered for sale by most Canadian financial institutions to individual
Canadians. CSBs pay a competitive rate of interest that is guaranteed for one or more
years. They may be cashed at any time and, after the first three months, pay interest up
to the end of the month prior to encashment. These bonds are considered very safe
investments.
Canada Student Loans Program (CSLP)
This financial aid program established by the federal government is used to help
students cover the cost of post-secondary education.
Capital Markets
The capital market is the market for securities, where companies and the government
can raise long-term funds. The capital market includes the stock market and the bond
market. Financial regulators, such as the Canadian Securities Administrators oversee
the capital markets in their designated countries to ensure that investors are protected
against fraud.
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The capital markets consist of the primary market, where new issues are distributed to
investors, and the secondary market, where existing securities are traded
Capital Gain
In finance, a capital gain is profit that results from the sale or exchange of a capital asset
over its purchase price. In other words, a capital gain is the excess of the proceeds of
disposition over the adjusted cost base and any expenses incurred in disposing of the
property.
Capital gains occur in both real assets, such as property, as well as financial assets,
such as stocks or bonds.
Capital Growth
Occurs when the market price of an assed increases in value. Stocks and real estate
are capital growth investments.
Capital Loss
Any excess of the adjusted cost base plus expenses over the proceeds of disposition. If
the price of the capital asset has declined instead of appreciated, this is called a capital
loss
Capital Transactions
Increase or decrease your personal, business or investment assets, such as your
contributions to a retirement savings plan or transactions that affect your debt such as
increasing the balance on your credit card or you mortgage. Capital transactions are not
included in the lifestyle expenditures.
Career Average Plan
A benefit plan that bases a person’s retirement benefit on the average earnings during
an employee’s career.
Carry-forward – The difference between an individual’s maximum allowable RRSP
contribution and the amount of the individual’s actual contribution.
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Cash-Back Policies
A slang term often attached to Indemnity Policies because they pay in addition to other
health care benefits.
Cash Inflow
Cash inflow refers to the net cash amount that flows into a business due to the ongoing
operations of the business. The most common example is revenues.
Cash Management
This is a term used primarily for the routine, day-today administration of cash resources
for larger business customers. It may be used to describe all bank accounts (such as
checking accounts) provided to businesses of a certain size, but it is more often used to
describe specific services such as cash concentration, zero balance accounting, and
automated clearing house facilities. Sometimes private bank customers are given cash
management services.
Cash Outflow
Money paid out to meet current expenses and lifestyle expenditures.
Cash Ratio
Total dollar value of cash and marketable securities divided by current liabilities. For a
bank this is the cash held by the bank as a proportion of deposits in the bank. The cash
ratio measures the extent to which a corporation or other entity can quickly liquidate
assets and cover short-term liabilities, and therefore is of interest to short-term creditors.
Also called liquidity ratio or cash asset ratio.
Cash-Refund Annuity Payout Option
If the annuitant dies before the amount she invested has been paid out by the insurance
company, then the remainder of the invested money, plus interest earned, will be paid
monthly or lump sum to the named beneficiaries.
Cash Value Insurance Policies
These provide permanent insurance for the duration of a consumer's life in exchange for
a specified annual or lump sum premium. Part of the premium goes for the purchase of
insurance protection and part of it creates a cash value. Loans may be taken against
the cash value.
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Ceiling Price
A price ceiling is a government-imposed limit on how high a price can be charged on a
product. For a price ceiling to be effective, it must differ from the free market price. In the
graph at right, the supply and demand curves intersect to determine the free-market
quantity and price.
A price ceiling can be set above or below the free-market equilibrium price. In the graph
at right, the dashed line represents a price ceiling set above the free-market price, called
a non-binding price ceiling. In this case, the ceiling has no practical effect. The
government has mandated a maximum price, but the market cannot be a price that high.
Certified Financial Planner (CFP)
A person who has chosen to acquire additional education in financial planning. Many
CFPs do not sell insurance products, but rather charge a flat fee or an hourly rate for
their services.
Chartered Banks
A chartered bank is an institution whose primary business is financial intermediation,
meaning the bringing together of borrowers and lenders.
Chartered banks offer a range of other financial services to their customers including
cheque clearing, credit cards and safekeeping as well as investment and insurance
services. Banks' profits come from the spread between interest paid to depositors by the
bank and the interest paid to the bank by borrowers.
Banks receive their charters from the federal government under the BANK ACT.
Formerly, banks required a special Act of Parliament in order to receive their charter.
However, since 1980 banks have been chartered by letters patent which is a legal
requirement not requiring special approval by Parliament.
Chattel Mortgage
A document that transfers the ownership of collateral assets to your lender if you default
on your debt.
Clawback
This is the amount of OAS payments that are repaid through a special tax on highincome pensioners.
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Closely Held Corporation
A firm whose shares of common stock are owned by relatively few individuals and are
generally unavailable to outsiders. Also called closed corporation
Codicil
A document that modifies the terms of an original will without requiring the entire will to
be redrafted. Codicils are often attached to the will and are executed according to the
same requirements as the will.
Collateral
Collateral (finance) in finance means a security or guarantee (usually an asset) pledged
for the repayment of a loan if one cannot procure enough funds to repay. Also can be an
exchange for voting rights.
Common Disaster
An event, or a series of events, causing the death of both spouses within a specified
amount of time.
Commuted Value
The commuted value of a pension benefit refers to the amount of money that needs to
be set aside today, at current market interest rates, to provide sufficient funds to pay for
a pension when a plan member retires, i.e., how much a benefit is worth today.
Commuted values express the lump sum value of a promised benefit, usually from a
defined benefit pension plan. The commuted value takes into account the benefits,
interest and mortality. The lower the current interest rates, the higher the commuted
value will be, because it is assumed that the amount today will earn less from now until
retirement; and, conversely, the higher the current interest rates, the lower the
commuted value.
Compound Interest
Same interest rate paid on both the original investment as well as the interest it
accumulates.
Compounding
The process of determining the future value of a payment or stream of payments.
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Comprehensive Financial Plan
Considers all aspects of a client's financial position, needs, objectives and possible
planning strategies in an integrated, coordinated approach.
Comprehensive General Liability Insurance
A broad liability insurance policy designed to protect you from a wide range of liability
risks, including product and professionals liability.
Community Property
Property that is equally owned by two parties, typically a married couple. This means
that assets acquired during marriage are owned jointly and equally regardless of whose
name appears on it.
Comprehensive Coverage
As it applies to health insurance, these types of policies often wrap the benefits of Basic
Hospital Expense policies, Major Medical policies and Excess Major Medical policies into
one, all-encompassing coverage. Comprehensive policies can be expensive, but the
benefits received are extensive.
Consideration
An exchange of values, or transfer of ownership, such as deeds, money, property, etc.
Consumer Loan
A loan for a fixed amount and for a fixed purpose, usually repayable in regular
installments (also called a direct or fixed loan).
Consumer Price Index (CPI)
An index, which measures the consumer prices, experienced by families and individuals
living in urban and rural private households. The changes in the CPI measure price
changes over time by comparing the cost of a fixed basket of commodities.
Contribution
The amount of money the plan member and the employer are required to pay into the
pension plan.
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Contribution Rate
The percentage of the plan member’s salary that the plan member and the employer
contribute to the plan.
Contributory Earnings
All employable earnings above a basic exemption level, up to a ceiling or maximum
yearly level, upon which CPP premiums are payable.
Contributory Period (CPP/QPP)
The period over which CPP/QPP contributions are made, commencing on the later of
January 1, 1966 or a person’s 18th birthday, and ending at age 70 if the individual
decides to continue working.
Contributory Plan
A plan requiring contributions by the employee.
Contributory Service
Number of months the plan member and the employer made contributions to the plan. It
is used to determine eligibility for a pension and whether the pension will be reduced
(and by how much) should you decide to retire before normal retirement age. Plan
members earn one month of contributory service for any month in which, as a full-time
employee, they worked or received income.
Convertible
As it applies to insurance policies, it means a life policy that may be converted into
individual straight life coverage, without a medical exam, within 30 days. It is a definition
that is expected to be found in employee insurance contracts.
Convertible Bond
Some bonds may be exchanged for another type of investment such as common stock.
Co-Operative Insurers
Insurers that provide insurance to members of an association as a benefit of that
association.
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Co-signer (same capacity as Guarantor)
An individual who is equally responsible for debt with the principal debtor, whether or not
the principal debtor defaults on the loan.
Cost Basis
Referring to annuities, it was the past ability to pass on all assets at death income tax
free to the listed beneficiaries.
Cost of Living (COLA)
This rider indexes the basic benefit using some extensive yardstick like CPI or a 5%
adjustment annually. The rider may have a cap (2 X basic benefit) or it may be unlimited
(very expensive). Some companies will boost monthly benefits prior to claim, causing a
corresponding increase in premiums. In addition, the insured may be able, after
recovery; to purchase the “COLA” accumulated benefit, without proving their good
health.
Coupon Rate
The interest rate paid on the par value of a bond.
Co-Trustees
When two or more individuals or entities (such as a bank) have the joint responsibility of
managing a trust.
Creditor’s Insurance
Some lending institutions, such as banks, trust companies and credit unions have
benefits through insurance companies that will pay off loans or mortgages in lump sums
in the event of a debtor’s disability.
Creditor-Proof
Creditors in the event of financial problems cannot seize the money held in one’s
account.
Credit Rating
A historical record of your past credit history, maintained by a credit bureau.
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Critical Risk
This risk could lead to bankruptcy or financial catastrophe.
Currency
The bills and coins issued by the central bank that we use in the market.
Currency Appreciation
An increase in the value of a nation’s currency in terms of another currency.
Current Liabilities
Any present debts payable within one year.
Current Rate
One of the rates quoted in an annual renewable term (ART) policy. It is the lower of the
two rates quoted.
Current Service
Service after the employee becomes a member of the plan previously known as Future
Service.
-DDeath Benefit - CPP/QPP
The lump sum payment under the CPP payable to the spouse or estate of a deceased
contributor.
Debenture
Has the same structure as a bond, but is not secured by assets or property.
Debt Aging or Debt Aging Chart
A way of listing bills in a manner which shows how old the debts are. It allows the
individual to establish a responsible payment schedule.
Debit Card
A method of payment, but not a form of credit. Instead of extending credit, the debit card
is used to withdraw funds from the purchaser’s bank account. The debit card is
physically similar to a credit card, but the user enters their personal identification number
(PIN) into a terminal to authorize the withdrawal from their bank account.
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Declines
There will be a small percentage of applicants who will not be eligible for life or disability
coverage due to medical or non-medical findings. These people present risks, which are
too great to be taken under regular underwriting practices. Individuals with progressive
diseases, recent or scheduled surgery and chronic or current disabling conditions would
be ineligible for disability coverage as would those persons who are found to have
significant non-disclosed medical history.
Decreasing Term Insurance
A popular choice for insuring mortgages, this type of policy has premiums that remain
the same each year. The amount of coverage decreases yearly (along with the amount
owing on the mortgage).
Deductible
A minimum loss specified in an insurance contract, that you must retain before you can
make a claim.
Deduction Limit Statement – The special section in the Notice of Assessment received
from the Canada Customs and Revenue Agency that calculates an individual’s RRSP
contribution limit for the current year.
Default Risk
The uncertainties that the borrower will not be able to pay back the bond or make
interest payments.
Deferred Annuity (or pension)
An annuity or pension the first payment of which is deferred to some future date.
Deferred Pension
A pension payable at a later date, either because the plan member terminates
employment before the earliest date at which the pension may begin, or because the
plan member chooses to have the pension commence at a later date. For example, a
plan member may choose to defer a pension in order to later receive an unreduced
pension.
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Deferred Profit Sharing Plan (DPSP)
A tax-favored arrangement whereby an employer distributes a portion of their pre-tax
profits or a percentage of income to designated employees. Employers do not
contribute their own funds, but money is accumulated in a tax-sheltered account for
them.
Deferred Retirement
Retirement, which commences after the normal retirement date.
Deferred Tax
These plans are designed to protect the unincorporated professional who is disabled
and has a deferred income tax liability to Revenue Canada. Benefits can be paid
monthly after an elimination period of 90 days or in a lump sum after a minimum of 180
days.
Defined Benefit Pension Plan
This type of pension plan guarantees a pre-set lifetime pension after a certain number of
years of service. The better ones include some indexing for inflation. In most cases, the
benefits promised – say, 70 per cent of pre-retirement income – include what you will
receive from CPP and OAS. Usually, you'll have to stay with the company for 35 years
to receive the maximum.
Both the employee and the employer contribute to this type of plan. It's the employer's
responsibility to make sure the plan is properly funded to pay the promised benefits.
Defined Contribution Pension Plan
With this type of plan, the level of payout is not guaranteed. You and/or your employer
contribute a set amount of money each year. Your retirement income is based on how
the pension plan's investments perform. These plans are often not indexed for inflation.
Deflation - The average rate of decrease in prices.
Demand
The relationship between quantity demanded and price of a particular good or service,
holding constant those factors that influence quantity demanded.
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Demand Curve
A graph that illustrates the relationship between the quantity and price.
Demand Loan
A form of credit where the lender has the right to require repayment in full at any time,
which he might do if he becomes nervous about your ability to repay the loan.
Demand Schedule
A table that shows numerically the quantity demanded of a good or service at different
price levels.
Demographics
The characteristics of a human population such as age, sex and income used for market
research, sociological analysis and other such purposes.
Depreciation
Any loss in value due to obsolescence or wear and tear.
Direct Loan: See Consumer Loan.
Direct Costs
Actual dollars that must be spent.
Direct Financing
This occurs when funds flow directly from a saver to the borrower.
Disability Insurance
Insurance that is designed to replace earned income in the event that accident or illness
prevents you from pursuing your livelihood.
Disability Pension - A pension benefit payable to disabled plan members who meet the
eligibility criteria established by the relevant pension plan.
Discount Rate
The interest rate used in the discounting process.
Discounting
The process of finding the present value of a payment or stream of payments.
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Disposable Income
Is defined as the total consumer income less taxes and government transfers.
Diversification
The process of spreading out risk in a portfolio by including investments with many
different levels or risk and return potential.
Diversified Funds
Also known as Balanced Funds, this type of fund invests in a mix or stock, bonds, and
short term investments and it adjusts the percentage held in each area depending on
current market conditions.
Dividends
This is the method by which any net profits are distributed to shareholders of a
corporation.
Dividend Gross-Up
Adjustment to dividend amount used to calculate tax credit. Dividends paid by Canadian
corporations are subject to a dividend gross-up of 25%. There is a combined federal
and provincial tax credit of about 25% on the amount of the dividend. The dividend
gross-up is the amount added to the actual dividend when calculating the dividend tax
credit.
Dividend Reinvestment Plan
A plan that allows shareholders to purchase more shares from dividends rather than
receiving the dividend as income.
Dollar Cost Averaging
A method of obtaining investments by purchasing a certain dollar amount of investments
at regular time intervals.
Domicile
This is the official residence of an individual. The province of domicile determines under
which provincial laws the deceased’s estate will be probated upon death.
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Double Indemnity Riders
Another name for accidental death riders. Such riders often pay twice or three times the
face value if death is due to an accident that fits the terms of the policy.
Dread Disease Policies
This type of health policy has lost its momentum in recent years, but there was a time
when they were very popular. Another name for Critical Illness Insurance.
Duplicate Benefits
When two or more policies pay benefits for the same medical expense. How the claim
will actually be paid depends upon the terms of the contracts.
Durable Power Of Lawyer
The word "durable" should be noted in this term. A legal instrument names another
person to act on behalf of the grantor. This document is created while the grantor is fully
competent and not under any undue stress. It activates only when the grantor becomes
incompetent, not before.
-EEarly Retirement
Retirement, which commences before the normal retirement age.
Earned income – For RRSP purposes, earned income is the annual total of:
employment income, net rental income, net income from self employment, royalties,
research grants, alimony or maintenance payments, disability payments from CPP or
QPP and supplementary UIC payments.
Earnings Per Share
This is calculated as the after-tax income for a corporation divided by the number of
outstanding common shares.
Economics
The study of how people use scarce resources to satisfy unlimited wants.
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Economics of Scale
The possibility of spreading out costs among a greater number of transactions, inputs,
etc. that reduces the overall costs of production. Through financial intermediaries, the
cost of issuing loans is greatly reduced.
Efficient Market
The market in which all the available information has been analyzed and is reflected in
the current stock price.
Employer Reporting - On a regular basis, employers covered under the pension plans
submit reports of their employees' personal and pension-related data, along with
payment of both employee and employer contributions, to the Pensions Administration
Division.
Eligibility
The conditions that an employee must fulfill before he or she can become a plan
member.
ENDOWMENT POLICY
A form of whole life policy, the face amount is paid to the policyholder (endowed), if still
living on a specified date, or to the beneficiaries if the insured has died.
Entrepreneur
This individual is a confident risk-taker who having confidence in his or her own
decisions may be somewhat difficult to advise.
Equilibrium
A condition that satisfies the decisions of both consumers and producers. Equilibrium is
a state of rest in the economy where demand and supply are in balance or equal to one
another.
Equity
Any ownership interest; excess of total assets over total liabilities.
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Equity Funds
Invests in the stocks of companies traded on the stock markets.
Equity Markets
These markets trade in common and preferred shared of corporations.
Equity Ratio
The ration of nets assets (i.e. assets minus liabilities) total assets. The equity ratio for
your liquid assets and short-term debts provides a measurement of your ability to pay
shout0term obligations as they become due.
Estate
The total wealth or net assets an individual accumulates over a lifetime.
Estate Planning
The name of the process required to create, conserve and transfer an individual’s assets
in preparation for death or disability.
Estimate - An estimate of your future benefit entitlement. As these estimates cannot
account for future changes in your employment status, changes in legislation and other
factors, the estimates are not guaranteed. No money is paid out on the basis of these
estimates.
Evidence Of Insurability
Proving to an insurance company that an applicant is medically insurable. This may be
done by a physical examination or simply by filling out a medical questionnaire,
depending upon the desires of the insurance company and their underwriters.
Sometimes it depends upon the type of policy being applied for which avenue is desired.
Excess Major Medical
This type of health care policy picks up where the standard major medical policy stops.
It is often coupled with a group health plan that is deemed by the insured to be
insufficient.
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Exchanges
An organized market for buying and selling financial securities, such as the Toronto
Stock Exchange.
Exchange Rate Risk
The uncertainty that a rise in the foreign exchange rates of a domestic currency will
cause the value of investments in foreign currencies to fall.
Exclusions and Extra Premium
Not all conditions can be handled with exclusions. Certain conditions involve multiple
symptoms or may be prone to complications that would go beyond the scope of the
exclusion. In some cases, a combination of extra premium and exclusion may be used.
Executor
The person or organization appointed in a will to carry out the terms of the will.
Executrix
The female form of executor, it is the person named in the will to take over and manage
the estate during probate proceedings.
Expansion
This phrase is used in the business sector when economic growth increases.
Expenses
This is the cost of earning revenue.
Experience Deficiencies
Under funding of plans resulting from plan fund earnings less than that assumed by the
plan actuary.
Exports
The goods and services that are sold to another country.
Extended Health Care Benefits
Insurance coverage that is designed to cover medical expenses that are not covered by
your provincial health plan.
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Extra Premium Rating
Whenever possible, the first consideration is to offer the benefits requested and use an
extra premium. An example of an extra premium could be an extra 20% premium. Any
history requiring less than this increase would be approved on a standard basis.
The use of an extra premium allows the insured to have the coverage and therefore the
protection being sought after.
-F-
Family Trust
An inter vivos trust established with family members as beneficiaries.
Farm Marketing Boards
The farming boards that intervene in the agricultural sector with the intent of stabilizing
the prices of agricultural products.
Financial Counselor
This Professional deals with specific short term and immediate financial problems. They
may concentrate on budgeting or money management. A planner may look at shortterm goals, but also may concentrate on long-term objectives.
Financial Intermediaries
A firm that acts as the go-between for savers and lenders. They receive deposits from
consumers and businesses and make loans to other consumers and businesses. They
increase the productive use of invested funds.
Financial Planners
Provides expertise in assessing clients’ current position. They establish long and shortterm goals and the strategies to achieve current and future goals.
Financial Specialist
A professional planner who specializes in a single area of personal financial planning,
such as investment planning, tax planning or retirement planning.
First Day Hospital
Elimination Period eliminated if disability results in hospitalization. Benefit paid on a per
diem basis. (1/30 of monthly benefit per day).
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Fiscal Policy
The attempt of the government to influence economic activity by altering spending or
taxes.
Fixed Loan:
See Consumer Loan.
Flat Benefit Plan
A defined benefit plan that pays a flat rate benefit, regardless of earnings, based on
years of service.
Floor Price
A minimum allowable price regulated by government.
Follower
This individual is very impulsive and will often veer off a recommended course to plunge
into the latest investment scheme. Quite insecure and any market change elicits
concern.
Foreign Exchange Market
An organized market that trades one currency for another.
Fiduciary Duty
The fiduciary duty of care calls for complete loyalty and fidelity to the client. It is inferred
from the special relationship of trust between the client and the professional.
Financial Planning
The process of setting future goals and acting in a manner that accomplishes them.
Financial planning is never about the products sold. It is the act of mapping out a
financial plan.
Financial Risk
This is the uncertainty that a company will fail to meet expected financial goals and
provide a lower rate of return than anticipated.
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Foreign Investments
These investments can be in the form of stocks and/or bonds of non-Canadian
companies. Canada Revenue Agency allows a maximum of the “book” value of an
individual’s contributions to be deducted to foreign investments.
Fraudulent Conveyance
A transfer of an asset in an attempt to avoid legal seizure or consequences.
Full Exclusion Rider
The use of exclusion riders has been recognized as necessary in disability income
underwriting when an applicant has a relatively specific condition, which causes an
increased risk of future disability. This history may be chronic or severe in nature, may
recur or may require future surgery in some cases.
Full-time Employee
An employee who works the number of hours which constitute full-time employment as
determined by a particular employer.
Future Insurability (F.I.O., G.I.O)
This benefit enables the policyholder to purchase a stated amount of benefit at stated
intervals, after issue and before a certain maximum age and/or a maximum amount.
E.g. $500 per year, to maximum of age 55 and 2 X basic benefit. The applicant is not
required to qualify medically (guaranteed issue), but may require increased income to
qualify.
Future Value
The amount to which a sum or annuity grows over a given period at a certain interest
rate.
-GGift
This asset is transferred without legal consideration. If the grantor and beneficiary are
non-arm’s length, the grantor may have to pay an assessed capital gain on the fair
market value of the gift.
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Goods and Services Tax Credit
Is a tax credit introduced to help low income families compensate for any increase in
living cost resulting from the Goods and Services Tax (GST). Most secondary students
do not have significant income and are eligible for the tax credit worth about $300 per
year.
Grace Period
The act does not require the insurer to provide a grace period in which to pay premiums
due. It is commonplace in today’s world that most insurers will allow a thirty-one day
grace period.
Grantor
The person who establishes and transfers assets to a trust; can also be known as the
settler.
Group Insurance
A form of insurance designed to insure classes of persons instead of specific individuals.
Group RRSP
This type of plan is growing rapidly in popularity as an option for companies wanting to
offer pension plans to their employees. It's essentially a collection of individual RRSPs
administered by one financial firm that has entered into an agreement with an employer.
There is very little cost to the employer, so it's a cost-effective way to offer a pension
plan.
Some employers make contributions subject to certain conditions – like the money
remains in the plan for a certain period of time. Often it's up to the employee whether to
take part.
Gross Debit Service Ratio (GDR)
The Gross Debt Service ratio is one of the formulas used to measure your ability to carry
debt.
It is calculated as:
Annual Mortgage Payments + Annual Costs) /Gross Annual Income = GDS
As a rule, your GDS ratio should not exceed 25% to 32% of your gross income.
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Gross Domestic Product (GDP)
The Value of all-final goods and services produced in the economy in a given year.
Gross Income
Income before taxes including wages, income from investments, monetary gifts and
liquid assets.
Growth Funds
Allows investors to participate in stock market oriented investments, which have shown,
over long periods, to outperform other types of investments.
Guarantor
A third party that agrees to repay any outstanding balances on your loan if you fail to do
so. A guarantor is responsible for the debt only if the principal debtor defaults on the
loan.
Guaranteed Income Supplement
This is the amount payable to low income earners who are in receipt of the OAS.
Guaranteed Investment Certificate (GIC)
A certificate or term deposit, which fully guarantees the interest and the return of capital
at maturity.
Guaranteed Rate
One of the rates that is generally quoted in an annual renewable term (ART) policy. The
insurance company will have the right, after a stated period, to charge this higher rate if
they have had adverse mortality experience or if their investment yield worsens.
-HHazards
Acts or conditions that could increase the likelihood of a peril or the severity of a loss.
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Home Buyers' Plan (HBP)
The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds from your
registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself
or for a related person with a disability. You can withdraw up to $25,000 in a calendar
year.
Your RRSP contributions must remain in the RRSP for at least 90 days before you can
withdraw them under the HBP, or they may not be deductible for any year.
Generally, you have to repay all withdrawals to your RRSPs within a period of no more
than 15 years. You will have to repay an amount to your RRSPs each year until your
HBP balance is zero. If you do not repay the amount due for a year, it will have to be
included in your income for that year.
Household Income
The income for a household unit typically consists of an individual or couple plus any
children or other financial dependants who live together.
-I-
Immediate Pension
A pension payable the first of the month following the month in which a plan member
retires. Disability pensions are payable with effect from the expiration of sick leave.
Imports
The goods and services bought from foreign countries.
Inactive Plan Member
Plan member who has terminated employment and left his or her contributions on
deposit in the pension plan to take a benefit, usually a pension, at a later date.
Income
This is the excess of any revenue over expenses.
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Income Attribution
Is a process specified under the Income Tax Act where certain investment income may
be deemed taxable to a person other than the recipient, if the investment income was
the result of certain transactions between family members.
Income Funds
For security oriented investors, these funds provide good interest returns with lower risk
or volatility than most growth funds.
Income Splitting
By contributing on behalf of your spouse, you can reduce your combined taxes even
after retirement. If your spouse is in a lower income tax bracket, the retirement income
received in your spouse’s name will be taxed at your spouse’s lower tax rate.
Income Statement
This statement shows revenues, expenses, and net income (profit or loss) for a specified
period.
Incontestability
The insurer because of misrepresentation of facts cannot cancel a contract, after it has
been in force for two years, unless fraud has been committed, or unless a misstatement
of age has occurred.
Indemnity Policies
Often referred to as Cash-Back policies, it refers to a method of claim payment based
upon a "set" amount per day, per injury or per schedule within the policy.
Indenture
The documentation of a legal agreement on the rights of the bondholder.
Indexing - Increases to monthly pension amounts based on the annual increase in the
cost of living. Once your pension payments have begun, and you have attained age 65,
the lifetime portion will be adjusted each October by up to 60% of the increase in the
Canadian consumer price index. These cost of living adjustments begin the first
October after you reach age 65. If the cost of living decreases, the pension amount
remains the same –– it does not decrease.
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Indirect Financing
The process in which funds flow from savers to financial intermediaries and then to
borrowers.
Individual RESP
Is an RESP which investment earnings on the funds are segregated and used to provide
funds for a single or small number of beneficiaries designated by the subscriber. Also
known as a Non-Pooled RESP and Self-Directed RESP.
Inflation
The term is used to describe rising prices of goods and services within an economy,
usually measured in the Consumer Price Index. (CPI).
Inflation Indexes
The problem with a fixed level of benefit is that de to inflation, the longer a disability
continues, the less the benefit is in relation to the ongoing earnings. Frequently this will
be addressed by a clause that indexes the pre-disability earned income, causing the
residual benefit to also increase, offsetting the effects of inflation. A yardstick
measurement, such as the C.P.I. index is used to adjust the increase.
Inflation Risk
The uncertainty that the return on investment will be low enough to result in a negative,
real, after-tax rate of return; a situation described as a decrease in purchasing power.
Information Statement
The following statement must appear on a policy form, and application form, every
advertisement, brochure and any other piece of sales literature that illustrates the cost of
insurance for a specific type of contract.
For policies of this type, the insurer anticipates that ____% of the premium will be
required for claims. This is not a contractual obligation.
Insolvent
You are insolvent if you have debt obligations in excess of $1,000 and are unable to
meet your obligations as they come due, have ceased making payments, or have debts
due and accruing, which exceed the value of your assets.
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Insurance
This is a formal method of sharing or transferring a risk from a single individual to a
group, by providing a basis for all losses to be shared on an equitable basis by all
members of the group.
Installment Loans
Consumer Loans (also known as direct credit or fixed credit) usually involves a fixed
sum repaid over a fixed period. They usually are obtained through banks, trust
companies, credit unions or loan companies.
Insurable Interest
An applicant has to have insurable interest in the contract when it is issued.
Interest
Use of credit always attracts interest (rental fee for the use of other peoples money).
Monthly payments therefore are composed of part repayment of principal and part
interest payments. IF we can repay debt and operate on a cash basis, this will increase
the money available for our other financial strategies.
Intermediate Goals
Generally a financial goal that takes at least three years to complete.
“In Trust For”
The designation specified when an account is established for another as beneficiary
usually for a minor.
Inter Vivos Trust
Is a trust established between living persons, usually to pass assets to your
Beneficiaries. Often referred to as a living trust.
Intestate
A person is said to have died intestate when they die without a will. The estate of the
deceased is then subject to the provincial statues governing intestacy.
Investment Income
The money paid, either as interest or dividends on an investment, to the investor.
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Investment Mix
Allocating deposits to different investment options.
Investment Strategy
The method used to select which assets to include in a portfolio and to decide when to
buy and when to sell those assets.
-JJoint and Last Survivor Annuity
An annuity payable to two people, usually spouses, during their lifetime, as well as
during the life of the survivor after the first annuitant dies.
Joint Tenancy
This is a method of property ownership in which two or more people hold an undivided
interest in property. When one of the people dies, the full title of the property passes to
the surviving tenant or tenants, instead of the deceased tenant’s heir or assigns.
Joint Trusteeship - With respect to pension plans, means that the management of a
pension plan is shared between the representatives of both plan members and plan
employers.
-KKey Person
These disability policies are designed to compensate an employer for a financial loss
due to the disability of a key employee. These plans pay benefits based on proof of loss
or on a percentage of the employee’s income usually for a period of no more than a
year.
Know Your Client Rule
This is the given rule that recognizes the fiduciary duty of the investment advisor to
understand the client’s investment objectives and make appropriate recommendations
for investments.
Knowledge Worker
Term coined by author and visionary, Peter Drucker. Refers to the highly skilled and
experienced people who seek and create temporary work rather than permanent jobs.
The increase in the number of knowledge workers is a result of corporate downsizing
and rapid technological change.
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-LLabour Force
The total number of employed and unemployed workers.
Ladder Approach
This is the method that involves purchasing several investments, each with a different
maturity date, to reduce inflation, interest rate and default risk for fixed income
investments.
Law of Demand
As prices of a good or service falls, quantity demanded rises.
Law OF Supply
As prices of a good or service rises, quantities increase.
Leave of Absence - An employer approved absence from duty, with or without pay.
Liabilities
A financial obligation of debt.
Liability Risk
The risk that the legal system may assess punitive damages against you if property
damage or person injuries can be attributed to your carelessness or negligence.
Lien
The legal claim of one person upon the immovable property of another person for the
payment of a debt or the satisfaction of an obligation.
Life Annuity
An annuity that guarantees continued payments to the annuitant, regardless of how long
the annuitant lives.
Life Annuity with a Guaranteed Term
This type of annuity has a special clause that guarantees payments will continue for a
specified period, even if the annuitant dies before the end of the term.
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Life Income Fund (LIF)
An account set up to hold pension plan monies while allowing added flexibility over an
annuity (similar to a RRIF).
Life Insurance
This is a contract between you and a life insurance company that specifies that the
insurer will provide either a stated sum or a periodic income to your designated
beneficiaries upon your death.
Lifestyle Expenditures
The cost you incur to sustain your lifestyle, including the money you spend on housing,
food clothing, household expenses, transportation, insurance, entertaining and gifts.
Also included are the interest charges associated with financing a major capital
purchase such as a house or a car. Lifestyle expenditures do not include income tax
expenses or any capital transactions.
Lifetime Injury or Sickness
This benefit sometimes issued as an “accident” only benefit providing for an extension of
the basic benefit if disability occurs before age 65. It may provide for a reduced benefit if
disability occurs after age 50 or 55.
Lifetime over-contribution limit - You are allowed to exceed your RRSP contribution
limit as long as you don’t exceed the lifetime maximum over-contribution limit of $2,000.
If your over-contribution is more than this, the Canada Customs and Revenue Agency
will charge you a penalty tax of one per cent of the excess per month as long as it
remains in the plan.
Limited Member
A spouse or ex-spouse of a plan member, who has been designated, as the result of a
marital breakdown, as a "limited member" and is entitled to a portion of the plan
member's pension benefits.
Limited Period Exclusion Rider
This exclusion places a specific elimination period on a particular condition, but it
provides full coverage after the specific elimination period is met. In many cases, this
elimination period is longer than the elimination period on the basic policy.
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Liquidity
The ease by which an asset can be quickly bought or sold without adversely affecting its
price.
Liquid Assets
Used as collateral to secure a loan may be in the form of possessions such as a car etc.
Liquidity Planning
This term ensures that enough cash or cashable assets are available to meet the
estate’s debt commitments.
Locked in Benefits
Benefits which by law may not be withdrawn in cash before or at retirement.
Locked-in Retirement Account (LIRA) - If you leave an employer prior to retirement,
you may be entitled to pension credits from contributions made to a registered company
pension plan while you were employed. Rather than leave these funds under company
management, you may choose to transfer your pension credits to a Locked-in
Retirement Account (LIRA), also known as a Locked-in RRSP. Generally speaking,
funds in a LIRA may be invested in the same way as an RRSP. Like an RRSP, a LIRA
matures at the end of the year in which the holder reaches age 69. At that time, you
must convert your LIRA to a Life Income Fund (LIF), Locked-In Retirement Income Fund
(LRIF) (in Alberta, Saskatchewan and Manitoba only) or life annuity. You may not cash
in your plan or take out a lump sum.
Locked-in RRSP
This is an RRSP with the funds having been provided from a Registered Pension Plan.
Locked-In Retirement Income Fund (LRIF)
This RRIF is designed to provide a life income for the beneficiary by restricting the
maximum withdrawals from the plan based on the investment earnings from the plan
based on the investment earnings of the LRIF. Currently only available in Alberta and
Saskatchewan.
Long Term Liabilities
Present debts not payable for at least one year.
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Loss
A negative income.
-MMarriage Contracts
An agreement between spouses either before or during marriage which could cover a
wide range of topics including ownership of assets brought into the marriage, subject to
any restrictions in the provincial family law.
Marital Breakdown
For pension purposes, this means a relationship breakdown between spouses. (See
Limited Member)
Marginal Tax Rate - The ratio of the increase in tax to the increase in the tax base (i.e.
the tax rate on each additional dollar of income). A single individual earning $40,000
who experiences a $1,000 increase in income and has to pay an additional $452 in
income tax has a marginal tax rate of 45.2 per cent ($452 divided by $1,000). (Source:
Department of Finance Canada)
Market
Any arrangement where the buying and selling of goods and services takes place.
Marketability Risk
The uncertainty of there is being a buyer for an investment.
Market Risk
The uncertainty of economic, social or political events that would result in an investment
having decreased value. Since these events usually affect the entire market, market risk
is called systematic risk.
Market Timers
Look to buy and sell stocks at the most profitable time in the market cycle.
Market Value
The value at a particular date, assuming the certificate is liquidated before maturity.
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Material Facts
All material facts must be disclosed. Misrepresentation of a fact will make the contract
voidable by the insurer. The smoker issue is a good example of this.
There is a two-year time limit for voiding the contract from the date of issue, renewal or
reinstated. After that period, the insurer is bound by the contract except in the case of
fraud.
Maturity Date
The time at which a debt instrument expires or comes due.
Misstatement of Age
If an age of the insured has been misstated, the insurer can increase or decrease the
benefits payable under the contract to an amount that would have been purchased for
the same premium at the correct age, or they can adjust the premium accordingly.
Monetary policy
The attempt by the central bank to control inflation and the value of the dollar and to
manage the business cycle by altering the supply of money and interest rates in the
economy.
Money
A medium of exchange or a measure of value that you can use to pay for goods and
services and to settle debts.
Money Market Funds
Invests in short term investments and is generally the least risky of the market-related
funds and offers the lowest positive returns.
Morale Hazard
Hazards that relate to the general attitudes and habits of some individuals that increase
the likelihood of a peril.
Mortgage Funds
Invests in commercial l and industrial mortgages, diversified by type and location.
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Mutual Fund
Is a professionally managed pool of investments which provide an individual investor
with an opportunity to invest in the stock market or other areas without the responsibility
of making specific investments.
-NNet Worth
The difference between assets and liabilities.
No-Fault Insurance
This is a government-mandated insurance policy designed to provide automatic
compensation for automobile accident victims, regardless of who is to blame.
Non-Contributory Plans
Plans under which employees are not required to contribute.
Non-registered investments - Non-tax sheltered investments, or those on which
earnings are recognized as income in the year they are earned and taxed according to
Canada Customs and Revenue Agency regulations.
Nominal GDP
The value of final goods and services at current market prices.
Non-contributory Service - Period of time worked, for an employer designated under a
pension plan, without making pension contributions.
Non-Refundable Tax Credit:
Can only be used to reduce federal tax payable to zero dollars, not create a negative
amount to be refunded.
Non-Registered Funds
Money that is deposited with after-tax dollars and is not invested in registered taxsheltered vehicles such as RRSP’s. Income earned by the funds is taxed annually –
even if the Investment earnings are not actually withdrawn.
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NSF
Non-sufficient funds. A cheque is considered NSF when there are insufficient funds in
the drawer’s bank account to cover the amount on the cheque.
-OObligee
This refers to the second person in a bond. The first party, the surety, agrees to answer
to the obligee for the default, failure to perform, or dishonesty of a third party, who is
referred to as the principal.
Objective
A position or financial state you wish to achieve. Well-defined objectives are critical to
the success of any money management plan because they provide your plan with a
sense of purpose and a benchmark against which you can measure your progress.
Offset Integration
Adjustments to contributions and benefits to provide total retirement benefits from both
private and public plans remain constant.
Old Age Security
This program is set up by the government to ensure an adequate level of income,
regardless of past employment income, for retired individuals. OAS was first started in
1951.
Opportunity Costs
Money or income that is forgone because of missed opportunities.
Option Agreement
An agreement, which provides for an option to be granted to specified persons to
purchase another party’s holdings in the prescribed event of death, disability, etc. Such
an agreement would specify the terms of the purchase and a time limit for the option to
be exercised.
Ordinary Annuity
A series of equal payments over a fixed number of years where the payments are made
at the end of each period.
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Overcontribution allowance
An amount (up to $2,000) of excess contributions permitted to a registered retirement
savings plan (RRSP) to provide a margin of error for overcontributions without incurring
a penalty tax of 1% a month.
Overhead Expense
These policies are reimbursement contracts. That is, they reimburse the disabled
professional or businessperson for actual business expenses while disabled. An
example of this would be a business owner who has his or her own office with staff. If
this person where to become disabled, rent, salary for the staff members and other office
costs must be paid. Overhead expense policies will cover these ongoing costs.
Over-the-counter Market (OTC)
A secondary market where dealers hold an inventory of securities that they sell “overthe-counter” to anyone willing to accept their prices.
Own Occupation
Unable to perform the important duties of one’s own occupation (trained and educated
specifically) and not gainfully employed in any other occupation.
-PPartial Disability
Loss of some functions will provide 50% of the total disability income provided by the
contract.
Passive Investment Strategies
This process uses a selected portfolio mix that is re-balanced only after a financial goal
is met or securities mature.
Past Service
Service before the employee becomes a member of the plan or before a date to which
plan benefits are to be increased in the case of a plan improvement.
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Past Service Pension Adjustment (PSPA) Statement
The difference between the sum of pension adjustments actually reported and the sum
of pension adjustments that include any increased benefits from the purchase of post1990 service. (See Pension Adjustment (PA) Statement)
PBA
See Pension Benefits Act
Pension
A lifetime semi-monthly income paid by your pension plan.
Pension Adjustment
If you're a member of some kind of employer-sponsored pension plan (except group
RRSP), there will be a pension adjustment on your T-4 slip. Check Box 52 for the
amount.
This figure is an expression of the value of your pension plan – and it reduces what you
can put into your own RRSP.
The government allows you to put 18 per cent of your pre-tax income into an RRSP
every year, to a maximum of $15,500 (2004 tax year). If your pension adjustment is
$9,000, you can contribute $6,500 to your RRSP.
The pension adjustment is designed to allow people to build similar retirement funds
whether they're part of a pension plan or have to do it all on their own.
Pension Adjustment Reversal (PAR)
A calculation done to reflect restored RRSP contribution room for the years for which
pension contributions have been refunded.
Pension Adjustment (PA) Statement
An annual statement received before the last day of February from your payroll office.
The Pensions Administration Division reports the PA amount to Canada Customs and
Revenue Agency.
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Canada Customs and Revenue Agency uses this amount, along with information from
your previous year's tax return, to calculate your individual RRSP contribution limit for
the following year. (See Past Service Pension Adjustment (PSPA) Statement)
Pension Benefits Act (PBA)
The provincial statute designed to protect the interests of pension plan members of
Newfoundland and Labrador. The PBA sets minimum standards for pension plans in
areas such as eligibility, vesting, portability and disclosure to members and sets out
rules for the solvency and investment of pension plans.
Pension Formula
The formula used by a pension plan to determine the amount of the retirement pension
benefit.
Pension Fund
Trust fund in which your contributions and your employer's contributions accumulate and
are invested to pay for current and future pension benefits.
Pension Trust
A trust established for receiving irrevocable contributions from an employer for funding a
pension plan.
Pensionable Earnings
The portion of a plan member's total earnings upon which contributions are based and
the pension benefit is calculated (e.g., regular earnings, excluding overtime).
Pensionable Salary
Portion of your salary that is used to calculate your pension contributions and Best Five
Year Average.
Pensionable Service
Service credited for pension purposes. Plan members earn one full month of
pensionable service when they work at least one day per month. Pensionable service is
used to determine the amount of a commuted value and a pension.
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Pensioner
See Retired Plan Member
Per Capita
The death proceeds of a contract or policy are divided equally among the living
beneficiaries.
Per Stirpes
The death proceeds of a contract or policy are divided equally among the named
beneficiaries. The share of any deceased named beneficiary is then distributed to his or
her living descendants.
Perils
The actual causes of loss.
Personal Financial Planning
A process that involves examining a client's financial and personal circumstances,
defining realistic objectives and developing and implementing strategies for achieving
those objectives.
Personal Identification Number (PIN)
A security code known only to the bankcard holder and used to access online financial
services.
Personal Risks
Risks that can result in the reduction or elimination of your ability to earn income.
Physical Hazards
Hazards that result from some physical property, such as location, the presence of
inflammable materials or a broken security system.
Plan Member - See Active Plan Member, Inactive Plan Member, and Retired Plan
Member.
Pooled RESP
Is an RESP in which the investment earnings on the funds contributed by a group of
subscribers are allocated only to those beneficiaries who pursue a post-secondary
education. Also referred to as an education trust, a scholarship trust or a group RESP.
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Portability
Refers to the ability to transfer the accumulated pension benefits of a plan member to
another pension plan or to a locked-in RRSP when an employee retires or changes jobs.
Portfolio
The holdings of securities by an individual or an institution.
Portfolio
This is a selection of investments designed to achieve a client’s investment objective
especially of return and acceptable risk.
Power Of Attorney
A written legal document in which the principal appoints another person to manage his /
her affairs under certain specified circumstances such as incapacitation.
Pre-authorized Chequing Arrangement (PAC):
An arrangement you can make with your bank to remove a pre-determined amount from
your account at regular intervals and place it elsewhere. This method is a convenient
means of saving.
Preferred Shares
A class of capital shares that pays dividends at a specified rate and that has preferences
over common shares in the payment of dividends and the liquidation of assets.
Preferred shares do not ordinarily carry voting rights.
Premium
This is the price that a person pays for insurance.
Present Value
The value today of a future payment or receipt. The present value is the discounted
value of future payments.
Presumptive Disability
Even though the insured is not completely disabled, they are “presumed” to be so if they
loose the use of speech, hearing, sight or two limbs.
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Price Level
The average price as measured by a price index.
Principal Beneficiary
The spouse of an active plan member, inactive plan member or retired plan member, or
where an active plan member, inactive plan member or retired plan member has a
cohabitating partner, his or her cohabitating partner.
Primary Market
A financial market where new issues of a security are offered.
Principal
This term refers to the third party in a bond.
Probate
This process is used to make an orderly distribution and transfer of property from the
deceased to a group of beneficiaries. The probate process is under court supervision of
property transfers, filing of claims against the estate by creditors and publication of a last
will and testament.
Professional Liability Insurance
A form of public liability insurance designed to indemnify practicing members of a
profession from losses payable to patients or clients arising from their negligence in
carrying out their profession.
Profit
This is a positive income.
Property Risk
The risk that something that you own will be stolen, damaged or destroyed.
Prospectus
A document that contains detailed information on the nature of an investment. It also
includes the investor’s rights and the borrower’s obligations and any other information
useful to the investor.
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Protection Against Creditors
The law in this case is the same as for Life contracts, the death benefit belongs to the
beneficiary and cannot be attacked by the creditors of the insured. The beneficiaries do
of course have to be of the preferred class. Caution should be taken here, as each case
is looked at individually.
Public Assistance
This term refers to government administered programs that are designed to ensure
social adequacy where the costs of the program are the responsibility of society as a
whole.
Public Liability Insurance
Insurance that is designed to indemnify you of losses that arise out of negligence in your
work or volunteer activities.
Purchasing Power
The amount of goods that can be purchased for a given dollar amount.
Pure Risk
The risk that has no opportunity for gain.
Put-Call Agreement
A buy-sell agreement, which permits any shareholder, or their estate, to offer to sell
shares at a set price and on set terms at any time and for virtually, any reason. The
other shareholders then have the right to purchase these shares on those specified
terms or to sell their shares to the offeror at the same price and on the same terms.
-QQPP
Quebec Pension Plan. Pretty much a mirror image of the CPP, except it's run by
Quebec. If you started your working life in Montreal and wrapped it up in Yellowknife,
you'd get the same benefit as if you had spent every working day in either city.
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Qualified Condition Exclusion Rider
The qualified condition exclusion is a step beyond the limited period exclusion. It
provides benefits for a specific named impairment showing the elimination period,
benefit period and indemnity payable for the particular condition. It may also extend or
limit coverage under various benefit riders.
Qualifying Period
Originally, a residual benefit would not be paid until after total disability had taken place
and recovery was being made. Most policies for 4A and 5A can have a reduced or
eliminated (0 days) qualifying period, thereby removing the need for total disability to
qualify. This can apply to residual or partial benefit.
Qualitative Information
Represents the data that describe a client's financial position including information on
assets, liabilities and income.
Quantity Demanded
The amount of a good or service consumers are willing to buy in a given year at a given
price.
Quantity Supplies
The amount of a good or service producers are willing to sell in a given year at certain
prices.
Quantitative Information
This term represents the data that describe a client’s financial position including
information on assets, liabilities and income.
Quick Assets
Current assets less inventories and prepaid expenses.
Quick Ratio
Ratio of quick assets to current liabilities.
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-RReal GDP
The value of a final goods and services at prices prevailing in a base year. This
removes the effects of inflation.
Real Return
The return on an investment that has been adjusted for tax and inflation.
Receiving Order
A court order made in response to a petition from your creditors that effectively vests
your property to a trustee, who will administer your estate in accordance with the
Bankruptcy and Insolvency Act.
Recession
This term refers to the time in the business cycle in which the pace of economic growth
slows. Real GDP falls for two consecutive quarters to be recorded as a recession.
Reciprocal Transfer Agreement - Means an agreement between two or more plans
under which service with any party to the agreement will be recognized for purposes
such as:
1. satisfying minimum service requirements for plan participation;
2. fulfilling minimum service requirements for benefit entitlement;
3. preventing a break in continuous service or
4. accruing pension service credits.
The agreement provides for the transfer of an appropriate sum of money from the
pension fund of one employer directly to the pension fund of another, to fund benefits of
an employee who leaves the first employer to enter employment with the second.
Recurrent Clause
If the disability reoccurs within six months, the claim resumes as if no recovery had
taken place. After six months, the recurrent or new disability will require a new
elimination and benefit period.
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Reconsideration of Current Decision
Each case is given the best decision that the facts permit at the time. Reconsideration
of an underwriting decision is only possible when there has been a significant change
since the original decision. Many companies will not reconsider current underwriting
decisions unless the written request is supported with specific details and new
information that may alter the facts that were made available at the time the decision
was originally made.
Reduced Pension
If you apply for an early pension but you do not meet the minimum age plus service
requirements, your pension will be reduced.
Refund of Contributions - Cash refund of your past contributions to the plan, plus a
legislated amount of interest.
Registered Bonds
Bonds that are owned by the person who is registered as the owner. The registered
owner may only sell registered bonds.
Registered Education Savings Plan – RESP
Is a savings education trust as established under special provisions of the Income Tax
Act which provides that the investment income is not taxable until the funds
are paid to a student for designated educational expenditures and then it is taxable to
the student, not the subscriber.
Registered Pension Plan (RPP)
A formal arrangement where an employer provides retirement income to
employees.
Registered Retirement Income Fund (RRIF)
Money that is accumulated in an RRSP that is used to purchase a RRIF that allows
flexibility for money being paid out as retirement income.
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RRSP
Registered Retirement Savings Plan. These have been around since the late 1950s but
only started to gain popularity in the late 1970s when the rules were changed making
them a more attractive way to save for retirement.
An RRSP allows you to shelter some of your income from taxes. Your taxable income is
reduced by the amount you put away each year. That lowers your tax bill and leaves
you with a healthy tax refund. The money inside the RRSP grows tax-free and is only
taxed when you withdraw it – normally, after you retire when your income is lower and
you're taxed at a lower rate.
You don't have to wait until you're on your rocker to dip into your RRSP. You can also
use it to buy a house, further your education or get through tough financial times.
Regular Occupation
Unable to perform the occupation used currently to earn a living and not gainfully
employed in other occupation.
Regular Interest Bonds
Canada Savings Bonds that pay interest annually and are therefore non-compounding.
Also known as “R” Bonds.
Rehabilitation Clause
Early return to work can be encouraged by use of rehabilitation services and it is in the
Insurer and the Insured’s best interest for the Insurance Company to pay for the service.
Reinstatement
The Act does not provide for the insurer to allow the insured the right to reinstate the
contract once it has lapsed for nonpayment of premiums, but most insurers do have a
provision.
RPP
A Registered Pension Plan.
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Residual Benefit
When the degree of disability results in a loss of income (usually billings, fees, etc) the
percentage of loss of income is applied against the monthly benefit and paid out in
addition to the remaining income earned. As an example, this benefit may have a
threshold of 20% loss before commencement of the residual benefit and 80% loss is
considered total.
The residual benefit is based on the premise that those occupations that require this
benefit are more motivated to return to work and the all or nothing concept of total
disability would be a hindrance to return quickly, even though not fully recovered and
functioning.
Residence
For qualifying for a Canada Student Loan, the province or territory of residence is where
the student ahs most recently lived for at least 12 consecutive months excluding full-time
attendance at a post-secondary institution.
Retained Earnings
This is any profit that is not distributed.
Retirement
These disability riders provide for 20% of annual income up to a maximum amount as
specified by the insurer. This money is deposited into a trust account for retirement
purposes. The elimination period is typically 90 days and benefit periods’ range from 10
years to “age 65”.
Retirement Age
Retirement age established under a plan means the earliest age at which a pension
benefit, other than a benefit in respect of a disability is or may become payable to the
employee without adjustment for early retirement.
Retired Plan Member
Someone who is retired and is now collecting a pension from the pension plan. Also
known as a pensioner.
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Return on Investment
This is the ratio of income to equity.
Revenue
These are payments that are received for goods that are sold or services rendered.
Revolving Credit
Credit that you can use from time to time to buy various goods or services of varying
cash value.
Risk
The viability or uncertainty in an asset’s return.
Risk Control Strategies
This term refers to strategies to control your exposure to risk and the severity of losses
associated with those risks.
Risk Financing Strategies
Strategies that address the needs for funds to cover the potential financial losses arising
from various risks.
-SSafety of Principal
An objective that emphasizes the security of the invested principal.
Safety Measures
Actions or activities designed to reduce risk.
Salary - The basic salary that you receive from your employer and on which your
contributions to the pension fund are based. (Does not include overtime or bonuses.)
Sale
Refers to the transfer of ownership of an asset for a consideration, however small. If the
two parties of the sale are not dealing at arm’s length, Revenue Canada may assess
capital gains tax against the seller based on assessed fair market value of the asset
sold.
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Sale Price
Sale price is the price you receive for selling your property or its fair market value
on the date ownership is transferred, if transfer is to a “non-arm’s length individual. (E.g.
a family member).
Savings Group Insurance
Banks, trust companies, credit unions and some investment companies such as mutual
fund companies may provide coverage on the lives and or well being of their depositors
or investors.
Scholarship Trust
Another name for a pooled RESP.
Seasonal Employee
A full time employee whose services are of a seasonal but recurring nature.
Secondary Market
A financial market where previously issued securities are sold. The Vancouver Stock
Exchange is an example of a secondary market.
Secured Loan
A loan agreement that provides the lender with some form of rights to specified assets in
the event that you default on your loan agreement.
Segmented Plan
Designed to help clients achieve determined objectives in a single area of their financial
situation, or to solve a specific problem (also referred to as a single-purpose plan).
Segregation
Refers to the term that ensures that key players are not exposed to the same risk
simultaneously.
Settlor
The person establishing and transferring assets to a trust, also known as the grantor.
Simple Interest
The amount of interest paid out on a certificate at the end of the term.
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Social Insurance
Government administered insurance designed to ensure social adequacy, where the
recipients of the benefits generally contribute to a portion or all of the costs of a program.
Special Opportunity Grants
Federal government grants available to certain recipients of Canada Student Loans.
Eligible categories are female doctoral students, students who have permanent
disabilities, and high-need part-time students.
Speculative Risk
A risk that has the potential for loss, the potential for gain or the potential for no change.
Spouse - A person who:
1. is married to an active plan member, inactive plan member or retired plan
member,
2. is married to an active plan member, inactive plan member or retired plan
member by a marriage that is voidable and has not been voided by a judgment of
nullity, or
3. has gone through a form of a marriage with an active plan member, inactive plan
member or retired plan member, in good faith, that is void and is cohabitating or
has cohabitated with an active plan member, inactive plan member or retired
plan member within the preceding year.
Spousal RRSP
An RRSP that is owned by one spouse, but with contributions as well as tax deductions
linked to the other spouse.
Spousal Trust
A trust in which the spouse is the only person to receive income or capital from the trust
during the spouse’s lifetime, often with restrictions on the removal of capital from the
trust.
Spouse’s Allowance
This is a monthly pension payable to a spouse, widow or widower who is aged 60 to 64
of an OAS pensioner.
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Stability Seeker
This individual is very careful; worries unnecessarily about investments, but can make a
good client, because they rely on respected advice. They prefer assistance in their
investment decision-making.
Statutory Conditions
The Accident and Sickness Insurance Act contains 12 statutory conditions that apply to
both Group Insurance and Individual Disability Contracts. There are guidelines to
enable the companies to conform to certain standards. Some are required as is, some
can be adapted and some eliminated.
Stocks
An equity or a share in a corporation. When one invests in a stock, one is buying a
piece of a company.
Stock Exchange
The market for trading of equities.
Stock Picking
Investors analyze individual stocks and select the most promising ones in this active,
investment strategy.
Subscriber
Of an RESP contract is the person contributing to the plan in order to fund the postsecondary education of the beneficiary.
Succession Planning
For a business is planning for the next generation of owner/manager to succeed the
current owner/manager.
Supply
The relationship between the quantity supplied of a good or service and its price.
Supply Curve
A graph that illustrates the relationship between quantities supplied and price.
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Supply Schedule
A table that lists the quantities supplied at their corresponding prices.
Surety
The first party in a bond. The surety agrees to answer to the second party, the obligee,
for the default, failure to perform or dishonesty of the third party, the principal.
Survivor Benefit - A benefit payable to the principal beneficiary or child of an active plan
member, inactive plan member or retired plan member.
Systematic Risk
Any uncertainty that affects the whole market such as political, social and economic
decisions.
-TTaxable Capital Gain
The current inclusion rate for capital gains is 75%. This means that ¾ of your
capital gain will be taxable.
Taxable Income
Your net income less any permitted other deductions, such as business or investment
losses carried forward from previous years.
Tax Payable
To calculate the tax payable, multiply your taxable capital gain by your marginal tax
rate.
Tenancy in Common
This is a method of property ownership in which two or more persons hold an undivided
interest in property. On the death of one of the tenants in common, that tenant’s share
of the property passes to the deceased’s heir or assigns.
Term Deposits
Short-term, fixed interest, money market instruments that can be purchased from banks
or trust companies.
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Term Insurance
Life Insurance, which is, issued for a specified number of years normally building up
no cash value and expiring without value.
Testamentary Trust
A trust created under the terms of a will and which takes effect of the death of the
testator.
Testator
The person who is making a will in his or her own name.
Total Debt Service Ratio (TDS)
The Total Debt Service ratio is one of the formulas used to measure your ability to carry
debt. It is calculated as Total Annual Debt Costs  Gross Annual Income = TDS.
As a general rule, your TDS ratio should not exceed 35% to 42% of your gross income.
Total Income
Includes income from all sources, before deductions.
Trading On the Equity
This is when funds are borrowed with the expectation that their contribution to profit
exceeds any interest payable.
Trade Balance
The value of exports minus the value of imports.
Treasury Bills
Short-term loans to the government.
Trust Company
A private intermediary that operates as a deposit-accepting institution which also makes
loans.
Trustee
Person or persons who have been entrusted with managing a trust's assets in the best
financial interest of the trust's beneficiaries. Where pensions are concerned, an
individual plan member's "trust" is their pension plan benefits.
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A pension plan's "trust" is the pension plan and the pension fund. Trustees are
fiduciaries. They must abide by all laws, rules and regulations governing trustees.
They have a duty:

to adhere to the terms of the trust and to the law

to act personally and not to delegate

to act as a prudent person would act, that is, with care

to act with loyalty to the trust, that is, to avoid any conflict of interest

of impartiality, that is, to act in an even-handed manner

to safeguard and invest the assets

to inform the beneficiaries, and

to pay the proper amounts to the proper beneficiaries.
Tuition Tax Credit
Is a non-refundable credit for tuition fees paid to a university, college or other institution
where post-secondary level courses are offered.
TSE 300
The Toronto Stock Exchange 300 Composite Index represents the value of the top 300
Companies traded at the exchange, selected based on the total value of outstanding
stocks.
Twisting
A term applied to the selling process when another is replacing one policy. When an
agent or broker "twists”, he or she has misrepresented the facts of either the existing
policy or the replacement policy (for the benefit of the agent or broker).
-UU.I. (Employment Insurance)
Unemployment Insurance.
Unbundling
As applied to life insurance policies, it means that the policy is broken down into three
parts: the protection element, the savings element and the expense element.
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Unemployment Rate
The number of people unemployed measured as a percentage of the labour force.
Unfunded Liability - Occurs when there are fewer assets in the fund than liabilities.
Universal Life Insurance Policy
A Life Insurance plan composed of a life insurance policy and an investment fund, which
can be used to achieve many goals in the financial planning process.
Unreduced Pension
Monthly pension benefit where there is no reduction included in the pension benefit
formula. (See Reduced Pension)
Unregistered Annuity
An annuity purchased with funds that are not registered.
Unsecured Loans:
Loans that rely solely on your credit history, reputation and integrity to ensure payment.
Unsystematic Risks
These are uncertainties that are specific to one particular company and do not affect the
market as a whole.
-VValuation
An actuarial examination of a pension plan to determine whether contributions are being
accumulated at a rate sufficient to provide the funds out of which the promised pensions
can be paid when due. The valuation shows the actuarial liabilities of the plan and the
applicable assets.
Vesting
A term used to refer to the employee’s right to his pension entitlement after meeting a
minimum service requirement.
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Vesting and Locking In
Provisions of federal and provincial pension legislation which require, upon attainment of
a defined age and service level, that a plan member must be given absolute right to all
the benefits under the plan accumulated up to that date on his or her behalf in the form
of a deferred life annuity. (I.e. may not be withdrawn in cash).
Voluntary Contributions
Contributions made by an employee over and above those required of him or her by
plan.
Voting Rights
Given to each shareholder of a common stock and allow the shareholder a voice in
determining the directors of the company and company policy.
-W–
Waiting Period or Elimination Period (Exchangeable Terminology)
This is the length of time between the onset of disability and the commencement of
benefit, usually expressed as 14, 30, 60 or 90 days. May extend up to 1 or 2 years. The
shorter the period, the higher the premium.
Waive
To relinquish (give up) a right or entitlement.
Waiver of Premium
Most companies waive the premium after the insured has been disabled for 90 days or
more. The waiver period and the elimination period may be coincidental.
Will
A document outlining the wishes of the deceased for the disposition of property.
Withholding Tax
A tax placed upon certain payments where the beneficiary is a non-resident including
education assistance programs from an RESP.
Working Capital
This is the excess of any current assets over any current liabilities.
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-YYear’s Basic Exemption (YBE)
The minimum level of earnings above which CPP Premiums are calculated.
Year’s Maximum Pensionable Earnings
The upper ceiling on pensionable earnings adjusted annually by changes in the cost of
living as measured by the CPI, $50,100 in 2012. When an individual reaches this
ceiling, no further CPP premiums are required.
Yield
The rate of return on an investment.
WHERE CAN CONSUMERS TURN TO FOR HELP?
Financial Consumer Agency of Canada (FCAC)
The Financial Consumer Agency of Canada (FCAC) is an independent body working to
protect and inform consumers of financial services. They were established in 2001 by
the federal government to strengthen oversight of consumer issues and expand
consumer education in the financial sector.
As a federal regulatory agency, FCAC is responsible for:

Ensuring that federally regulated financial institutions comply with federal consumer
protection laws and regulations;

Monitoring financial institutions' compliance with voluntary codes of conduct and their
own public commitments;

Informing consumers about their rights and responsibilities when dealing with
financial institutions; and

Providing timely and objective information and tools to help consumers understand,
and shop around for, a variety of financial products and services.
Their Role and Mandate
FCAC derives its role and mandate from the Financial Consumer Agency of Canada Act.
The Act outlines our functions, administration and enforcement powers, and lists the
sections of federal consumer-oriented laws and regulations (called "consumer
provisions") under our supervision.
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Their mandate consists of two key responsibilities:
1. Consumer protection
This involves overseeing and reporting on the compliance of federally regulated financial
institutions with legislative requirements. It also involves monitoring self-regulatory
initiatives that are designed to protect consumer interests. These institutions include all
banks and all federally incorporated or registered insurance, trust and loan companies
and co-operative retail associations.
2. Consumer education
This includes activities to help build financial knowledge and consumers' awareness of
their rights.
FCAC has five objectives:
1. Supervise financial institutions to ensure they comply with federal consumer
protection measures that apply to them.
2. Promote the adoption by financial institutions of policies and procedures
designed to implement the consumer provisions.
3. Monitor if financial institutions follow their own voluntary codes of conduct and
respect the public commitments they have made to protect the interests of consumers.
4. Promote awareness of the obligations of financial institutions.
5. Foster an understanding of financial services and issues relating to financial
services.
As a regulatory agency, FCAC can exercise its enforcement powers to ensure that
financial institutions comply with the consumer provisions of the various federal acts
relating to financial services, including:

the Bank Act;

the Insurance Companies Act;

the Trust and Loan Companies Act;

the Co-operative Credit Associations Act; and

the Financial Consumer Agency of Canada Act.
In cases of contravention or non-compliance, they will notify the financial institution of a
violation.
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They may also, depending on the severity and frequency of the problem:

seek a commitment from the financial institution to remedy the issue within a short
time frame

impose a monetary penalty

impose criminal sanctions

take other actions as necessary
Reporting requirements
FCAC reports to the Minister of Finance on the Agency's activities and the legislative
framework for consumer protection. In addition, each year FCAC prepares an annual
report for Parliament.
It describes:

the Agency's operations;

the performance of financial institutions in complying with consumer protection
provisions;

the procedures that financial institutions have in place for dealing with complaints;
and

the number and nature of complaints that have been brought to the Agency's
attention.
Every province has various Regulators that the consumer can turn to for help in addition
to FCAC.
CONCLUSION
Financial services organizations are striving to achieve increasingly ambitious profit and
growth targets against a background of heightened risk, regulation and market
pressures.
Customer needs and expectations are evolving in the face of increasing personal wealth,
more private funding of pensions and healthcare and the desire for ever more accessible
and personalized financial products and services. In turn, intense competition has
squeezed industry margins and forced organizations to cut costs while still seeking to
enhance the quality of client choice and service.
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The battle for talent is also heating up as companies seek to enhance innovation,
customer loyalty and investment returns. The corollary of this market evolution is
increasing risk as products become more complex, organizations more diffuse and the
business environment ever more uncertain. Regulation is also tightening in the wake of
public and government pressure for improved governance, transparency and
accountability.
In this environment, the winners will be companies that can turn the challenges into
opportunities to build stronger and more enduring customer relationships; sharpen
process efficiency; unlock talent and creativity; use improved risk management
processes to deliver more sustainable returns; and use new regulatory demands as a
catalyst for strengthening the business and enhancing market confidence.
Organizations will also need to identify and concentrate on core competencies where
they can exert maximum competitive advantage, be this a particular product, service,
process or geographical territory. For some this will require a strategic re-orientation
towards becoming a specialist niche provider. Even larger groups will need to
differentiate their offering and by implication the associated brand.
As recently as a decade ago, many companies viewed business ethics only in terms of
administrative compliance with legal standards and adherence to internal rules and
regulations. Today the situation is different. Attention to business ethics is on the rise
across the world and many companies realize that in order to succeed, they must earn
the respect and confidence of their customers. Like never before, corporations are being
asked, encouraged and prodded to improve their business practices to emphasize legal
and ethical behavior. Companies, professional firms and individuals alike are being held
increasingly accountable for their actions, as demand grows for higher standards of
corporate social responsibility.
This course was designed to help the Advisor/Broker when it comes to knowing the
definitions for many financial terms that are used on a daily basis in the financial
services industry.
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Financial Services Definitions SSC # 14
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