Dealing with Clients in Securities Industry
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Questions and Answers

Which of the following actions taken by Ramesh's sales assistant, Helen, would be considered a violation of industry rules?

  • Providing account balances and quotes to existing clients
  • Placing client orders for securities transactions (correct)
  • Taking incoming calls for Ramesh
  • Assisting clients in completing account application forms (correct)

    • Ramesh's plan to use Government of Canada strip bonds as a prospecting tool for new accounts would be considered a violation of which industry rule?

  • Advertising
  • Suitability
  • Solicitation (correct)
  • Know Your Client (KYC)

    • Ramesh instructs Helen to persuade his clients to take profits in their common stocks, which he believes will drop in value. Which regulation does this action violate?

  • Know Your Client (KYC)
  • Solicitation
  • Suitability (correct)
  • Advertising

    • Which of these activities is a non-registered staff member permitted to do?

    <p>Receive completed account applications to forward to the dealer member (B)</p> Signup and view all the answers

    If a non-registered staff member contacts a client to arrange an appointment for a financial consultation, what must be the primary focus of this consultation?

    <p>Discussing the client's individual financial goals (A)</p> Signup and view all the answers

    Which of the following statements is NOT true regarding the use of electronic advertising and social media in the securities industry?

    <p>The use of social media in the securities industry is not subject to the same regulations as traditional sales literature. (D)</p> Signup and view all the answers

    What is the connection between "trade" as defined in provincial securities legislation and marketing materials?

    <p>Marketing materials that promote securities are considered &quot;trade&quot; under those laws. (A)</p> Signup and view all the answers

    What primary concern, as stated in the content, drives regulations about electronic advertising and social media in the securities industry?

    <p>The difficulty in controlling the dissemination of sales messages through online channels. (A)</p> Signup and view all the answers

    The text mentions that industry rules require sales materials to present a fair and balanced view of products. What does this primarily aim to protect?

    <p>The ability of investors to make informed decisions about their investments. (D)</p> Signup and view all the answers

    What is the primary purpose of CIRO's published guidance specifically addressing the use of social media in the securities industry?

    <p>To establish clear guidelines for how dealer members can use social media to promote their services. (D)</p> Signup and view all the answers

    Which of the following is NOT a proficiency requirement for an RR to be able to advise on futures contracts?

    <p>Completion of the Options Licensing Course (OLC) (D)</p> Signup and view all the answers

    According to the content, what does "RIME" stand for?

    <p>Relevant Investment Management Experience (D)</p> Signup and view all the answers

    Which of these is NOT a common factor considered when assessing a PM/APM candidate's Relevant Investment Management Experience (RIME)?

    <p>Number of years in the financial industry (D)</p> Signup and view all the answers

    What is the primary reason behind the increase in demand for discretionary portfolio management services?

    <p>The desire of high-net-worth clients for personalized wealth management. (D)</p> Signup and view all the answers

    Which of the following is NOT considered 'sales literature' under CIRO's IDPC rules?

    <p>A document outlining a dealer member's internal trading strategy (B)</p> Signup and view all the answers

    Which of these statements regarding the approval of sales literature is TRUE?

    <p>Any written communication with clients, including emails, must be approved by supervisory personnel. (B)</p> Signup and view all the answers

    Which of these is MOST LIKELY to trigger a regulatory review of a dealer member's sales literature?

    <p>A sales brochure that promises a specific rate of return on an investment. (D)</p> Signup and view all the answers

    What kind of information would a research report typically NOT include?

    <p>The dealer member's personal opinion on the company's potential for future success. (A)</p> Signup and view all the answers

    What is the primary purpose of the regulatory standards outlined in the text?

    <p>All of the above. (D)</p> Signup and view all the answers

    Flashcards

    Additional Proficiency Requirements

    Requirements for registered representatives (RRs) to solicit orders for options and futures.

    Derivatives Fundamentals Course (DFC)

    A prerequisite course for trading in derivatives like options and futures.

    Portfolio Managers (PMs)

    Professionals approved to provide discretionary portfolio management for managed accounts.

    Relevant Investment Management Experience (RIME)

    Experience required for applicants wanting PM/APM approval, focusing on discretionary portfolio management.

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    Associate Portfolio Managers (APMs)

    Professionals with approved status who assist in discretionary portfolio management.

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    Non-registered staff tasks

    Non-registered staff cannot open client accounts or trade securities.

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    Permitted activities of non-registered staff

    They can advertise services, deliver securities, and contact clients.

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    KYC Rule

    Know Your Client rules require compliance when opening accounts.

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    Ramesh's scenario

    Ramesh instructs his unregistered assistant to handle client orders illegally.

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    Role of designated supervisor

    Supervisors must review new accounts to comply with KYC and suitability.

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    Sales Literature

    Any written or electronic communication recommending a security or trading strategy.

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    Research Reports

    Detailed documents providing information on a securities issuer, including business plans and performance.

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    CASL Compliance

    Organizations must comply with CASL to avoid penalties.

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    Trade Definition

    Advertisements related to securities are included as trade.

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    Internal Use Only Material

    Documents meant for internal research that cannot be shared with clients.

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    Approval Process

    The requirement for written correspondence and advertisements to be approved by supervisors before distribution.

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    Fair and Balanced Marketing

    Sales materials must represent risks and benefits accurately.

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    Electronic Advertising Rules

    Electronic marketing must be supervised like traditional media.

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    Regulatory Standards

    Criteria ensuring that sales literature is truthful and not misleading, without unjustified promises.

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    Social Media Guidelines

    Regulators provide guidelines for using social media in marketing.

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    Study Notes

    Dealing with Clients in the Securities Industry

    • This section discusses regulations for dealing with clients in the securities industry
    • Key categories include working with clients, client discovery and account opening, product due diligence, recommendations, advice, trading, settlement, prohibited activities, maintaining client accounts and relationships, and putting it all together.
    • A separate chapter overview covers dealing and advising registration categories, permitted activities of Registered Representatives, and Investment Representatives, Portfolio Managers, and Associate Portfolio Managers. Regulatory requirements and guidelines around marketing, advertising, and communications with clients are also discussed.
    • The chapter details guidelines around conflicts of interest and personal dealings with clients. It also explains how to handle client data in accordance with privacy regulations.

    Learning Objectives and Content Areas

    • Explain the importance of registration and licensing in the securities industry
    • Explain rules and regulations concerning communication with the public
    • Describe fee disclosure requirements in sales literature
    • Explain the responsibility of a registrant in a conflict-of-interest situation
    • Explain the rules regarding privacy and protection of client information
    • Registration Requirements of a Registered Representative
    • Communication with the Public
    • General Regulations and Guidelines for Sales Literature
    • Dealing with Clients
    • Privacy and Cybersecurity
    • Key Terms: Associate Portfolio Manager, Canada's Anti-Spam Legislation, conflict of interest, cybersecurity, discount broker, National Do Not Call List, fit and proper test, Fund Facts, Investment Representative, Personal Information Protection and Electronic Documents Act, Portfolio Manager, unsolicited order

    Registration Requirements for Registered Representatives

    • Formal training and proficiency requirements include completion of the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH) administered by the CSI.
    • A 90-day restricted client contact period is required for new registered representatives (RRs). During this time, RRs cannot contact customers or prospects for order-related activities.
    • RRs must complete supervision requirements (6 months) unless previously supervised by a recognized regulatory organization.
    • RRs must complete training on handling retail customer interactions (Wealth Management Essentials course) within 30-months of approval.

    Portfolio Managers and Associate Portfolio Managers

    • Portfolio Managers (PMs) and Associate Portfolio Managers (APMs) must meet proficiency requirements and have relevant financial experience.
    • RIME (relevant investment management experience) requirement must be met for PM and APM approval.
    • Registrants must also meet training requirements such as the CPH and Canadian Investment Manager designation, or the Chartered Investment Manager (CIM) designation, or the Chartered Financial Analyst (CFA) charter.

    Sales Assistants

    • Registered sales assistants are Investment Representatives (IRs) employed at full-service investment dealers.
    • Their role involves administrative tasks such as organizing client records, account applications, and other client documents.
    • They may speak with clients but are not permitted to give advice.
    • They may also take unsolicited security orders.

    Investment Representatives at Order Execution Only Firms

    • IRs are registered to take and execute orders on behalf of clients.
    • They must recognize when orders exceed their authority and pass them to the appropriate parties.
    • They cannot process options orders without appropriate licensing and proficiency.

    Restrictions on Non-Registered Staff

    • Non-registered staff members have limited permitted activities (e.g. advertising, delivering/receiving securities).
    • Specific tasks like opening accounts, providing recommendations, or completing KYC information are prohibited for non-registered personnel.

    Personal Financial Dealings with Clients

    • Personal financial dealings with clients are generally prohibited.
    • Activities like borrowing from clients or lending to clients are generally not permissible unless client is a Related Person, or under specific circumstances.

    Conflicts of Interest

    • A conflict of interest arises when the interests of different parties (e.g., client, registrant) are inconsistent.
    • Registrants must identify and address material conflicts of interest, ensuring actions are in client's best interest.
    • Outside business activities must be declared and approved by the firm.

    Privacy and Cybersecurity

    • Client information must be protected in accordance with the Personal Information Protection and Electronic Documents Act (PIPEDA).

    Telemarketing and the National Do Not Call List

    • Telemarketing regulations and the National Do Not Call List (National DNCL) govern telecommunications.
    • The framework dictates permissible times for contact, introduction procedures, record maintenance and penalties.
    • The National DNCL must be adhered to when contacting clients.
    • Other similar regulations exist in regards to advertising and communications.

    Fee Disclosure Requirements in Sales Literature

    • Advertising and sales literature, including written and electronic material referring to securities, must disclose fees and commissions in a clear manner.
    • Any material recommendation has to be fair and balanced with risks and benefits for any products being sold or suggested.

    Mutual Fund Sales Communications

    • Rules govern the content of mutual fund communications.
    • Mutual fund communications must have accurate information without any misleading statements.
    • Fund Facts documents are required to provide essential information about the fund.

    Use of Performance Data

    • Sales communications about mutual funds must properly present performance data, including standards.
    • Performance data must be relevant to the time period and transparent to avoid misleading potential investors.

    Important Note & Case Studies

    • Important notes emphasize the need for honest, accurate and compliant behavior.
    • Several case studies illustrate various challenges related to the above topics.
    • Examples include: Ramesh (unregistered sales assistant taking client orders), Walter (political activity and publicity), and Jerome (disclosing confidential client information) etc.

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    Related Documents

    CPH Chapter 4 PDF - Dealing with Clients in the Securities Industry

    Description

    This quiz covers the essential regulations and guidelines for dealing with clients in the securities industry. Key topics include client discovery, account management, product recommendations, and the handling of client data. You'll also explore registration categories for professionals and conflicts of interest.

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