Mutual Fund Dealers Association of Canada (MFDA) Ethics and Compliance
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Questions and Answers

What is the primary purpose of the Compliance Department of a mutual fund dealer?

  • To provide guidance on ethical standards (correct)
  • To handle customer complaints
  • To monitor market trends and forecasts
  • To manage investment portfolios

    • According to the Merriam-Webster online dictionary, what does ethics refer to?

  • The principles of conduct governing an individual or a group (correct)
  • A system of moral philosophy
  • A set of moral values and principles
  • A code of professional conduct

    • What is the estimated time required to complete Unit 2: Registrant Responsibilities?

  • 4 hours and 30 minutes
  • 2 hours and 30 minutes
  • 1 hour and 30 minutes (correct)
  • 3 hours and 30 minutes

    • What is the primary focus of Lesson 1: Ethics?

    <p>Defining ethics and ethical behaviour</p> Signup and view all the answers

    What is the significance of the MFDA’s standard of conduct rule?

    <p>It defines the principles of conduct governing dealers</p> Signup and view all the answers

    What is the result of unethical conduct?

    <p>Non-conformance to approved standards</p> Signup and view all the answers

    What is the purpose of a yardstick in determining ethical conduct?

    <p>To provide a standard for evaluating conduct</p> Signup and view all the answers

    What is the primary purpose of the Performance Report?

    <p>To provide clients with easy-to-understand information about the cost-adjusted performance return of their investments</p> Signup and view all the answers

    What is required to be disclosed to clients before the transaction is made?

    <p>The costs associated with the purchase or sale of a security</p> Signup and view all the answers

    What is the purpose of the pre-trade cost disclosure introduced by CRM?

    <p>To disclose the costs associated with the purchase or sale of a security before the transaction is made</p> Signup and view all the answers

    Who is required to disclose the costs associated with the purchase or sale of a security before the transaction is made?

    <p>Registered individuals, including the Dealing Representatives of mutual fund dealers</p> Signup and view all the answers

    What is the primary focus of the Client Focused Reforms?

    <p>To prioritize the interests of clients</p> Signup and view all the answers

    What is the frequency of issuing the Performance Report to clients?

    <p>Annually</p> Signup and view all the answers

    What is the ultimate goal of the Client Relationship Model and Client Focused Reforms?

    <p>To prioritize the interests of clients</p> Signup and view all the answers

    What is the term used to describe excessive trading in an account?

    <p>Churning</p> Signup and view all the answers

    What is the primary investment strategy associated with mutual fund investing?

    <p>Long-term buy-and-hold strategy</p> Signup and view all the answers

    What is the purpose of frequent trading in client accounts, according to MFDA staff?

    <p>To earn commissions for the Dealing Representative</p> Signup and view all the answers

    Why would Hari Prasad need to explain his recommendation to sell and buy a Deferred Sales Charge (DSC) fund?

    <p>Because the transaction appears unlikely to yield any benefit to the client but will benefit Hari with additional commission</p> Signup and view all the answers

    What is the consequence if the Compliance Department determines that transactions are unsuitable or not in the best interest of the client?

    <p>The transactions will be unwound, and Hari will be required to pay for any associated costs and losses</p> Signup and view all the answers

    When will the ban on Deferred Sales Charge (DSC) Funds take effect?

    <p>June 1, 2022</p> Signup and view all the answers

    What is the purpose of the ban on Deferred Sales Charge (DSC) Funds?

    <p>To protect clients from unsuitable transactions</p> Signup and view all the answers

    What is the primary responsibility of a Dealing Representative in relation to conflicts of interest?

    <p>To follow the firm's policies and procedures to address conflicts of interest</p> Signup and view all the answers

    What is the recommended course of action if a Dealing Representative is unsure about how to deal with a compliance issue?

    <p>Check with the firm's Compliance Department</p> Signup and view all the answers

    What is the primary purpose of this lesson?

    <p>To provide information about common compliance issues and how to deal with them</p> Signup and view all the answers

    What is one of the common compliance issues that a Dealing Representative may face?

    <p>Personal financial dealings with clients</p> Signup and view all the answers

    What is the recommended time to complete this lesson?

    <p>30 minutes</p> Signup and view all the answers

    Who is responsible for guiding a Dealing Representative on compliance issues?

    <p>The firm's Compliance Department</p> Signup and view all the answers

    What is the outcome of completing this lesson?

    <p>The ability to discuss compliance issues and how to deal with them</p> Signup and view all the answers

    What is a fundamental requirement for dual occupations to be permitted under securities legislation and regulations?

    <p>Prescribed conditions are satisfied</p> Signup and view all the answers

    What is an example of a business activity that would not fall under your role with your firm?

    <p>Insurance</p> Signup and view all the answers

    What is the primary distinction between a dual occupation and an outside activity?

    <p>Whether the activity is done on behalf of the firm</p> Signup and view all the answers

    What is an example of an outside activity that is not a dual occupation?

    <p>Acting as a board member</p> Signup and view all the answers

    What is the primary purpose of securities legislation and regulations regarding dual occupations and outside activities?

    <p>To ensure prescribed conditions are satisfied</p> Signup and view all the answers

    What is an example of a position of influence that may be considered an outside activity?

    <p>Military officer</p> Signup and view all the answers

    Why are dual occupations and outside activities permitted under securities legislation and regulations?

    <p>Because prescribed conditions are satisfied</p> Signup and view all the answers

    What is the key difference between a dual occupation and a business activity done on behalf of the firm?

    <p>Whether the activity is done on behalf of the firm</p> Signup and view all the answers

    What is an example of a business activity that may be considered a dual occupation?

    <p>Tax preparation</p> Signup and view all the answers

    Why is it important to understand the distinction between dual occupations and outside activities?

    <p>Because it is required by securities legislation and regulations</p> Signup and view all the answers

    What is the primary characteristic of a Tax-Free Savings Account (TFSA) in terms of taxation?

    <p>Contributions are not tax deductible, investment earnings are not taxable, and withdrawals are tax-free.</p> Signup and view all the answers

    Which type of registered account allows for tax-deductible contributions?

    <p>Registered Retirement Savings Plan (RRSP)</p> Signup and view all the answers

    What is the tax implication of withdrawals from a Registered Education Savings Plan (RESP)?

    <p>Withdrawals of investment returns are taxable, while withdrawals of subscriber contributions are tax-free.</p> Signup and view all the answers

    What is the primary characteristic of a Registered Retirement Income Fund (RRIF) in terms of taxation?

    <p>No contributions are allowed, investment earnings are taxable, and withdrawals are taxable.</p> Signup and view all the answers

    What is the tax implication of withdrawals from a Registered Disability Savings Plan (RDSP)?

    <p>Withdrawals of investment returns are taxable, while withdrawals of contributor contributions are tax-free.</p> Signup and view all the answers

    What is the primary characteristic of non-registered accounts in terms of taxation?

    <p>Contributions are not tax deductible, investment earnings are taxable, and withdrawals are taxable.</p> Signup and view all the answers

    Which type of registered account does not allow for contributions?

    <p>Registered Retirement Income Fund (RRIF)</p> Signup and view all the answers

    What is the primary advantage of registered accounts versus non-registered accounts?

    <p>Registered accounts provide tax benefits, such as tax-deductible contributions or tax-free withdrawals.</p> Signup and view all the answers

    What is the condition for an individual to be considered a deemed resident of Canada?

    <p>They are an employee of the Government of Canada posted abroad.</p> Signup and view all the answers

    How are days spent in Canada counted for tax purposes?

    <p>Any day or part of a day spent in Canada counts as a full day.</p> Signup and view all the answers

    What is the effect of a tax deduction on an individual's tax payable?

    <p>It reduces the amount of income on which tax is payable.</p> Signup and view all the answers

    When are tax credits applied in the taxation process?

    <p>After tax deductions are made and tax payable is calculated.</p> Signup and view all the answers

    What is the effect of a tax credit on an individual's tax payable?

    <p>It reduces the amount of tax payable.</p> Signup and view all the answers

    What is the primary difference between a tax deduction and a tax credit?

    <p>A tax deduction reduces income, while a tax credit reduces tax payable.</p> Signup and view all the answers

    Which of the following is a condition for being considered a non-resident of Canada for tax purposes?

    <p>The individual did not have significant residential ties in Canada and lived outside Canada throughout the year.</p> Signup and view all the answers

    What is the effect of a tax treaty on an individual's residency status for tax purposes?

    <p>It deems the individual a non-resident of Canada.</p> Signup and view all the answers

    What type of accounts can benefit from re-balancing in terms of tax efficiencies?

    <p>Non-registered accounts</p> Signup and view all the answers

    What is the consequence of Terry's allowable capital loss exceeding her taxable capital gain?

    <p>She will have a net allowable capital loss for the year</p> Signup and view all the answers

    What can Terry use her net allowable capital loss to do?

    <p>Reduce her taxable capital gains from the previous three tax years</p> Signup and view all the answers

    What is the significance of the year of death or terminal return in terms of capital losses?

    <p>All capital losses realized in the year of death can be deducted from capital gains</p> Signup and view all the answers

    What is the result of Terry using her allowable capital loss to reduce her taxable capital gain?

    <p>She will have a lower taxable capital gain</p> Signup and view all the answers

    What is the benefit of re-balancing a non-registered portfolio in terms of capital gains and losses?

    <p>It can take advantage of unrealized gains or losses</p> Signup and view all the answers

    What is the primary purpose of the gross-up and tax credit mechanism in Canada?

    <p>To minimize the double taxation of dividends paid by Canadian corporations</p> Signup and view all the answers

    Why are dividends paid by Canadian corporations given special tax treatment?

    <p>Because the corporation has already paid tax before the dividend was paid to shareholders</p> Signup and view all the answers

    What is the purpose of Terry's calculation of her allowable capital loss?

    <p>To determine her net allowable capital loss for the year</p> Signup and view all the answers

    What is the result of the dividend tax credit being non-refundable in lower tax brackets?

    <p>A negative marginal tax rate for eligible individuals</p> Signup and view all the answers

    What is the effect of Terry's net allowable capital loss on her future taxable capital gains?

    <p>It will decrease her future taxable capital gains</p> Signup and view all the answers

    How are dividends paid by foreign corporations treated when paid to Canadian shareholders?

    <p>They are not given any special tax treatment</p> Signup and view all the answers

    What is the impact of the gross-up and tax credit mechanism on the federal tax payable of an investor?

    <p>It decreases the federal tax payable of the investor</p> Signup and view all the answers

    What is the purpose of the gross-up amount in the context of dividends paid by Canadian corporations?

    <p>To calculate the dividend tax credit</p> Signup and view all the answers

    How does the dividend tax credit affect the federal tax payable of an investor?

    <p>It decreases the federal tax payable of the investor</p> Signup and view all the answers

    What is the tax treatment of eligible dividends received by an investor from a Canadian corporation?

    <p>They are subject to a lower tax rate than non-eligible dividends</p> Signup and view all the answers

    What happens to the remaining net capital losses of a mutual fund if it has a greater amount of capital losses than capital gains?

    <p>They are carried forward indefinitely</p> Signup and view all the answers

    What type of slip is used to report the income generated from a mutual fund trust?

    <p>T3 Slip</p> Signup and view all the answers

    What can an investor realize on their funds, according to the table above?

    <p>Interest income, dividends, capital gains, and capital losses</p> Signup and view all the answers

    What is the result of the fund manager selling 50,000 shares of MED Ltd. and 100,000 shares of TAL Ltd.?

    <p>The fund has a net capital loss of $5,000</p> Signup and view all the answers

    What is the purpose of distributing all income, dividends, and net capital gains of a mutual fund?

    <p>To meet the regulatory requirements</p> Signup and view all the answers

    What is the outcome of a mutual fund having a greater amount of capital losses than capital gains?

    <p>The fund carries forward the net capital loss indefinitely</p> Signup and view all the answers

    What is the tax implication of a mutual fund investor receiving a distributed net capital gain?

    <p>The gain is taxable</p> Signup and view all the answers

    What is the significance of a mutual fund distributing all its income, dividends, and net capital gains every year?

    <p>It prevents the fund from carrying back net capital losses</p> Signup and view all the answers

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