A client’s stated desire (risk tolerance) must be balanced with their actual financial ability to withstand loss (risk capacity). The advisor’s duty is to educate the client and recommend a suitable course of action that addresses foundational financial security first. Building an emergency fund and eliminating high-interest debt creates a stable platform from which to pursue investment goals responsibly.

While a Life Annuity provides guaranteed lifetime income, it typically offers little flexibility and, unless a guaranteed term or joint-life feature is purchased (which reduces payments), does not address the desire to leave an inheritance. A RRIF or a split-funded approach provides more flexibility for withdrawals and estate planning, better aligning with Michael’s full set of concerns. Using a non-registered account for primary retirement income is inefficient due to the loss of tax deferral.

Interest income is fully taxed at the marginal rate. The after-tax return on the bond would be 5% * (1 – 0.45) = 2.75%. Eligible dividends benefit from the dividend gross-up and tax credit mechanism, resulting in a much lower effective tax rate. A 4% eligible dividend yield will typically have an after-tax return greater than 2.75% for someone in a 45% bracket, making the stock the better after-tax choice. The provincial variation exists but does not change the general outcome for this comparison.

For a self-employed individual with fluctuating income, the ability to make an RRSP contribution in a high-income year and receive a significant tax refund is a powerful planning tool. This refund can act as a form of income averaging. While a TFSA offers tax-free growth and flexibility, it does not provide this immediate tax deduction benefit. RRSP contribution room is based on prior year’s earned income, and both plans allow withdrawals (though RRSP withdrawals are taxable).

Insurable interest is a fundamental legal principle. It requires that the policyowner stand to suffer a genuine financial or emotional loss from the death of the insured. This requirement exists to ensure life insurance serves as a tool for indemnifying loss, not as a speculative bet on someone’s life, which would be against public policy.

The conversion privilege allows the policyowner to convert their expiring term policy into a permanent life insurance policy (like whole life or universal life) without providing new evidence of insurability. This is crucial for a 60-year-old client whose health may change and who now has a need for permanent, lifelong coverage for final expenses and a legacy, rather than temporary coverage.

Structuring payments (also known as smurfing) to avoid triggering reporting requirements is a classic red flag for money laundering. Using multiple, just-below-threshold instruments is a strong indicator of an attempt to evade scrutiny. The other options describe common, legitimate financial transactions that, on their own, do not raise suspicion under the guidelines.

Key person insurance is specifically a life or disability insurance policy taken out by a business on the life of a crucial owner or employee. The death benefit is paid to the *business* to help it survive the financial shock of losing that key individual. It compensates for lost income, covers costs of finding/training a replacement, and can reassure creditors, not directly address disability, competition, or liability risks.

A defining feature of segregated funds (offered by insurance companies) is the maturity and death benefit guarantee, typically 75% or 100% of deposits, subject to a holding period and age restrictions. This provides a safety net not available with conventional mutual funds. They do not guarantee a rate of return, protect against daily market declines below principal, or have fee performance guarantees.

A client’s stated desire (risk tolerance) must be balanced with their actual financial ability to withstand loss (risk capacity). The advisor’s duty is to educate the client and recommend a suitable course of action that addresses foundational financial security first. Building an emergency fund and eliminating high-interest debt creates a stable platform from which to pursue investment goals responsibly.0