Podcast
Questions and Answers
What should you consider if you need a steady source of income from your investment?
What should you consider if you need a steady source of income from your investment?
- Invest in a non-registered account.
- Choose a fund with high sales charges.
- Select a fund that does not distribute income.
- Avoid funds that do not provide a steady income. (correct)
How are fund distributions treated in a non-registered account?
How are fund distributions treated in a non-registered account?
- They are included in your taxable income. (correct)
- They are free from taxation.
- They are not taxed until withdrawn.
- They are taxed only if reinvested.
What is a factor that can influence the recommendations from representatives?
What is a factor that can influence the recommendations from representatives?
- The volatility of the stock market.
- The commissions associated with funds. (correct)
- The range of stocks in the fund.
- Your personal investment goals.
When purchasing the fund, what options do you have regarding sales charges?
When purchasing the fund, what options do you have regarding sales charges?
What aspect of fund expenses is important to note?
What aspect of fund expenses is important to note?
Why might someone choose to hold a fund in a Registered Retirement Savings Plan?
Why might someone choose to hold a fund in a Registered Retirement Savings Plan?
What does a higher sales charge imply for an investor's decision?
What does a higher sales charge imply for an investor's decision?
In what scenario should you avoid buying a particular fund?
In what scenario should you avoid buying a particular fund?
What must registrants avoid in their sales communications?
What must registrants avoid in their sales communications?
Which document must be delivered when opening an account for a retail client?
Which document must be delivered when opening an account for a retail client?
Which of the following is NOT one of the required disclosures for retail clients?
Which of the following is NOT one of the required disclosures for retail clients?
What is the role of the head office regarding disclosures?
What is the role of the head office regarding disclosures?
Who qualifies as a retail client under the specified criteria?
Who qualifies as a retail client under the specified criteria?
Which section of NI31-103 specifically applies to registrants conducting securities-related activities in a branch?
Which section of NI31-103 specifically applies to registrants conducting securities-related activities in a branch?
What must be included in the written disclosure of a referral arrangement?
What must be included in the written disclosure of a referral arrangement?
What must a registrant confirm from the retail client upon presenting the disclosure statement?
What must a registrant confirm from the retail client upon presenting the disclosure statement?
Which of the following is a compliance obligation of a registrant?
Which of the following is a compliance obligation of a registrant?
What is required before implementing a referral arrangement?
What is required before implementing a referral arrangement?
Which of the following is NOT a required part of the referral arrangement disclosure document?
Which of the following is NOT a required part of the referral arrangement disclosure document?
What must a sales representative provide to the client before accepting a mutual fund trade?
What must a sales representative provide to the client before accepting a mutual fund trade?
What is the timeline for notifying a client of changes in the referral arrangement disclosure information?
What is the timeline for notifying a client of changes in the referral arrangement disclosure information?
What ongoing requirement is stipulated for the mutual fund dealer regarding referral arrangements?
What ongoing requirement is stipulated for the mutual fund dealer regarding referral arrangements?
Which of the following statements is true about referral arrangements?
Which of the following statements is true about referral arrangements?
What document must sales representatives file as evidence of pre-trade disclosure to clients?
What document must sales representatives file as evidence of pre-trade disclosure to clients?
What must the disclosure document clearly indicate regarding mutual fund securities?
What must the disclosure document clearly indicate regarding mutual fund securities?
Why is oral disclosure about the lack of financial institution guarantee particularly important?
Why is oral disclosure about the lack of financial institution guarantee particularly important?
What happens to the net asset value of a mortgage mutual fund when interest rates rise?
What happens to the net asset value of a mortgage mutual fund when interest rates rise?
What is guaranteed by the financial institution regarding underlying mortgages?
What is guaranteed by the financial institution regarding underlying mortgages?
Which of the following types of funds are explicitly stated not to be guaranteed?
Which of the following types of funds are explicitly stated not to be guaranteed?
What main information should sales representatives communicate during the sales interview?
What main information should sales representatives communicate during the sales interview?
Which scenario might confuse clients who have only invested in bank deposits?
Which scenario might confuse clients who have only invested in bank deposits?
What can sales representatives clarify about simplified prospectuses for guaranteed mutual funds?
What can sales representatives clarify about simplified prospectuses for guaranteed mutual funds?
What is the primary objective of the Client Relationship Model Phase 2 (CRM2)?
What is the primary objective of the Client Relationship Model Phase 2 (CRM2)?
Which document illustrates the performance of clients' investments?
Which document illustrates the performance of clients' investments?
How often is the Account Statement typically sent to clients?
How often is the Account Statement typically sent to clients?
What type of information is NOT included in the Account Statement?
What type of information is NOT included in the Account Statement?
Which of the following is part of the information provided in the Charges and Other Compensation document?
Which of the following is part of the information provided in the Charges and Other Compensation document?
When may the Account Statement be sent monthly instead of quarterly?
When may the Account Statement be sent monthly instead of quarterly?
What does the Position cost information in the Account Statement include?
What does the Position cost information in the Account Statement include?
What happens if the position cost is unavailable when a security is transferred from another firm?
What happens if the position cost is unavailable when a security is transferred from another firm?
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Study Notes
Sales Communication Rules
- Sales communications are regulated by National Instrument 81-102, National Instrument 31-103, the new Self-Regulatory Organization (SRO) rules, and other statutes.
- Head office guidelines also prohibit untrue or extravagant claims, misleading statements, and conflicting information with offering documentation.
- Further disclosure requirements may exist in some Canadian provinces and territories.
Offering Documentation
- Mutual fund offering documentation includes the Fund Facts document for each class or series, the simplified prospectus, and the Annual Information Form (AIF).
Disclosure Requirements at Branch Level
- NI 31-103 Section 14.4 applies to registrants operating within a branch of a Canadian financial institution.
- A registered securities or mutual fund dealer is not considered a financial institution.
- Four disclosures are required when opening a retail client account:
- The registered entity is separate from the financial institution.
- There’s no deposit insurance coverage.
- No financial institution guarantee is provided.
- Net asset values and yields may fluctuate.
- The disclosure statement must be acknowledged by the retail client.
- A retail client is defined as an individual with less than 5,000,000networthoranindividualorcompanywithlessthan5,000,000 net worth or an individual or company with less than 5,000,000networthoranindividualorcompanywithlessthan10,000,000 in total assets or revenue, excluding registrants or financial institutions.
Disclosure of No Financial Institution Guarantee
- The disclosure document states that the affiliated financial institution is not guaranteeing the mutual fund securities.
- This clarification is intended to prevent clients from thinking the financial institution backs the securities sold by its mutual fund dealer subsidiary.
- The disclosure should be communicated orally during the sales interview, especially to clients unfamiliar with mutual funds.
- Offering documents also disclose the lack of guarantees, though some mutual fund managers may offer guaranteed mutual funds (not segregated funds).
- Simplified prospectuses for guaranteed funds do not include the disclosure statement, and representatives can state the guarantee is fair and truthful.
Mortgage Mutual Funds
- Mortgage mutual funds are often confusing for investors accustomed to GICs or CDs.
- The underlying mortgages may be guaranteed by the financial institution, but this doesn't guarantee the mutual fund value.
- The guarantee covers the right to purchase defaulted mortgages at market value (not face value).
- Net asset value fluctuates with interest rates.
Pre-Trade Disclosure Requirements
- The sales representative must provide the following information before executing a mutual fund trade:
- The actual charges or a reasonable estimate of charges.
- Whether the mutual fund dealer receives a trailing commission.
- The BCO must document that pre-trade disclosures were provided.
- The RDI and Fund Facts documents address many pre-trade disclosure requirements.
Client Relationship Model Phase 2 (CRM2)
- CRM2 focuses on transparency regarding mutual fund fees, services, and investment performance.
- Clients must receive the following documents:
- Account Statement (market value of account holdings and transaction details)
- Charges and Other Compensation (fees clients pay for services and administration charges)
- Performance Report (performance of investments)
- CRM2 disclosure document
Account Statement
- Provides the market value of mutual fund holdings and transaction details.
- Includes the book cost and total cost of all mutual funds since the account's inception.
- Includes either the original or book cost of the mutual fund, or the market value.
- When security transfers occur, market value can be used if the position cost is unavailable.
- Usually sent quarterly but can be sent monthly upon client request or with account activity.
Charges and Other Compensation
- Discloses fees clients pay for services and administration charges.
Performance Report
- Illustrates the performance of client investments.
CRM2 Disclosure Document
- Provides additional disclosure information related to CRM2.
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