Mutual Fund Trading Guidelines

Investment Recommendations and Responsibilities

• Sales representatives must review research, fund facts, and prospectuses before making trade recommendations.
• Accept trades only based on reasonable evidence and asset allocation models used by the dealer.
• Regular sales meetings are essential for keeping representatives informed on asset allocation models.

Mutual Fund Performance Interpretation

• Sales representatives must interpret mutual fund performance data according to strict rules.
• Performance measurements to discuss include rates of return, volatility, and rankings.
• Standard performance data must accompany any performance statements, adhering to National Instrument 81-102.
• Only current data may be used; past performance disclosures are mandatory.

Understanding Suitability and Acceptability

• The suitability principle is foundational to the investment advisory process; clients cannot waive this obligation.
• Discount brokers operate without suitability obligations and accept trades without assessing customer suitability.
• Orders made may be deemed unacceptable based on the client's risk profile, knowledge, and investment objectives.

Assessing Conservative Investments

• Conservative portfolios may be acceptable within an appropriate asset allocation but can sometimes be inappropriate for the client's profile.
• Sales representatives must caution clients regarding ultra-conservative investments and document these discussions.

Acceptability of Orders

• Different treatment of orders: lump sum purchases may be unacceptable while periodic purchases could be permissible under specific conditions.
• Consult with compliance officers if doubts arise about the acceptability of an order based on risk profiles.

Investment Objectives for Retirees

• Retirees often prioritize capital preservation and income generation due to limited income sources.
• Fixed income typically dominates the portfolios of retired investors to ensure stability.

Risk and Volatility Considerations

• Historically, equities outperform fixed income by 3.5% to 5.0% annually, but carry higher risks.
• Diversification reduces volatility; mixed portfolios (e.g., 50% equities and 50% bonds) show less volatility while retaining returns.

Orders Classification

• Solicited orders come from sales representatives; suitability must align with KYC information.
• Unsolicited orders are client-initiated, but require careful suitability considerations.

Policy on Leverage

• Leverage in investing increases risk and must be understood by clients before executing trades.
• The appropriateness of leveraging depends on the client’s specific circumstances and preferences, requiring careful judgment.

Risk Capacity Assessment

• Clients' financial situations, including assets and income stability, determine their risk-taking capacity.
• Annual income categories and stability ratings help gauge clients' risk profiles.
• Evaluating clients’ net worth and debt levels are essential aspects of suitability assessments.

This quiz focuses on the essential guidelines for making informed recommendations and accepting trades in mutual fund investments. It emphasizes the importance of reviewing relevant materials such as research documents and the prospectus. Understand how sales representatives should base their decisions on reasonable evidence and asset allocation models.