INVESTMENT FUNDS IN CANADA EXAM QUESTIONS AND CORRECT ANSWERS LATEST VERSION 2024 ( FULLY SOLVED)

INVESTMENT FUNDS IN CANADA EXAM QUESTIONS AND CORRECT ANSWERS LATEST VERSION 2024 ( FULLY SOLVED) A mutual fund sales representative is under pressure to meet certain sales objectives. However, he consistently ignores these quotas when making client recommendations. Which standard of conduct has he followed? a) The obligation to keep client information confidential. b) Provision of appropriate cautions for potentially unsuitable investments. c) The maintenance of a high standard of professional knowledge. d) The obligations to put the client's interests first. - Answers d) The obligations to put the client's interests first. FEEDBACK : Priority of Client's Interest: The client's interest must be the foremost consideration in all business dealings. In situations where you may have an interest that competes with that of the client, the client's interest must be given priority. Indicate the required timeframe for prior notification to a client of a new or increased charge to their account. a) 30 days. b) 90 days. c) 60 days. d) 120 days. - Answers c) 60 days. FEEDBACK : Rule 2.4.3 - 60 days prior written notice must be given to clients for any new or increased operating charges in their accounts; A mutual fund sales representative is interviewing a 35-year old, single client, with extremely low risk tolerance. The client's stated investment objective is to save for his retirement in 25 years. He has few retirement assets. The representative determines that an asset allocation of 60% equities, 30% fixed income and 10% near-cash would be appropriate given his age and objectives, but the client refuses and wishes only to invest in near-cash investments. What course of action would be most appropriate for the representative to takes? a) Advise the client to invest primarily in near-cash to match his risk tolerance. b) Refuse to continue the relationship unless the client accepts the 60/30/10 recommendation. c) Explain the risks involved with both a 60% equity allocation, and a zero equity allocation. d) Reassure the client that a 60% equity allocation in a well-diversified portfolio carries little risk. - Answers c) Explain the risks involved with both a 60% equity allocation, and a zero equity allocation. FEEDBACK : You must make a concerted effort to know the client—-to understand the financial and personal status and aspirations of the client. You will make recommendations for the client to invest funds in mutual funds that reflect, to the best of your knowledge, these considerations. Having provided sound advice, you will be above reproach for potentially unsuitable purchases and sales of securities for a client if the client does not heed your advice. What are non-registered persons permitted to do with regards to mutual funds? a) Provide recommendation on mutual funds. b) Assist the client with the completion of order forms. c) Hand out a mutual fund prospectus. d) Accept a completed order form for the purpose of forwarding it to a registered salesperson for processing. - Answers d) Accept a completed order form for the purpose of forwarding it to a registered salesperson for processing. FEEDBACK : A non-registered salesperson cannot perform any act in furtherance of a trade. There are several tasks that non-registered people may do with regards to mutual fund transactions. They can accept redemption requests for the purpose of processing the redemption by a registered sales representative, they can accept a completed order form for the purpose of forwarding it to a registered salesperson for processing, they can provide basic information to current unit holders regarding their current holdings, such as NAVPU, number of units held, distributions given, but only if it does not solicit additional sales. They can also refer clients to a registered sales representative. Outside Quebec, indicate the required timeframe for a dealer to notify the relevant securities administrator of the termination of a salesperson's employment. a) 1 business day. b) 10 business days. c) 30 days. d) 5 business days. - Answers d) 5 business days. FEEDBACK : The registered dealing representative and the registrant's dealer must notify the appropriate securities administrator promptly in writing within five business days (10 days in Quebec) of any changes in specified information provided on the dealing representative's registration application, including: - branch transfer or change in address - change of name (state reason) - disciplinary action of a professional body or regulatory body - termination of employment/registration (state reason) - charged with a criminal offence - personal bankruptcy (Ontario and Quebec) - civil judgment or garnishment Identify how a written client complaint must be acknowledged. a) By phone, within 2 business days. b) Contact by salesperson same business day. c) Contact by Branch Manager within 5 business days. d) In writing. - Answers d) In writing. FEEDBACK : MFDA Policy No.3 specifies the minimum procedures for dealing with written client complaints (including emails). All written client complaints must be acknowledged in writing. A mutual fund dealer has an arrangement with an investment advisor where the dealer refers his clients to the advisor in return for a share of commissions. The advisor and the dealer have a written agreement, and provide full disclosure to the clients. Determine the relationship between the dealer and the advisor. a) Dual registration. b) Partnership. c) Referral arrangement. d) Investment club. - Answers c) Referral arrangement. FEEDBACK : The MFDA defines a referral arrangement as an arrangement where a member of the MFDA (being a mutual fund dealer) is paid (or pays) a fee, including fees based on commissions (or sharing a commission), for the referral of a client to or from another person. The arrangement does not include payment to a third-party service provider where the service provider has no direct contact with clients and where the services are not securities related. Choose the term used when a member of the MFDA is paid a fee, including fees based on commissions, for the referral of a client to, or from, another person. a) Joint account. b) Dual employment. c) Investment club. d) Referral arrangement. - Answers d) Referral arrangement. FEEDBACK : The MFDA defines a referral arrangement as an arrangement where a member of the MFDA (being a mutual fund dealer) is paid (or pays) a fee, including fees based on commissions (or sharing a commission), for the referral of a client to or from another person. The arrangement does not include payment to a third-party service provider where the service provider has no direct contact with clients and where the services are not securities related. Identify the time frame by which an individual must be registered after a proficiency exam is written to avoid having to re-write the proficiency exam. a) 6 months. b) 3 years. c) 1 year. d) 2 years. - Answers b) 3 years. FEEDBACK : To remain a registered dealing representative, the representative or his/her dealer must pay a fee annually within specified time frames. However, it is not necessary to rewrite the proficiency course examination. It is important to note that if an individual is not registered within three years of successful completion of the proficiency examination, or within three years of termination or suspension of the individual's registration, there is a general requirement that proficiency requirements must be met again, unless an exemption is available or obtained. There currently are formal continuing education requirements. Sasha is registered in Ontario and Manitoba. The sister of a current client, living in Alberta, calls with a purchase order for $25,000 of a no-load money market fund. Identify the action that Sasha must take. a) Take the order and place a note on file. b) Ask her client to place the order on her sister's behalf. c) Complete the KYC information and then process the order. d) Refuse the order. - Answers d) Refuse the order. FEEDBACK : Employees and agents who participate in the sale of mutual funds for a mutual fund dealer to the public must be registered with the appropriate provincial or territorial securities administrator as a mutual fund dealing representative in each province or territory in which their clients reside. Under what circumstances can a financial institution disclose financial and personal information without a client's consent? a) When the client has been convicted of a criminal offence. b) When a government agency with legal authority requires the information. c) When the client is traveling out of the country and cannot be contacted. d) When requested by the beneficiaries of the client s estate. - Answers b) When a government agency with legal authority requires the information. FEEDBACK : The law authorizes disclosure of personal information without knowledge or consent when a government representative has legal authority to obtain the information. Otherwise, such information is protected under privacy law. Which of the following sales practices is permitted? a) Indicating to clients that a particular mutual fund is registered for sale in a given province. b) Providing investment guidance with respect to individual stocks and bonds but only if they are held within your institution's mutual funds. c) Selling mutual funds that are not registered for sale in the province in which you are selling them. d) Selling mutual funds to individuals who are not resident in the province in which you are registered to sell. - Answers a) Indicating to clients that a particular mutual fund is registered for sale in a given province. FEEDBACK : There are a range of sales practices which are permitted, and others which are prohibited. Those that are prohibited are primarily to ensure that mutual fund sales representatives provide information only within the scope of their certified expertise, while others are to prevent representatives from misrepresenting themselves Nick is very pleased with his salesperson; she provided him with a range of sales communications, recommended a good mutual fund, and told him that he would get at least 10% return over the next six months. Determine the prohibited sales practice that Nick's salesperson has demonstrated. a) Quoting a future price. b) Provision of non-monetary benefits. c) Offer to repurchase. d) Promising a future price. - Answers d) Promising a future price. FEEDBACK : WHAT ARE THE PROHIBITED SELLING PRACTICES? Prohibited selling practices refer to sales practices that are clearly illegal or otherwise unacceptable to securities regulators. Engaging in these and other types of overselling and unethical behaviour could lead to a loss of registration. The following practices are prohibited under mutual fund regulations. QUOTING A FUTURE PRICE When an investor places an order to buy or sell a mutual fund, the price per unit or share that she will be paying or receiving is not known. This is because the purchase or sale price is based on the net asset value determined after the order is purchased or redemption order is received by the mutual fund. As explained in Chapter 10, depending on the time of day in which the order is entered, the NAVPS may be calculated later on the current bu