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Advocis/Foran Newsletter for FPE1® and FPE2® Candidates

In the June e-newsletter, I discussed asset allocation. The following portfolio was provided and you were asked to determine the total market value of the portfolio and the percentages of the portfolio that were invested in cash, fixed income and equity investments. The solutions are provided below.

Portfolio for John Wright as at May 31, 2012

 Securities # Shares/ Units Cost Current Price Market Value
Canadian Oil Sands Income Trust 300 $26 $30
BlackRock S&P TSX 60 i shares ETF units 400 42 40
Superior LSVCC Fund (investing in Manitoba companies only) 500 14 12
Royal Bank $25 Par 5% Preferred Shares, Series E 200 24.50 27
AGF Canadian Corporate Bond Fund (Mutual Fund) 200 8 14
    Face Value Cost Current Price Market Value
CSBs, Series 39, R bonds maturing Nov. 1, 2018 (current minimum interest rate, 2%) $14,000 $100 $100
GOC T-bills maturing in 60 days (yield; 2.44%) 10,000 99.60 99.60
Province of Manitoba, 4.75% bonds maturing March 1, 2015 15,000 102.50 104
GOC stripped coupons maturing in 10 years 2,500 67.30 67.30


Solution For Asset Allocation

1. Total Market value of the portfolio: $80,442.50

Security Market Value
Canadian Oil Sands Income Trust $ 9,000
Barclay’s S&P TSX 60 i shares ETF units 16,000
Superior LSVCC Fund 6,000
Royal Bank $25 par 5% Pref Shs Series E 5,400
AGF Canadian Corporate Bond Fund (Mutual Fund) 2,800
CSBs, Series 39 14,000
GOC T-bills 9,960 [$10,000 x 0.996]
Province of Manitoba 4.75% bonds 15,600 [$15,000 x 1.04]
GOC stripped coupons  1,682.50 [$2,500 x 0.6730]
Total $ 80,442.50

2. Percentages of the portfolio that are invested in cash, fixed income and equity investments.

The asset allocation is: Cash investments – 29.78%
Fixed income investments – 31.68%
Equity investments – 38.54%

 Cash Investments: 29.78%

CSBs $ 14,000
GOC T-bills 9,960
Total cash investments $ 23,960

Cash as a % of portfolio = 29.78% $ 23,960.00  x 100

$ 80,442.50

Fixed Income Investments: 31.68%

AGF Canadian Corporate Bond Fund $ 2,800.00
Province of Manitoba 4.75% bonds 15,600.00
Royal Bank $25 par 5% Pref Shs Series E 5,400.00
GOC Stripped Coupons 1,682.50
Total fixed income investments $ 25,482.50

Fixed income as a % of portfolio = 31.68% $ 25,482.50 x 100
$ 80,442.50

Equity Investments: 38.54%

Canadian Oil Sands Income Trust $ 9,000.00
Barclay’s S&P TSX 60 i shares ETF units 16,000.00
Superior LSVCC Fund 6,000.00
Total Equity $ 31,000.00
Equity as a % of portfolio = 38.54%
$ 31,000.00
 x 100

$ 80,442.50


Insurance Planning

In this e-newsletter, I am going to focus on a key topic area for the FPE1® and FPE2® Examinations — “Insurance Planning.” 

A financial planner knows that life insurance can provide the buffer to ensure their clients’ future family/business needs and expenses are met in the event of death. The three basic sources of life insurance coverage in Canada are: public or government plans like the Canada Pension Plan and Quebec Pension Plan; group life insurance through work, creditor group or association; and individual life insurance plans that clients buy to “top up” their coverage when government and group plans do not meet the coverage required.

Life insurance tax-free death proceeds are usually paid to the beneficiary(s) within a few weeks of a claim being filed with the life insurance company.

The two major types of life insurance are term life insurance and permanent life insurance.

1. Term life insurance is designed to pay a death benefit only if the life insured dies during the coverage period. The premium coverage cost as compared to permanent life insurance is relatively inexpensive. The coverage could be increasing, level or decreasing term based on the client’s needs.

2. Permanent life insurance usually requires level premium payments throughout the policyholder’s life, and it may build cash value and/or pay policy dividends. There are three types of permanent life insurance products: i) whole life; ii) term to age 100 (T-100) and; iii) universal life.

  1. Whole life insurance covers the life insured for life and is a fully guaranteed bundled insurance plan whose elements are fixed, guaranteed and interrelated based on the face amount of the policy. Whole life insurance has a guaranteed cash surrender value. The insurance may be participating in that it may pay dividends (not guaranteed) or non-participating (no dividends).
  2. While term to age 100 (T-100) life insurance policies are like whole life insurance in that they are in place for life, they usually have no cash surrender value or dividends. Because they do not have a cash surrender value or dividends, they are less expensive than comparable whole life policies. T-100 policy premiums are based on the age and gender of the life insured.
  3. The structure of a universal life insurance plan is unbundled and consists of term life insurance and an indexed, linked or guaranteed investment account. It is an adjustable insurance product with adjustable premium payments and coverage. A factor that also contributes to the flexibility of universal life insurance is a series of death benefit options to choose from when buying the policy. A popular option is the “level death benefit plus account (investment) value”. Under this option, the investment account value is added to the initial face amount of the death benefit to generate the total tax-free death benefit that is payable to the beneficiary.


Below are four questions on matching life insurance products to the client’s needs. See how you do.

1. Wauneen owns a small “gluten-free” bakery, which is doing very well from both a culinary and financial point of view. Five days a week, her bakery makes twenty different types of homemade baked goods, including wheat-free dinner rolls and sticky buns. Wauneen needed a small business loan of $250,000 to get the business started a few years ago. She pays the loan interest each month but has not yet been able to reduce the loan balance. She expects to pay the loan back over the next five years out of her profits. She is thinking of buying some term life insurance to pay off the loan in case she dies with the loan still outstanding. Why is term insurance the best insurance product to meet her needs?

  1. She could buy five-year term insurance which allows her to convert to permanent insurance.
  2. She could buy five-year term insurance which reduces coverage as the loan is reduced, while at the same time reducing the premium payments.
  3. She could buy five-year term insurance and take a loan against the cash value in the term plan to reduce her business loan.
  4. She could buy five-year term insurance which she can renew at the end of five years if the loan is still outstanding.
    1. 1 and 2 only
    2. 1 and 4 only
    3. 2 and 3 only
    4. 1, 2 and 4

2. Fe Fi Fo Limited manufactures giant rubber gloves for the waste disposal business. Margo bought 2,000 shares of Fe Fi Fo Ltd at $15 per share. Upon Margo’s death, her shares went to her husband Bernard. The Fair Market Value (FMV) of the shares at Margo’s death was $22 per share. Upon Bernard’s death, the shares went equally to his and Margo’s two adult children. The FMV of the shares at the time of his death was $60 per share. What type of life insurance should Margo and Bernard have purchased to cover the capital gains tax liability on the shares?

  1. Joint first-to-die life insurance
  2. Joint last-to-die life insurance
  3. Whole life insurance on Margo
  4. Term-to-age-100 (T-100) on Bernard 

3. Dee Smothers and Barbara Anderson are 50/50 partners in an incorporated business. They have a crisscross buy-sell agreement in place in case of death, disability and retirement. The value of their business is currently $3,000,000. When they started their business twenty years ago, they had each invested $5,000 in the business. The buy-sell agreement becomes effective for retirement at age 60. If one of them should die, there will be a large capital gains tax payable, on the sale of the business, by the deceased’s estate. If they were to buy life insurance to cover the tax liability at death, what type of life insurance would be best?

  1. Joint first-to-die T-100 policy owned by their company on a crisscross basis
  2. Joint first-to-die universal life insurance owned by the company
  3. Individual term plans owned by themselves on their own life
  4. Individual term plans owned on a crisscross basis

4. Roberto (age 36) and Stephanie Guillen (age 31) are the owners of a very successful retail store clothing business. They are considering a major expansion of their store outlets within the next five years. They have a large business line of credit with the bank. After all their expenses are paid, they are netting a good income

On a personal note, Roberto supports his elderly parents in Peru. He expects to do so for another five to seven years. Roberto and Stephanie also have a three-year old and a five-year old.

What type of life insurance best suits their needs and why?

  1. Association group insurance because it is inexpensive and offers many types of life insurance coverage
  2. Group life insurance because it offers inexpensive rates and is easy to qualify for
  3. Individual term life insurance on Roberto and Stephanie because it is nearly as inexpensive as group life insurance
  4. Some type of permanent life insurance because it is flexible coverage and offers solutions to meet their business, personal and estate planning needs

The answers to these four questions will be provided in the August e-newsletter.


Best of luck on your upcoming exams!


Ron Foran, CFP, CFA, CLU, FCSI
President, Foran Financial Institute

Ron Foran is the founder of Foran Financial Institute. He has lectured extensively for 25 years on investments and financial planning across Canada and globally. Ron has a passion for teaching, training and assisting students to pass exams and is the primary instructor for Foran securities and investment management seminars. If you want to learn more about Ron or Foran Financial Institute, please go to

Note: Advocis does not award the CFP® and Certified Financial Planner® designation. The right to use the marks CFP®, CERTIFIED FINANCIAL PLANNER® and CFP(logo) is granted under licence by FPSC to those persons who have met its educational standards, passed the FPSC's Certified Financial Planner Examination, satisfied a work experience requirement, and agreed to abide by FPSC Code of Ethics.