78 Questions
What is the primary purpose of the Compliance Department of a mutual fund dealer?
To provide guidance on ethical standards
According to the Merriam-Webster online dictionary, what does ethics refer to?
The principles of conduct governing an individual or a group
What is the estimated time required to complete Unit 2: Registrant Responsibilities?
1 hour and 30 minutes
What is the primary focus of Lesson 1: Ethics?
Defining ethics and ethical behaviour
What is the significance of the MFDA’s standard of conduct rule?
It defines the principles of conduct governing dealers
What is the result of unethical conduct?
Non-conformance to approved standards
What is the purpose of a yardstick in determining ethical conduct?
To provide a standard for evaluating conduct
What is the primary purpose of the Performance Report?
To provide clients with easy-to-understand information about the cost-adjusted performance return of their investments
What is required to be disclosed to clients before the transaction is made?
The costs associated with the purchase or sale of a security
What is the purpose of the pre-trade cost disclosure introduced by CRM?
To disclose the costs associated with the purchase or sale of a security before the transaction is made
Who is required to disclose the costs associated with the purchase or sale of a security before the transaction is made?
Registered individuals, including the Dealing Representatives of mutual fund dealers
What is the primary focus of the Client Focused Reforms?
To prioritize the interests of clients
What is the frequency of issuing the Performance Report to clients?
Annually
What is the ultimate goal of the Client Relationship Model and Client Focused Reforms?
To prioritize the interests of clients
What is the term used to describe excessive trading in an account?
Churning
What is the primary investment strategy associated with mutual fund investing?
Long-term buy-and-hold strategy
What is the purpose of frequent trading in client accounts, according to MFDA staff?
To earn commissions for the Dealing Representative
Why would Hari Prasad need to explain his recommendation to sell and buy a Deferred Sales Charge (DSC) fund?
Because the transaction appears unlikely to yield any benefit to the client but will benefit Hari with additional commission
What is the consequence if the Compliance Department determines that transactions are unsuitable or not in the best interest of the client?
The transactions will be unwound, and Hari will be required to pay for any associated costs and losses
When will the ban on Deferred Sales Charge (DSC) Funds take effect?
June 1, 2022
What is the purpose of the ban on Deferred Sales Charge (DSC) Funds?
To protect clients from unsuitable transactions
What is the primary responsibility of a Dealing Representative in relation to conflicts of interest?
To follow the firm's policies and procedures to address conflicts of interest
What is the recommended course of action if a Dealing Representative is unsure about how to deal with a compliance issue?
Check with the firm's Compliance Department
What is the primary purpose of this lesson?
To provide information about common compliance issues and how to deal with them
What is one of the common compliance issues that a Dealing Representative may face?
Personal financial dealings with clients
What is the recommended time to complete this lesson?
30 minutes
Who is responsible for guiding a Dealing Representative on compliance issues?
The firm's Compliance Department
What is the outcome of completing this lesson?
The ability to discuss compliance issues and how to deal with them
What is a fundamental requirement for dual occupations to be permitted under securities legislation and regulations?
Prescribed conditions are satisfied
What is an example of a business activity that would not fall under your role with your firm?
Insurance
What is the primary distinction between a dual occupation and an outside activity?
Whether the activity is done on behalf of the firm
What is an example of an outside activity that is not a dual occupation?
Acting as a board member
What is the primary purpose of securities legislation and regulations regarding dual occupations and outside activities?
To ensure prescribed conditions are satisfied
What is an example of a position of influence that may be considered an outside activity?
Military officer
Why are dual occupations and outside activities permitted under securities legislation and regulations?
Because prescribed conditions are satisfied
What is the key difference between a dual occupation and a business activity done on behalf of the firm?
Whether the activity is done on behalf of the firm
What is an example of a business activity that may be considered a dual occupation?
Tax preparation
Why is it important to understand the distinction between dual occupations and outside activities?
Because it is required by securities legislation and regulations
What is the primary characteristic of a Tax-Free Savings Account (TFSA) in terms of taxation?
Contributions are not tax deductible, investment earnings are not taxable, and withdrawals are tax-free.
Which type of registered account allows for tax-deductible contributions?
Registered Retirement Savings Plan (RRSP)
What is the tax implication of withdrawals from a Registered Education Savings Plan (RESP)?
Withdrawals of investment returns are taxable, while withdrawals of subscriber contributions are tax-free.
What is the primary characteristic of a Registered Retirement Income Fund (RRIF) in terms of taxation?
No contributions are allowed, investment earnings are taxable, and withdrawals are taxable.
What is the tax implication of withdrawals from a Registered Disability Savings Plan (RDSP)?
Withdrawals of investment returns are taxable, while withdrawals of contributor contributions are tax-free.
What is the primary characteristic of non-registered accounts in terms of taxation?
Contributions are not tax deductible, investment earnings are taxable, and withdrawals are taxable.
Which type of registered account does not allow for contributions?
Registered Retirement Income Fund (RRIF)
What is the primary advantage of registered accounts versus non-registered accounts?
Registered accounts provide tax benefits, such as tax-deductible contributions or tax-free withdrawals.
What is the condition for an individual to be considered a deemed resident of Canada?
They are an employee of the Government of Canada posted abroad.
How are days spent in Canada counted for tax purposes?
Any day or part of a day spent in Canada counts as a full day.
What is the effect of a tax deduction on an individual's tax payable?
It reduces the amount of income on which tax is payable.
When are tax credits applied in the taxation process?
After tax deductions are made and tax payable is calculated.
What is the effect of a tax credit on an individual's tax payable?
It reduces the amount of tax payable.
What is the primary difference between a tax deduction and a tax credit?
A tax deduction reduces income, while a tax credit reduces tax payable.
Which of the following is a condition for being considered a non-resident of Canada for tax purposes?
The individual did not have significant residential ties in Canada and lived outside Canada throughout the year.
What is the effect of a tax treaty on an individual's residency status for tax purposes?
It deems the individual a non-resident of Canada.
What type of accounts can benefit from re-balancing in terms of tax efficiencies?
Non-registered accounts
What is the consequence of Terry's allowable capital loss exceeding her taxable capital gain?
She will have a net allowable capital loss for the year
What can Terry use her net allowable capital loss to do?
Reduce her taxable capital gains from the previous three tax years
What is the significance of the year of death or terminal return in terms of capital losses?
All capital losses realized in the year of death can be deducted from capital gains
What is the result of Terry using her allowable capital loss to reduce her taxable capital gain?
She will have a lower taxable capital gain
What is the benefit of re-balancing a non-registered portfolio in terms of capital gains and losses?
It can take advantage of unrealized gains or losses
What is the primary purpose of the gross-up and tax credit mechanism in Canada?
To minimize the double taxation of dividends paid by Canadian corporations
Why are dividends paid by Canadian corporations given special tax treatment?
Because the corporation has already paid tax before the dividend was paid to shareholders
What is the purpose of Terry's calculation of her allowable capital loss?
To determine her net allowable capital loss for the year
What is the result of the dividend tax credit being non-refundable in lower tax brackets?
A negative marginal tax rate for eligible individuals
What is the effect of Terry's net allowable capital loss on her future taxable capital gains?
It will decrease her future taxable capital gains
How are dividends paid by foreign corporations treated when paid to Canadian shareholders?
They are not given any special tax treatment
What is the impact of the gross-up and tax credit mechanism on the federal tax payable of an investor?
It decreases the federal tax payable of the investor
What is the purpose of the gross-up amount in the context of dividends paid by Canadian corporations?
To calculate the dividend tax credit
How does the dividend tax credit affect the federal tax payable of an investor?
It decreases the federal tax payable of the investor
What is the tax treatment of eligible dividends received by an investor from a Canadian corporation?
They are subject to a lower tax rate than non-eligible dividends
What happens to the remaining net capital losses of a mutual fund if it has a greater amount of capital losses than capital gains?
They are carried forward indefinitely
What type of slip is used to report the income generated from a mutual fund trust?
T3 Slip
What can an investor realize on their funds, according to the table above?
Interest income, dividends, capital gains, and capital losses
What is the result of the fund manager selling 50,000 shares of MED Ltd. and 100,000 shares of TAL Ltd.?
The fund has a net capital loss of $5,000
What is the purpose of distributing all income, dividends, and net capital gains of a mutual fund?
To meet the regulatory requirements
What is the outcome of a mutual fund having a greater amount of capital losses than capital gains?
The fund carries forward the net capital loss indefinitely
What is the tax implication of a mutual fund investor receiving a distributed net capital gain?
The gain is taxable
What is the significance of a mutual fund distributing all its income, dividends, and net capital gains every year?
It prevents the fund from carrying back net capital losses
Test your knowledge of the MFDA's standard of conduct and understand how your mutual fund dealer's Compliance Department provides guidance. Covering topics such as ethics, compliance, conflicts of interest, and registration requirements.
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