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The Financial Advisor Guide to Financial Services DefinitionsSelf-Study Course # 14

INTRODUCTIONThe 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.

Financial Services Definitions SSC # 14Pro-Seminars Limited © 07/122

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 ECONOMYThe 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.


Overview of the financial services sector, 2003

Sector Number of Active Firms EmploymentBanks 69 237,000Credit unions/caisses populaires 1,298 53,000Trust companies 29 n/aLife and health insurance companies 108 118,000P&C insurance companies 230 100,000Mutual fund companies 270 70,000Securities dealers 207 37,000Finance and leasing companies 250 n/a

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 INDUSTRYThe 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.


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 bank-

owned. 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 full-

service brokerage, mutual funds, commercial lending and wealth management.


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.


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 DIMENSIONCanada’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.


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 73-

per-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 member-

owned cooperatives), it is 100-per-cent Canadian-owned.

RETURN ON EQUITYMost 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.


REGULATION AND SUPERVISIONUnder 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.


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 self-

regulation 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.


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 PROTECTIONThe 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 third-

party dispute resolution system.


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 industry-

level 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 DEFINITIONSIt 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

- A -AccountingThis 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.


Accrual BasisThe 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.


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".


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.


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.


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.

- B -

Baby Boom / Baby BoomersThese 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 FundA 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 SheetA statement of assets, liabilities and any owner’s equity at a given date.

BankruptYou 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 CanadaCanada’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 RateThe 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 MarketA 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


Bearer BondsAn 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 PeriodBenefit 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 PlanA 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 AgreementThis 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.


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 InsuranceAny 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 StockA 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.

BondA 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.

BondsDebt 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 StrategyA 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.


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 ValueThe 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 ChequesWriting 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.

BudgetA plan for how you are going to allocate your money.

Bull MarketA 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.


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 CycleBusiness 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 long-

term average. The peaks in economic activity are normally higher in successive cycles.

Buy-and-hold StrategyA 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.


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 AgreementAn agreement between shareholders and business partners to purchase each other’s

shares in specified circumstances.

- C -Callable BondsA 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 non-

callable bond.


Canada Pension PlanThis 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 MarketsThe 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.


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 GainIn 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 GrowthOccurs when the market price of an assed increases in value. Stocks and real estate

are capital growth investments.

Capital LossAny 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 TransactionsIncrease 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 PlanA 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.


Cash-Back PoliciesA slang term often attached to Indemnity Policies because they pay in addition to other

health care benefits.

Cash InflowCash 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 ManagementThis 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 OutflowMoney paid out to meet current expenses and lifestyle expenditures.

Cash RatioTotal 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 OptionIf 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 PoliciesThese 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.


Ceiling PriceA 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 BanksA 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 MortgageA document that transfers the ownership of collateral assets to your lender if you default

on your debt.

ClawbackThis is the amount of OAS payments that are repaid through a special tax on high-

income pensioners.


Closely Held CorporationA firm whose shares of common stock are owned by relatively few individuals and are

generally unavailable to outsiders. Also called closed corporation

CodicilA 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.

CollateralCollateral (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 DisasterAn event, or a series of events, causing the death of both spouses within a specified

amount of time.

Commuted ValueThe 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 InterestSame 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.


Comprehensive Financial PlanConsiders all aspects of a client's financial position, needs, objectives and possible

planning strategies in an integrated, coordinated approach.

Comprehensive General Liability InsuranceA broad liability insurance policy designed to protect you from a wide range of liability

risks, including product and professionals liability.

Community PropertyProperty 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 CoverageAs 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.

ConsiderationAn exchange of values, or transfer of ownership, such as deeds, money, property, etc.

Consumer LoanA 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.

ContributionThe amount of money the plan member and the employer are required to pay into the

pension plan.


Contribution RateThe percentage of the plan member’s salary that the plan member and the employer

contribute to the plan.

Contributory EarningsAll 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 PlanA plan requiring contributions by the employee.

Contributory ServiceNumber 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.

ConvertibleAs 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 BondSome bonds may be exchanged for another type of investment such as common stock.

Co-Operative InsurersInsurers that provide insurance to members of an association as a benefit of that

association.


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 BasisReferring 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 RateThe interest rate paid on the par value of a bond.

Co-TrusteesWhen two or more individuals or entities (such as a bank) have the joint responsibility of

managing a trust.

Creditor’s InsuranceSome 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-ProofCreditors in the event of financial problems cannot seize the money held in one’s

account.

Credit RatingA historical record of your past credit history, maintained by a credit bureau.


Critical RiskThis risk could lead to bankruptcy or financial catastrophe.

CurrencyThe bills and coins issued by the central bank that we use in the market.

Currency AppreciationAn increase in the value of a nation’s currency in terms of another currency.

Current LiabilitiesAny present debts payable within one year.

Current RateOne of the rates quoted in an annual renewable term (ART) policy. It is the lower of the

two rates quoted.

Current ServiceService after the employee becomes a member of the plan previously known as Future

Service.

- D - Death Benefit - CPP/QPPThe lump sum payment under the CPP payable to the spouse or estate of a deceased

contributor.

DebentureHas the same structure as a bond, but is not secured by assets or property.

Debt Aging or Debt Aging ChartA 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 CardA 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.


DeclinesThere 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 InsuranceA 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).

DeductibleA 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 RiskThe 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 PensionA 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.


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 RetirementRetirement, which commences after the normal retirement date.

Deferred TaxThese 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 PlanThis 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 PlanWith 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.

DemandThe relationship between quantity demanded and price of a particular good or service,

holding constant those factors that influence quantity demanded.


Demand CurveA graph that illustrates the relationship between the quantity and price.

Demand LoanA 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 ScheduleA table that shows numerically the quantity demanded of a good or service at different

price levels.

DemographicsThe characteristics of a human population such as age, sex and income used for market

research, sociological analysis and other such purposes.

DepreciationAny loss in value due to obsolescence or wear and tear.

Direct Loan: See Consumer Loan.

Direct CostsActual dollars that must be spent.

Direct FinancingThis occurs when funds flow directly from a saver to the borrower.

Disability InsuranceInsurance 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 RateThe interest rate used in the discounting process.

DiscountingThe process of finding the present value of a payment or stream of payments.


Disposable IncomeIs defined as the total consumer income less taxes and government transfers.

DiversificationThe process of spreading out risk in a portfolio by including investments with many

different levels or risk and return potential.

Diversified FundsAlso 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.

DividendsThis is the method by which any net profits are distributed to shareholders of a

corporation.

Dividend Gross-UpAdjustment 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 PlanA plan that allows shareholders to purchase more shares from dividends rather than

receiving the dividend as income.

Dollar Cost AveragingA method of obtaining investments by purchasing a certain dollar amount of investments

at regular time intervals.

DomicileThis 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.


Double Indemnity RidersAnother 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 PoliciesThis 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 BenefitsWhen 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 LawyerThe 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.

- E -Early RetirementRetirement, 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 ShareThis is calculated as the after-tax income for a corporation divided by the number of

outstanding common shares.

EconomicsThe study of how people use scarce resources to satisfy unlimited wants.


Economics of ScaleThe 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 MarketThe 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.

EligibilityThe conditions that an employee must fulfill before he or she can become a plan

member.

ENDOWMENT POLICYA 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.

EntrepreneurThis individual is a confident risk-taker who having confidence in his or her own

decisions may be somewhat difficult to advise.

EquilibriumA 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.

EquityAny ownership interest; excess of total assets over total liabilities.


Equity FundsInvests in the stocks of companies traded on the stock markets.

Equity MarketsThese markets trade in common and preferred shared of corporations.

Equity RatioThe 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.

EstateThe total wealth or net assets an individual accumulates over a lifetime.

Estate PlanningThe 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 InsurabilityProving 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 MedicalThis 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.


ExchangesAn organized market for buying and selling financial securities, such as the Toronto

Stock Exchange.

Exchange Rate RiskThe 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 PremiumNot 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.

ExecutorThe person or organization appointed in a will to carry out the terms of the will.

ExecutrixThe female form of executor, it is the person named in the will to take over and manage

the estate during probate proceedings.

ExpansionThis phrase is used in the business sector when economic growth increases.

ExpensesThis is the cost of earning revenue.

Experience DeficienciesUnder funding of plans resulting from plan fund earnings less than that assumed by the

plan actuary.

ExportsThe goods and services that are sold to another country.

Extended Health Care BenefitsInsurance coverage that is designed to cover medical expenses that are not covered by

your provincial health plan.


Extra Premium RatingWhenever 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 BoardsThe farming boards that intervene in the agricultural sector with the intent of stabilizing

the prices of agricultural products.

Financial CounselorThis Professional deals with specific short term and immediate financial problems. They

may concentrate on budgeting or money management. A planner may look at short-

term goals, but also may concentrate on long-term objectives.

Financial IntermediariesA 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 PlannersProvides expertise in assessing clients’ current position. They establish long and short-

term goals and the strategies to achieve current and future goals.

Financial SpecialistA professional planner who specializes in a single area of personal financial planning,

such as investment planning, tax planning or retirement planning.

First Day HospitalElimination Period eliminated if disability results in hospitalization. Benefit paid on a per

diem basis. (1/30 of monthly benefit per day).


Fiscal PolicyThe attempt of the government to influence economic activity by altering spending or

taxes.

Fixed Loan:See Consumer Loan.

Flat Benefit PlanA defined benefit plan that pays a flat rate benefit, regardless of earnings, based on

years of service.

Floor PriceA minimum allowable price regulated by government.

FollowerThis 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 MarketAn organized market that trades one currency for another.

Fiduciary DutyThe 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 PlanningThe 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 RiskThis is the uncertainty that a company will fail to meet expected financial goals and

provide a lower rate of return than anticipated.


Foreign InvestmentsThese 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 ConveyanceA transfer of an asset in an attempt to avoid legal seizure or consequences.

Full Exclusion RiderThe 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 EmployeeAn 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 ValueThe amount to which a sum or annuity grows over a given period at a certain interest

rate.

- G -GiftThis 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.


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 PeriodThe 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.

GrantorThe person who establishes and transfers assets to a trust; can also be known as the

settler.

Group InsuranceA form of insurance designed to insure classes of persons instead of specific individuals.

Group RRSPThis 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.


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 FundsAllows investors to participate in stock market oriented investments, which have shown,

over long periods, to outperform other types of investments.

GuarantorA 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 SupplementThis 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 RateOne 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.

- H - HazardsActs or conditions that could increase the likelihood of a peril or the severity of a loss.


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 IncomeThe income for a household unit typically consists of an individual or couple plus any

children or other financial dependants who live together.

- I -

Immediate PensionA 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.

ImportsThe goods and services bought from foreign countries.

Inactive Plan MemberPlan 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.

IncomeThis is the excess of any revenue over expenses.


Income AttributionIs 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 FundsFor security oriented investors, these funds provide good interest returns with lower risk

or volatility than most growth funds.

Income SplittingBy 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 StatementThis statement shows revenues, expenses, and net income (profit or loss) for a specified

period.

IncontestabilityThe 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 PoliciesOften 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.

IndentureThe 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.


Indirect Financing The process in which funds flow from savers to financial intermediaries and then to

borrowers.

Individual RESPIs 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.

InflationThe term is used to describe rising prices of goods and services within an economy,

usually measured in the Consumer Price Index. (CPI).

Inflation IndexesThe 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 RiskThe 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 StatementThe 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.


InsuranceThis 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 LoansConsumer 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 InterestAn applicant has to have insurable interest in the contract when it is issued.

InterestUse 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 GoalsGenerally 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 TrustIs a trust established between living persons, usually to pass assets to your

Beneficiaries. Often referred to as a living trust.

IntestateA 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 IncomeThe money paid, either as interest or dividends on an investment, to the investor.


Investment MixAllocating deposits to different investment options.

Investment StrategyThe method used to select which assets to include in a portfolio and to decide when to

buy and when to sell those assets.

- J -Joint and Last Survivor AnnuityAn 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 TenancyThis 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.

- K -Key PersonThese 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 RuleThis 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.


- L -Labour ForceThe total number of employed and unemployed workers.

Ladder ApproachThis 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 DemandAs prices of a good or service falls, quantity demanded rises.

Law OF SupplyAs prices of a good or service rises, quantities increase.

Leave of Absence - An employer approved absence from duty, with or without pay.

LiabilitiesA financial obligation of debt.

Liability RiskThe 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 AnnuityAn annuity that guarantees continued payments to the annuitant, regardless of how long

the annuitant lives.

Life Annuity with a Guaranteed TermThis 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.


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 InsuranceThis 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 SicknessThis 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 MemberA 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 RiderThis 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.


LiquidityThe ease by which an asset can be quickly bought or sold without adversely affecting its

price.

Liquid AssetsUsed as collateral to secure a loan may be in the form of possessions such as a car etc.

Liquidity PlanningThis term ensures that enough cash or cashable assets are available to meet the

estate’s debt commitments.

Locked in BenefitsBenefits 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 RRSPThis 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 LiabilitiesPresent debts not payable for at least one year.


LossA negative income.

- M -Marriage ContractsAn 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 BreakdownFor 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)

MarketAny arrangement where the buying and selling of goods and services takes place.

Marketability RiskThe uncertainty of there is being a buyer for an investment.

Market RiskThe 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 TimersLook to buy and sell stocks at the most profitable time in the market cycle.

Market ValueThe value at a particular date, assuming the certificate is liquidated before maturity.


Material FactsAll 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 DateThe time at which a debt instrument expires or comes due.

Misstatement of AgeIf 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 policyThe 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.

MoneyA medium of exchange or a measure of value that you can use to pay for goods and

services and to settle debts.

Money Market FundsInvests in short term investments and is generally the least risky of the market-related

funds and offers the lowest positive returns.

Morale HazardHazards that relate to the general attitudes and habits of some individuals that increase

the likelihood of a peril.

Mortgage FundsInvests in commercial l and industrial mortgages, diversified by type and location.


Mutual FundIs 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.

- N -Net WorthThe difference between assets and liabilities.

No-Fault InsuranceThis is a government-mandated insurance policy designed to provide automatic

compensation for automobile accident victims, regardless of who is to blame.

Non-Contributory PlansPlans 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 GDPThe 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 FundsMoney that is deposited with after-tax dollars and is not invested in registered tax-

sheltered vehicles such as RRSP’s. Income earned by the funds is taxed annually –

even if the Investment earnings are not actually withdrawn.


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.

- O -ObligeeThis 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 IntegrationAdjustments to contributions and benefits to provide total retirement benefits from both

private and public plans remain constant.

Old Age SecurityThis 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 CostsMoney or income that is forgone because of missed opportunities.

Option AgreementAn 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 AnnuityA series of equal payments over a fixed number of years where the payments are made

at the end of each period.


Overcontribution allowanceAn 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 ExpenseThese 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 “over-

the-counter” to anyone willing to accept their prices.

Own OccupationUnable to perform the important duties of one’s own occupation (trained and educated

specifically) and not gainfully employed in any other occupation.

- P -Partial DisabilityLoss of some functions will provide 50% of the total disability income provided by the

contract.

Passive Investment StrategiesThis process uses a selected portfolio mix that is re-balanced only after a financial goal

is met or securities mature.

Past ServiceService 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.


Past Service Pension Adjustment (PSPA) StatementThe difference between the sum of pension adjustments actually reported and the sum

of pension adjustments that include any increased benefits from the purchase of post-

1990 service. (See Pension Adjustment (PA) Statement)

PBASee Pension Benefits Act

PensionA lifetime semi-monthly income paid by your pension plan.

Pension AdjustmentIf 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) StatementAn 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.


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 FormulaThe formula used by a pension plan to determine the amount of the retirement pension

benefit.

Pension FundTrust fund in which your contributions and your employer's contributions accumulate and

are invested to pay for current and future pension benefits.

Pension TrustA trust established for receiving irrevocable contributions from an employer for funding a

pension plan.

Pensionable EarningsThe 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 SalaryPortion of your salary that is used to calculate your pension contributions and Best Five

Year Average.

Pensionable ServiceService 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.


PensionerSee Retired Plan Member

Per CapitaThe death proceeds of a contract or policy are divided equally among the living

beneficiaries.

Per StirpesThe 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.

PerilsThe actual causes of loss.

Personal Financial PlanningA 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 RisksRisks that can result in the reduction or elimination of your ability to earn income.

Physical HazardsHazards 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.


PortabilityRefers 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.

PortfolioThe holdings of securities by an individual or an institution.

PortfolioThis is a selection of investments designed to achieve a client’s investment objective

especially of return and acceptable risk.

Power Of AttorneyA 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 SharesA 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.

PremiumThis is the price that a person pays for insurance.

Present ValueThe value today of a future payment or receipt. The present value is the discounted

value of future payments.

Presumptive DisabilityEven 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.


Price LevelThe average price as measured by a price index.

Principal BeneficiaryThe 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 MarketA financial market where new issues of a security are offered.

PrincipalThis term refers to the third party in a bond.

ProbateThis 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 InsuranceA 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.

ProfitThis is a positive income.

Property RiskThe risk that something that you own will be stolen, damaged or destroyed.

ProspectusA 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.


Protection Against CreditorsThe 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 AssistanceThis 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 InsuranceInsurance that is designed to indemnify you of losses that arise out of negligence in your

work or volunteer activities.

Purchasing PowerThe amount of goods that can be purchased for a given dollar amount.

Pure RiskThe risk that has no opportunity for gain.

Put-Call AgreementA 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.

- Q -QPPQuebec 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.


Qualified Condition Exclusion RiderThe 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 PeriodOriginally, 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 InformationRepresents the data that describe a client's financial position including information on

assets, liabilities and income.

Quantity DemandedThe amount of a good or service consumers are willing to buy in a given year at a given

price.

Quantity SuppliesThe amount of a good or service producers are willing to sell in a given year at certain

prices.

Quantitative InformationThis term represents the data that describe a client’s financial position including

information on assets, liabilities and income.

Quick AssetsCurrent assets less inventories and prepaid expenses.

Quick RatioRatio of quick assets to current liabilities.


- R - Real GDPThe value of a final goods and services at prices prevailing in a base year. This

removes the effects of inflation.

Real ReturnThe return on an investment that has been adjusted for tax and inflation.

Receiving OrderA 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.

RecessionThis 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 ClauseIf 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.


Reconsideration of Current DecisionEach 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 PensionIf 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 BondsBonds that are owned by the person who is registered as the owner. The registered

owner may only sell registered bonds.

Registered Education Savings Plan – RESPIs 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.


RRSPRegistered 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 OccupationUnable to perform the occupation used currently to earn a living and not gainfully

employed in other occupation.

Regular Interest BondsCanada Savings Bonds that pay interest annually and are therefore non-compounding.

Also known as “R” Bonds.

Rehabilitation ClauseEarly 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.

ReinstatementThe 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.

RPPA Registered Pension Plan.


Residual BenefitWhen 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.

ResidenceFor 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 EarningsThis is any profit that is not distributed.

RetirementThese 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 AgeRetirement 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 MemberSomeone who is retired and is now collecting a pension from the pension plan. Also

known as a pensioner.


Return on InvestmentThis is the ratio of income to equity.

RevenueThese are payments that are received for goods that are sold or services rendered.

Revolving CreditCredit that you can use from time to time to buy various goods or services of varying

cash value.

RiskThe viability or uncertainty in an asset’s return.

Risk Control StrategiesThis term refers to strategies to control your exposure to risk and the severity of losses

associated with those risks.

Risk Financing StrategiesStrategies that address the needs for funds to cover the potential financial losses arising

from various risks.

- S -Safety of PrincipalAn objective that emphasizes the security of the invested principal.

Safety MeasuresActions 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.)

SaleRefers 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.


Sale PriceSale 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 InsuranceBanks, 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 TrustAnother name for a pooled RESP.

Seasonal EmployeeA full time employee whose services are of a seasonal but recurring nature.

Secondary MarketA 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 PlanDesigned 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).

SegregationRefers to the term that ensures that key players are not exposed to the same risk

simultaneously.

SettlorThe person establishing and transferring assets to a trust, also known as the grantor.

Simple InterestThe amount of interest paid out on a certificate at the end of the term.


Social InsuranceGovernment 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 RiskA 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 RRSPAn RRSP that is owned by one spouse, but with contributions as well as tax deductions

linked to the other spouse.

Spousal TrustA 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 AllowanceThis is a monthly pension payable to a spouse, widow or widower who is aged 60 to 64

of an OAS pensioner.


Stability SeekerThis 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 ConditionsThe 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.

StocksAn equity or a share in a corporation. When one invests in a stock, one is buying a

piece of a company.

Stock ExchangeThe market for trading of equities.

Stock PickingInvestors analyze individual stocks and select the most promising ones in this active,

investment strategy.

SubscriberOf an RESP contract is the person contributing to the plan in order to fund the post-

secondary education of the beneficiary.

Succession Planning For a business is planning for the next generation of owner/manager to succeed the

current owner/manager.

SupplyThe relationship between the quantity supplied of a good or service and its price.

Supply CurveA graph that illustrates the relationship between quantities supplied and price.


Supply ScheduleA table that lists the quantities supplied at their corresponding prices.

SuretyThe 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 RiskAny uncertainty that affects the whole market such as political, social and economic

decisions.

- T -Taxable Capital GainThe 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 PayableTo calculate the tax payable, multiply your taxable capital gain by your marginal tax

rate.

Tenancy in CommonThis 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 DepositsShort-term, fixed interest, money market instruments that can be purchased from banks

or trust companies.


Term Insurance Life Insurance, which is, issued for a specified number of years normally building up

no cash value and expiring without value.

Testamentary TrustA trust created under the terms of a will and which takes effect of the death of the

testator.

TestatorThe 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 IncomeIncludes income from all sources, before deductions.

Trading On the EquityThis is when funds are borrowed with the expectation that their contribution to profit

exceeds any interest payable.

Trade BalanceThe value of exports minus the value of imports.

Treasury BillsShort-term loans to the government.

Trust CompanyA private intermediary that operates as a deposit-accepting institution which also makes

loans.

TrusteePerson 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.


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 300The 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.

TwistingA 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).

- U -U.I. (Employment Insurance)Unemployment Insurance.

UnbundlingAs 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.


Unemployment RateThe 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 PolicyA 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 PensionMonthly pension benefit where there is no reduction included in the pension benefit

formula. (See Reduced Pension)

Unregistered AnnuityAn 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 RisksThese are uncertainties that are specific to one particular company and do not affect the

market as a whole.

- V -ValuationAn 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.


Vesting and Locking InProvisions 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 ContributionsContributions made by an employee over and above those required of him or her by

plan.

Voting RightsGiven 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.

WaiveTo relinquish (give up) a right or entitlement.

Waiver of PremiumMost 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.

WillA document outlining the wishes of the deceased for the disposition of property.

Withholding TaxA tax placed upon certain payments where the beneficiary is a non-resident including

education assistance programs from an RESP.

Working CapitalThis is the excess of any current assets over any current liabilities.


- Y - Year’s Basic Exemption (YBE)The minimum level of earnings above which CPP Premiums are calculated.

Year’s Maximum Pensionable EarningsThe 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.

YieldThe 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 MandateFCAC 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.


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.


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 requirementsFCAC 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.


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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