What Do All Those Letters Mean?
Every day, we are all bombarded with financial acronyms. We thought for this issue we would just expand on a few and hopefully provide some clarity to you. You may already know some or many. If you find at least one that you did not know, it has been a worthwhile read.
Let us start with some definitions to help.
- CRA – Canada Revenue Agency – the taxman
- SP – Savings Plan – account used for investments as well as savings
- Registered – approved and tracked by CRA
- CDIC – Canada Deposit Insurance Corporation – an organization that insures bank deposits
Now the most familiar or most common.
- Canada Pension Plan – mandatory employer/employee plan to replace as much as 25% of your working income.
- YMPE – Yearly Maximum Pensionable Earnings – used to calculate your and your employer’s maximum CPP deductions from your pay.
- OAS – Old Age Security – paid to all Canadian residents beginning at age 65. It can be deferred to age 70. Some limitations for years not resident in Canada.
- GIS – Guaranteed Income Supplement – a program to enhance OAS for residents with low other income beyond OAS.
- ODSP – Ontario Disability Support Program – an Ontario government program to provide income to persons unable to work due to disability. Not a plan. All paid by the government.
- RRSP – Registered Retirement Savings Plan – tax reductions and tax deferrals made available from the government to encourage you to save for Retirement – used to lower lifetime tax bill by moving income from high-income years to low-income years.
- RESP – Registered Education Savings Plan – government matches at least 20% of your deposits (to limits) and it transfer taxation to children – the government is contributing significantly to your cost for post-secondary education – not just for college and university.
- RDSP – Registered Disability Savings Plan – the government will make deposits for anyone with a disability tax credit and matches deposits, to limits, to encourage you to save for future expenses.
- LIRA – Locked-In Retirement Account – basically, an RRSP with withdrawal restrictions usually created from a pension moved from an employer. Restrictions are there to make it act like the pension it originated from.
- RRIF – Registered Retirement Income Fund – think of it as an RRSP that you can no longer contribute to and has mandatory withdrawals after age 71. You create by transferring your RRSP no later than the year you turn 71.
- LIF – Life Income Fund – consider it to be like an RRIF but created from a LIRA, not an RRSP. Therefore it has withdrawal restrictions to simulate the original pension just as with the LIRA it was created from.
- TFSA – Tax-Free Savings Account – a bit misnamed because it is where you should keep your longest most taxable investments not just your emergency savings. Anything you earn inside this account will never be taxable nor be income that effects government programs like GIS.
- MF – Mutual Fund – a trust that you purchase units of, to pool your money with other investors, to get diversified, professional management
- High-Interest Savings Account – think “higher” not high. Daily interest product that is sold like a Mutual Fund but insured by CDIC.
- GIC – Guaranteed Investment Certificate – a deposit that has a maturity date so you cannot get the funds until agreed due date. Insured by CDIC.
- ETF – Exchange Traded Fund – a mutual fund that trades on the stock exchange and is usually much less expensive than a standard mutual fund.
Now who are the people you might be dealing with?
- CFP – Certified Financial Planner – focuses on financial planning, usually personal finance matters, estate planning, and managing family assets. The most held financial advisor certification. CFP holders must have a minimum level of experience and take part in continued education and testing to maintain their designation.
- CFA – Chartered Financial Analyst – have in-depth knowledge of investments and securities. Rigorous 3 exam process making it the gold standard in the world for investment management and discretionary portfolio management services.
- CIM – Chartered Investment Manager – currently, the commonest path to provide discretionary investment and portfolio management services.
- FCSI – Fellow of CSI – a securities broker recognition, awarded for outstanding contribution to the Canadian financial industry. Must already hold some sort of designation and have been recommended by their peers.
- CLU – Chartered Life Underwriter – financial planners who specifically focus on estate planning and wealth transfer primarily through the use of life insurance.
- ChFC – Chartered Financial Consultant – an investment advisor with advanced knowledge in wealth accumulation/capital accumulation strategies and retirement planning.
- PFP – Personal Financial Planner – very similar to Certified Financial Planner and held mainly by people in the banking industry. They are bank advisors on personal financial matters. Education is more tailored to the needs of bankers than the CFP.
- RFP – Registered Financial Planner – a much less common designation that predates the CFP in Canada. They provide comprehensive financial planning to clients. RFP holders must have a minimum level of experience and take part in continued education and testing to maintain their designation. A great CFP alternative.
- TEP – Trust and Estate Practitioner – advisors who specialize in inheritance and succession planning with less emphasis on insurance than CLUs. In order to hold and maintain the designation, members must pass rigorous training standards.
- CPA – Chartered Professional Accountant – a unified body of accountants in Canada, built on combining the strengths of the 3 legacy designations (CA, CGA, and CMA).
- CA – Chartered Accountant – (Now CPA, CA) – very rigorous education and exam process with mandatory closely supervised work experience. Leaders in taxation, external accounting and business matters.
- CGA – Chartered General Accountant – (Now CPA, CGA) – Focuses on internal accounting within an organization. Multi-year education and experience program to ensure quality practitioners.
- CMA – Chartered Management Accountant – (Now CPA, CMA) – Focuses on analyzing business costs and operations to aid in a business’s decision making process to achieve business goals.
- CIWM – Certified International Wealth Manager – recognized worldwide as a top credential for wealth management. Addresses the complex needs of high net-worth and affluent clients.
As always, know what you are purchasing, understand the account type to be used and be mindful of the motivation of the person you are dealing with. Only 4 of the 13 persons listed are usually fiduciaries meaning they must put your interest first, always. For more information on Fiduciaries see our March 2018 column.
Contributing Writer – Ingrid Stockman, RECE, President of EWM