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BRANCH COMPLIANCE OFFICER CHAPTER_1 1. What is the purpose of regular training and briefing sessions? A. They must be held on a monthly basis. Good choice! B. To ensure that internal control systems are functioning properly.* C. To fulfill the dealer’s continuing education re...

BRANCH COMPLIANCE OFFICER CHAPTER_1 1. What is the purpose of regular training and briefing sessions? A. They must be held on a monthly basis. Good choice! B. To ensure that internal control systems are functioning properly.* C. To fulfill the dealer’s continuing education requirements. D. To fulfill regulatory requirements. Feedback: Regular training and briefing sessions provide an opportunity for BCOs to review important disclosure, sales communications, compliance, and behaviour issues and to check whether internal control systems are functioning properly. Reference | Chapter 1: The Role of the Branch Compliance Officer 2. Which activity is a compliance responsibility for a branch compliance officer? A. Ensuring sales representatives have the necessary training. Good choice! B. Ensuring that sales representatives comply with the dealer’s policies and procedures.* C. Handling customer complaints. D. Managing the day-to-day administration of the branch. Feedback: As part of their compliance responsibilities, BCOs must ensure that all sales representatives comply with their dealers’ policies and procedures, which should reflect applicable legal and regulatory requirements. Reference | Chapter 1: The Role of the Branch Compliance Officer 3. Miles, a branch compliance officer must attend a training session and must delegate his responsibilities to Jean, a qualified alternate BCO. During Miles’ absence, head office discovers that a supervisory task was completed incorrectly. Who is responsible for the consequences of the violation? A. The regional BCO. B. Jean, the alternate BCO. C. Head office. Good choice! D. Miles, the BCO.* Feedback: Although tasks may be delegated, the responsibility cannot be. Miles, as BCO, is ultimately responsible for ensuring that the supervisory task is completed correctly. Reference | Chapter 1: The Role of the Branch Compliance Officer 4. Whose responsibility is it to ensure that the branch’s accounting and recordkeeping systems are functioning properly and are adequately maintained? A. Head office. Good choice! B. The branch compliance officer.* C. The mutual fund dealer. D. Accounting and audit. Feedback: The accounting, audit, and communication systems are normally installed or designed by the head office of the financial institution or mutual fund dealer. It is the BCO’s job to ensure that they are functioning properly and are adequately maintained. Accounting and recordkeeping systems, audit systems, audit trails, mail, communication systems, and electronic data processing systems all fall into this category. Reference | Chapter 1: The Role of the Branch Compliance Officer 5. Who do branch compliance officers report to about their compliance responsibilities? A. Branch manager. B. Head office compliance officer. Good choice! C. Regional compliance officer.* D. Head office. Feedback: Branch compliance officers must report to and assist the RCOs regarding their compliance responsibilities. Reference | Chapter 1: The Role of the Branch Compliance Officer 6. Sabitha, a branch compliance officer, reviews the layout of a newly opened mutual fund office within a bank’s branch. She notes that the mutual fund office has signage for the mutual fund company and that business cards have been printed with the mutual fund company’s name. What is Sabitha now required to do to meet regulatory requirements for this office? A. Make sure that mutual fund sales representatives are cross-trained on bank products. B. Make sure the marketing materials for bank products are stamped with the mutual fund company’s name. Good choice! C. Make sure that sales representatives understand their obligation to explain the differences between the two affiliated institutions to their clients.* D. Make sure physical barriers between the bank and the mutual fund company are in place. Feedback: BCOs and registered sales representatives must ensure that clients are aware of the identity of the dealer they are dealing with. In addition to items such as clear signage and business cards, clients must be advised in writing that the two entities (the bank and the dealer) are separate institutions, and they must sign the written disclosure acknowledging that they understand the nature of the relationship. Reference | Chapter 1: The Role of the Branch Compliance Officer 7. How can a branch compliance officer ensure that clients who are purchasing mutual funds from a dealer who operates within the branch of a financial institution know they are purchasing from the dealer and not the financial institution? Good choice! A. By disclosing the information in writing and having the client acknowledge in writing that they read the disclosure.* B. By having the correct name of fund on trade confirmation. C. By having the correct company name on business cards. D. By posting the information visibly in the branch. Feedback: To ensure that the clients understand, they must be advised in writing and must acknowledge having read the written disclosure. Reliance on signage and printed matter alone is not enough to validate the client’s understanding, although it is strongly recommended that these items also be present and visible. Reference | Chapter 1: The Role of the Branch Compliance Officer 8. Which topic is an example of one the branch compliance officer should regularly review in briefing sessions with sales representatives? A. Updates on sales performance. B. Importance of team strength and collaboration. Good choice! C. Forward pricing of mutual funds.* D. Views on how to improve performance. Feedback: One of the reasons the BCO should hold regular briefing sessions is to address important topics such as ensuring an understanding of forward pricing. Reference | Chapter 1: The Role of the Branch Compliance Officer 9. Which topic is typically covered during sales staff training sessions organized or provided by the branch compliance officer? A. Negotiating with clients. Good choice! B. Collecting and transmitting orders.* C. Preparing marketing materials. D. Prospecting for new clients. Feedback: Order taking is a topic that is typically discussed during sales staff training sessions organized or given by the BCO. Reference | Chapter 1: The Role of the Branch Compliance Officer 10. Which change is considered a material change in client information? A. A change of information regarding purchased mutual funds. B. A change in the name of the dealer. C. A change in the ownership of the dealer. Good choice! D. A change of securities in the account.* Feedback: It is important to take note of new securities deposited into a client’s account. Such an occurrence would be considered a material change of client information. Reference | Chapter 1: The Role of the Branch Compliance Officer CHAPTER_2 1. When is the two-business day right of withdrawal initiated? Good choice! A. When the fund facts are provided to the client.* B. When the fund is purchased. C. 24 hours after the fund facts are provided to the client. D. 24 hours after the fund is purchased. Feedback: A current fund facts document and amendments to the fund facts should be supplied to the client before or at the time a fund purchase is accepted. This initiates the two-business-day right of withdrawal period. Reference | Chapter 2: Mutual Funds Industry Regulation 2. Which regulatory body has the power to prosecute alleged violators of the securities regulations? Good choice! A. The securities regulators.* B. The Superintendent of Financial Institutions (OSFI). C. The Canadian Investor Protection Fund (CIPF). D. The Canadian Investment Regulatory Organization. Feedback: Securities regulators in the appropriate jurisdictions may prosecute alleged violators of the legislation and regulations before administrative tribunals. Reference | Chapter 2: Mutual Funds Industry Regulation 3. What is the primary legislation related to the regulation of mutual funds in Canada? A. National Instrument 51-102. Good choice! B. National Instrument 81-102.* C. National Instrument 31-103. D. National Instrument 54-101. Feedback: National Instrument 81-102 and its companion policy make up the primary legislation relating to the regulation of mutual funds in Canada. Reference | Chapter 2: Mutual Funds Industry Regulation 4. Which piece of legislation addresses disclosure requirements and proficiency qualifications? A. National Instrument 81-102. Good choice! B. National Instrument 31-103.* C. National Instrument 54-101. D. National Instrument 51-102. Feedback: National Instrument 31-103 addresses registration categories, proficiency qualifications, registration requirements, disclosure, and dealings with clients. Reference | Chapter 2: Mutual Funds Industry Regulation 5. Which provinces or territories have an explicit ban on making unsolicited calls to non- clients in an effort to sell securities? A. Manitoba and Saskatchewan. B. Manitoba and Ontario. C. All provinces except Ontario. Good choice! D. Manitoba and the Northwest Territories.* Feedback: In Manitoba and the Northwest Territories, there is an explicit and absolute ban on making unsolicited calls or cold calls in an effort to sell securities. Reference | Chapter 2: Mutual Funds Industry Regulation 6. Which statement about registration requirements is correct? Good choice! A. Both mutual fund representatives and their mutual fund dealers must be registered with the securities regulator in the jurisdiction in which the clients reside.* B. Only mutual fund dealers must be registered with the securities regulator in the jurisdiction in which the client resides. C. Only mutual fund representatives must be registered with the securities regulator in the jurisdiction in which the client resides. D. Mutual fund representatives in Quebec are exempted from registration with securities regulators. Feedback: Anyone who sells securities, including mutual funds, or provides investment advice with regard to securities must be registered with the securities regulator in the jurisdiction in which the client resides. Mutual fund dealers must also be registered with the securities regulator in the jurisdiction in which the clients of its sales representatives reside. Reference | Chapter 2: Mutual Funds Industry Regulation 7. What does National Instrument 31-103 address? Good choice! A. Registration categories.* B. Outlining settlement procedures for sales. C. Setting custodial requirements. D. Reviewing marketing materials. Feedback: National Instrument 31-103 addresses registration categories, proficiency qualifications, registration requirements, categories of registration compliance requirements, disclosure, and dealings with clients. Under NI 31-103, the registration category of a mutual fund dealer representative is called “dealing representative.” Individuals registered in this category may trade any securities that their sponsoring firm is permitted to trade. Reference | Chapter 2: Mutual Funds Industry Regulation 8. What is the period within which any material changes must be reported to CIRO? A. 2 business days. Good choice! B. 5 business days.* C. 10 business days. D. 7 business days. Feedback: Mutual fund dealers that are members of CIRO must report any material changes to CIRO within five business days. Reference | Chapter 2: Mutual Funds Industry Regulation 9. Carl is a mutual fund sales representative registered in Quebec. He is an active member of his community and has been making unsolicited telephone calls to non-clients to solicit new mutual fund business. As branch compliance officer, how should you advise Carl? A. Only sales representatives who are also registered in Ontario and Manitoba are permitted to make unsolicited calls to non-clients to sell securities. B. Sales representatives in Quebec and Manitoba are permitted to make unsolicited calls to non-client to sell securities. Good choice! C. Sales representatives in Quebec are permitted to solicit new business from non-clients, but certain requirements must be met.* D. Sales representatives are prohibited from making unsolicited calls to non-clients to sell securities. Feedback: The requirements of securities regulations differ between the provinces and territories. For example, in Manitoba and the Northwest Territories, there is an explicit and absolute ban on making unsolicited or cold calls to non-clients in an effort to sell securities. The legislation specifically prohibits sales representatives from making unsolicited telephone calls or personal visits to non-clients to solicit mutual fund trades. In Quebec, solicitation is permitted, but certain requirements must be met. Reference | Chapter 2: Mutual Funds Industry Regulation 10. What should the branch compliance officer do to ensure that sales representatives comply with the conflict-of-interest requirements? A. The BCO should review all trades made by a sales representative in their first full year of employment. Good choice! B. The BCO should review all trades made by a sales representative in their first six months of employment.* C. The BCO should ask the sales representative twice a year to certify that they are in compliance. D. The dealer member should complete full background checks on the sales representatives at least every three years. Feedback: To ensure compliance with the conflict-of-interest requirements, the BCO should review all sales representatives’ trading accounts for the first six months of employment. After six months, they are treated the same as established sales representatives. Reference | Chapter 2: Mutual Funds Industry Regulation CHAPTER_3 1. What is an example of a change of circumstance with respect to a registrant’s ongoing registration requirements? A. Completion of annual renewal forms. Good choice! B. Personal bankruptcy.* C. Continuing education credits certification. D. A change of residence. Feedback: Once registered, dealing representatives’ registration status must be maintained if they wish to continue to sell mutual funds. Ongoing requirements include filing a notice of change in information with securities regulators, transfers of registration, and termination. A change in circumstances applies to things such as wage garnishments and personal bankruptcy. Reference | Chapter 3: Registration Requirements 2. Stella, a mutual fund representative, is staying with the same company but moving from Ontario to Alberta where she will transfer to a different branch. What does the branch compliance officer need to do? A. File a branch transfer notice. B. Update the employee’s employment address on NRD. C. Complete a change-in-circumstance form. Good choice! D. Submit a notice of termination.* Feedback: Sales representatives or their mutual fund dealer must file a notice of change with the securities regulators when certain events occur. A branch transfer notice applies only to transfers within the same province or territory; otherwise, a notice of termination must be submitted. A change-in-circumstance form applies to things like wage garnishments and bankruptcy. Reference | Chapter 3: Registration Requirements 3. Samir, a recent hire, has been advising in mutual funds for 30 days. What type of supervision is required by the branch compliance officer? A. The BCO must approve any deposits in clients’ savings accounts held by the affiliated financial institute. Good choice! B. The BCO must approve new accounts before any trading activity takes place in the accounts.* C. The mutual fund sales representative is no longer subject to additional supervision by the BCO. D. The BCO must approve all new and subsequent trading activity after three business days following the first trade. Feedback: During the first 90-day period, all new accounts must be approved by the BCO before any trading activity can take place. All subsequent trading activity must be reviewed and signed off by the BCO no later than one business day following the trade date, and all leveraged trades where leverage was recommended by the sales representative must be reviewed by the BCO prior to trade execution. Reference | Chapter 3: Registration Requirements 4. A registrant advises the branch compliance officer that he has filed for bankruptcy. How long does the dealer have to file a notice of change? A. 5 days from learning about the notice. B. 10 days from the date the bankruptcy is filed. C. 10 days from learning about the notice. Good choice! D. 5 days from the date the bankruptcy is filed.* Feedback: The notice of change must be submitted through the National Registration Database within five days of a change. Reference | Chapter 3: Registration Requirements 5. Which statement is correct with respect to applying for registration as a dealing representative of a mutual fund dealer in multiple jurisdictions? A. When a candidate seeks registration in multiple jurisdictions in one application, the candidate is only charged one registration fee. B. If a majority of the regulators within the jurisdictions where a candidate seeks registration decide to grant it, the other regulators will accept the decision. C. Some regulators may grant the request, but others may decline it. Good choice! D. A single regulator will consider whether the request should be granted, and the other regulators will accept the decision of the principal regulator.* Feedback: Under National Policy 11-204 – Process for Registration in Multiple Jurisdictions (NP 11- 204, the passport system allows individuals and firms to register in more than one Canadian jurisdiction by dealing only with a principal regulator, rather than dealing separately with the securities regulatory body of each jurisdiction in which they want to register. Reference | Chapter 3: Registration Requirements 6. Brenda, the branch manager and branch compliance officer at her branch, is worried that her branch will not meet its sales target for the year. She is thinking about giving her sales representatives a special bonus from the branch budget to motivate them and hopefully increase sales. How would you assess Brenda’s idea? A. Brenda must get the approval of the district sales manager before offering her sales representatives any sales incentives. B. Motivating sales representatives by introducing sales incentives is a common and acceptable practice in any business environment. Good choice! C. Brenda is prohibited from introducing sales incentives to her sales representatives to meet the branch sales targets.* D. Brenda may introduce sales incentives to her sales representatives as long as “good business practices” are not violated. Feedback: The BCO is responsible for ensuring that sales representatives do not receive unauthorized sales incentives. They are not allowed to introduce sales incentive plans such as cash awards or prizes at the branch level. All salary and other compensation issues are determined at head office. Reference | Chapter 3: Registration Requirements 7. From where must sales representatives receive compensation such as commissions and trailer fees? A. The mutual fund investor. B. The portfolio manager. Good choice! C. The mutual fund dealer.* D. The mutual fund company. Feedback: Sales representatives cannot receive sales commissions or other forms of compensation directly from mutual fund companies. All sales commissions, trailer commissions, and other forms of compensation must flow through the mutual fund dealer. Reference | Chapter 3: Registration Requirements 8. In which jurisdiction can sales representatives advertise that they are registered? Good choice! A. British Columbia.* B. Quebec. C. Ontario. D. Manitoba. Feedback: After registration, sales representatives are subject to specific restrictions. In addition to the compliance and sales practice limitations, it is forbidden in most provinces for them to advertise that they are registered with a securities commission or that a securities regulator has approved their qualification. The only exceptions are in British Columbia and Alberta, where sales representatives are allowed to indicate that they are registered. Reference | Chapter 3: Registration Requirements 9. What are the continuing education requirements for dealing representatives in Quebec? A. 20 professional development units every two years. B. 30 professional development units every three years. Good choice! C. 30 professional development units every two years.* D. 20 professional development units every three years. Feedback: Quebec dealing representatives must meet continuing education requirements comprising 30 PDUs every two years. This includes 10 PDUs dealing with general subjects such as finance or economics, 10 PDUs in compliance with standards, ethics, or professional practice, and 10 PDUs in each sector for which they hold a certificate issued by the AMF. These CE requirements are administered by the Chambre de la sécurité financière. Reference | Chapter 3: Registration Requirements 10. Beatta has been registered for 120 days. How should the branch compliance officer supervise Beatta’s new accounts? Good choice! A. The BCO must approve new accounts before or within one business day of trading activity in the account.* B. The BCO must approve account maintenance before any trading activity occurs. C. The BCO must approve new accounts before any trading activity takes place in the account. D. The BCO is no longer required to provide heightened supervision because Beatta is past the first 90-day period. Feedback: During the subsequent 90-day period, all new accounts must be approved by the BCO prior to or within one business day of any trading activity in the account. Each month, the BCO must review the greater of 5 individual files or 10% of all client files handled by the salesperson in the preceding month. Reference | Chapter 3: Registration Requirements CHAPTER_4 1. Lamia and Abbad are opening a joint mutual fund account. Lamia appears to be a long-term but low-risk investor, while Abbad, who is more knowledgeable, is a short-term and aggressive investor. How should the sales representative proceed? A. Recommend that they settle with Abbad’s profile since he is the more knowledgeable investor. B. Advise Lamia that a medium-high-risk profile is more appropriate for longer-term investments. C. Consolidate their responses and make recommendations based on a medium-term and medium-risk investor profile. Good choice! D. Refuse to open the account unless they agree on the time frame, risk profile, and investment objectives for the account.* Feedback: For a joint mutual fund account, all parties must state an identical time frame, investment objectives, and risk profile. A single recommendation must meet the needs of all owners of the account. Reference | Chapter 4: Account Opening 2. Mark opened a spousal RRSP for which he is the contributor and his wife, Alice, is the beneficiary. Alice named their children as beneficiaries under her will. Who is required to provide the Know Your Client information, and why? A. Both Mark and Alice because the account is in both their names. B. Mark because he is the contributor. Good choice! C. Alice because she has a financial interest in the account.* D. The children because they are the beneficiaries named in Alice’s will. Feedback: For spousal RRSPs, the contributing spouse has no financial interest in the account, so KYC information is required for the beneficiary spouse only. Reference | Chapter 4: Account Opening 3. When should a client’s Know Your Client information be updated? A. Whenever the client makes a subsequent purchase. B. At least every two years. C. Every time the client visits the branch. Good choice! D. Whenever there is a material change in the client’s circumstances.* Feedback: CIRO Mutual Fund Dealer Rules require that KYC information be updated whenever a sales representative or other employee of the dealer becomes aware of a material change in the client’s circumstances. Reference | Chapter 4: Account Opening 4. How must the Know Your Client information for joint accounts reflect time frame, risk profile, and investment objectives? Good choice! A. All account owners must have identical time frames, identical risk profiles, and identical objectives.* B. One account owner may have different objectives, but all account holders must have identical risk profiles and time frames. C. One account owner may have a different time frame, but all holders must have identical risk profiles and objectives. D. Each account owner may have a different time frame, risk level, and objective. Feedback: For a joint mutual fund account, all parties (owners of the account) must state identical time frames, investment objectives, and risk profiles so that a single recommendation meets the needs of all owners of the account. Reference | Chapter 4: Account Opening 5. What does the Know Your Client information obtained for opening a corporate account relate to? A. The authorized person. Good choice! B. The corporation.* C. The corporate secretary. D. The major shareholder. Feedback: The KYC information obtained for opening a corporate account relates to the corporation, not to the persons authorized to act. Reference | Chapter 4: Account Opening 6. Why do some mutual fund dealers refuse to open accounts for minors? A. Minors need more of the sales representative time to be educated about investing. B. Minors take unnecessary risks and refuse to take responsibility for the consequences. Good choice! C. Minors can repudiate their contracts, including mutual funds orders.* D. Minors usually refuse to follow the sale representative’s advice about suitable investments. Feedback: Some mutual fund dealers do not accept accounts for minors because minors can repudiate their contracts, including mutual fund orders. Reference | Chapter 4: Account Opening 7. Tim is a new mutual fund sales representative. He trades actively and was able to exceed his sales goal. As the branch compliance officer, what percentage of Tim’s trades do you need to review every day? A. 50%. Good choice! B. 100%.* C. 10%. D. 20%. Feedback: Under CIRO Mutual Funds Dealer Rule 100, all trades made by new sales representatives must be reviewed by the BCO and the BCO must show evidence of an ongoing, meaningful review, not just of an initial trade. Reference | Chapter 4: Account Opening 8. In Ontario, how often should client information be reviewed? Good choice! A. Every 12 months.* B. Every 24 months. C. Every 3 months. D. Every 6 months. Feedback: CIRO Mutual Funds Dealer rules require that an enquiry be made of all clients and their information updated at least annually. (In Quebec, the review must take place at least every 12 to 24 months.) Reference | Chapter 4: Account Opening 9. For how long after an account is closed must a dealer member retain the account’s documentation? A. 2 years. B. 10 years. C. 3 years. Good choice! D. 7 years.* Feedback: If an account is closed, a hard copy record that includes the client’s signature must be retained for seven years (five years in Quebec). Reference | Chapter 4: Account Opening 10. What is the first step in the sales process? A. Meet sales targets set by the district sales manager. B. Extend leverage options to the client. C. Educate the client about various investment products. Good choice! D. Complete the Know Your Client information.* Feedback: The first step in the sales process is to ensure that the client’s Know Your Client information is complete. This information identifies the key parameters of their situation. Reference | Chapter 4: Account Opening CHAPTER_5 & 6 1. What is a characteristic of mutual funds? A. Initial mutual fund investments are 100% guaranteed by the financial institution. B. Past mutual fund performance is a strong indicator of future performance. C. Leverage techniques are never appropriate for mutual fund trading. Good choice! D. The return on an investment in mutual funds is never known in advance.* Feedback: Unlike fixed-rate financial institution deposits, the return on an investment in mutual funds is never known in advance. Reference | Chapter 5: Disclosure Requirements 2. Which disclosure must be provided to a mutual fund investor? A. Mutual funds are insured by the Canada Deposit Insurance Corporation. B. Future performance of the mutual fund is guaranteed by the affiliated financial institution. Good choice! C. The mutual fund dealer is a separate legal entity from the financial institution.* D. Mutual funds are guaranteed by the affiliated financial institution. Feedback: The branch compliance officer is accountable for the sales representatives’ knowledge of what must be disclosed to the client. Where the mutual fund activities of the sales representative occur within a branch or office of a financial institution, a document must be provided disclosing that the mutual funds purchased (i) are not insured by a government deposit insurer such as CDIC, (ii) are not guaranteed by the affiliated bank, (iii) and may fluctuate in value (iv) and that the mutual fund dealer is a separate entity from the financial institution. Reference | Chapter 5: Disclosure Requirements 3. A client is complaining about a recent drop in the net asset value per unit of a money market mutual fund they currently hold in their mutual fund account. Which factor may have caused the drop? A. A decrease in the fixed-income market. B. A new acquisition by the affiliated financial institute. Good choice! C. Lower interest rates and a higher management expense ratio.* D. Higher interest rates. Feedback: Where interest rates are very low, the MER of a money market fund may exceed the interest earned by the fund, resulting in the NAVPU dropping. Reference | Chapter 5: Disclosure Requirements 4. Peter is a mutual fund representative for ABC Securities and a financial services representative for the affiliated bank, ABC Bank. Mark is a long-time bank client who had previously opened a bank account with Peter and has been investing in guaranteed investment certificates for several years. Recently, Mark met with Peter to renew some of his GICs. Peter encouraged Mark to move that money to mutual funds instead. Mark commented that he had been with the bank for several years and trusted Peter’s advice. Mark opened a mutual fund account and received the required disclosure document before purchasing the mutual funds. A few months later, the value of Mark’s portfolio dropped dramatically. Mark complained to Peter, requesting that the bank compensate him for his losses. What did Peter do wrong during the sales interview? A. He did not remind Mark that mutual funds are long-term investments. B. He solicited mutual fund trades that were not appropriate for Mark, who was a GIC investor. C. He did not disclose his conflict of interest in that he was both the bank employee and the mutual fund sales representative. Good choice! D. He failed to communicate to Mark during the sales interview that the financial institution provides no guarantee.* Feedback: Even though the “no financial institution guarantee” is disclosed and acknowledged in writing, sales representatives should also communicate that fact during the sales interview. This is particularly important for clients with a history of investing only in bank deposit products such as GICs who are buying mutual funds for the first time. Reference | Chapter 5: Disclosure Requirements 5. A registered sales representative is opening a new mutual fund account for an existing client. The representative wants to ensure that all required disclosures are provided correctly. What advice can you offer the representative? A. The fact that there is no financial institution guarantee should be disclosed in writing. Good choice! B. In addition to providing written disclosures, the representative should go through each disclosure verbally with the client.* C. In addition to the written disclosures, the representative should provide the client with a CDIC brochure. D. For existing clients with previous mutual fund experience, providing written disclosures is sufficient. Feedback: When a registrant opens an account for a retail client, the registrant must deliver a written disclosure statement that contains four disclosures. The registrant must obtain acknowledgement from the retail client that refers to the four disclosures, and the client must confirm that he or she has read the written disclosure statement. Reference | Chapter 5: Disclosure Requirements 6. A dealer’s model portfolio for a moderate-risk investor consists of 15% cash, 50% fixed income, and 35% equities. Dave is 70 years old. His investment knowledge is low, and his income is $30,000 a year. His risk profile is moderate, and his objective is income and growth. What is an acceptable asset allocation for Dave? A. 15% cash, 25% income, and 60% equities. Good choice! B. 20% cash, 50% income, and 30% equities.* C. 20% cash, 30% income, and 50% equities. D. 15% cash, 45% income, and 40% equities. Feedback: There are two aspects to suitability as it applies to solicited orders. First, the order should conform to the mutual fund dealer’s particular asset allocation (or diversification) model. A purchase order that would result in a portfolio with a weighting that differs slightly from the weightings of the mutual fund dealer’s sample portfolio is not necessarily unacceptable. It is generally more acceptable to accept a lower allocation to equities than the allocation in the model asset allocation, but a considerably higher equity allocation typically implies a lack of suitability and acceptability. For an order to be suitable, it should normally fit within the dealer’s applicable asset allocation model. Reference | Chapter 6: Suitability Requirements 7. As a branch compliance officer, what is the best way to deal with an unsolicited, unacceptable order? A. Add a note to the client’s file in case the client returns to complain about losses in the account at a later date. B. Accept the order after a discussion with the client about the risks of choosing unsuitable investments. Good choice! C. Refuse the order.* D. Request that the client sign a disclaimer about the risk of unsuitable investments. Feedback: If the client refuses to change the order, the stated investment objectives, or other KYC information, the order should be refused. Reference | Chapter 6: Suitability Requirements 8. As a branch compliance officer, you are reviewing some notes a sales representative has prepared for a follow-up meeting with a client where the sales representative will be recommending the purchase of a specific mutual fund. What item should be reviewed in the presentation of standard performance data? Good choice! A. Disclosures regarding past performance data.* B. Disclosure rules regarding the relationship between the mutual fund dealer and the affiliated financial institution. C. Tied selling rules. D. Disclosure rules related to commissions and management fees. Feedback: With respect to standard performance data, only current data may be used, and the required disclosures regarding past performance data must be made. Reference | Chapter 6: Suitability Requirements 9. What should be the key elements of solicited orders? A. They should follow investment management principles and conform to the client’s time horizon. Good choice! B. They should be congruent with the client’s investment objectives and conform to the dealer member’s asset allocation models.* C. They should conform to well-known investment management principles and current investment research. D. They should be based on current investment research and the client’s time horizon. Feedback: Solicited orders should first conform to the dealer member’s asset allocation models and second, they should be congruent with the required objectives. Reference | Chapter 6: Suitability Requirements 10. A client requests to switch specific mutual funds with no apparent investment benefit. The mutual fund representative reviews the request with the client but cannot find a valid motive. How should the representative handle the transaction? A. Refer the client to the discount broker. B. Refuse the transaction. C. Flag the order as unreasonable. Good choice! D. Treat the order as unsolicited.* Feedback: If the order is not recommended but not unreasonable, it can be accepted and simply treated as an unsolicited order. Reference | Chapter 6: Suitability Requirements CHAPTER_7 & 8 1. What is beta? A. The maximum amount an investor is permitted to withdraw from their RRSP at any given year. B. The maximum mutual fund units that a single investor can redeem at a time. C. A point within the investment lifecycle where the investor has a maximum equity interest. Good choice! D. An indicator of how a fund’s value has fluctuated relative to past changes in an appropriate benchmark.* Feedback: Beta is calculated by regressing the return on the fund against an appropriate market index. In non-technical terms, this means that it is an indicator of how a fund’s value has fluctuated relative to past changes in an appropriate benchmark. Reference | Chapter 7: Mutual Funds Performance Evaluation 2. A mutual fund dealer is working on some marketing material that will include mutual fund performance data. The material will be published and distributed on June 1. What data should they use? A. Data prepared between January 1 and March 1. B. Data prepared within 120 days of the publication. C. Data prepared within 90 days of the publication. Good choice! D. Data prepared between March 1 and June 1.* Feedback: NI 81-102 (section 15) states that performance data should be based on “fresh” numbers prepared no more than 45 days after the end of the period in question for any advertisement in which it is included, or not more than three months before the date of the first publication of any material in which it is included. Reference | Chapter 7: Mutual Funds Performance Evaluation 3. What performance data will be most useful to an investor looking at mutual fund performance? Good choice! A. Annual performance over a 5- or 10-year period.* B. For short investment horizons, performance based on quarterly or annual performance. C. Annual performance over a 2-to-4-year period. D. Annual performance over a 1-year period. Feedback: Mutual funds should be evaluated on the basis of an examination of annual performance over an extended period such as five or 10 years, rather than on the basis of one year or less. Funds should not be selected strictly on the basis of recent, quarterly, or annual performance. Reference | Chapter 7: Mutual Funds Performance Evaluation 4. According to NI 81-102, fund performance should be based on fresh numbers prepared within a maximum number of days after the end of the period of question. What is the maximum number of days after the end of the period in question? Good choice! A. 45 days.* B. 90 days. C. 60 days. D. 120 days. Feedback: National Instrument 81-102 (section 15) indicates that performance should be based on “fresh” numbers prepared no more than 45 days after the end of the period in question for any advertisement in which it is included or not more than three months before the date of the first publication of any other sales communication in which it is included. Reference | Chapter 7: Mutual Funds Performance Evaluation 5. Which fund is the best one to select based on the criteria given? A. A fund that has a new and reputable portfolio manager. Good choice! B. A fund that performs consistently in both good and bad markets.* C. A fund whose recent quarterly performance was higher than other funds. D. A fund that outperformed the averages in a strong market. Feedback: A key criterion in selecting a good fund is consistency of performance (i.e., how well the fund performs in bad markets as well as in good markets). Reference | Chapter 7: Mutual Funds Performance Evaluation 6. What is the offering price for a mutual fund with a net asset value per unit of $19.00 if there is a 6% load? A. $21.00. B. $20.75. Good choice! C. $20.21.* D. $20.00. Feedback: 19/(1.0-.06) = 20.21 Reference | Chapter 7: Mutual Funds Performance Evaluation 7. If a fund has a net asset value per unit of $14.00 and a load of 4%, what is the redemption price? A. $13.50. B. $13.90. Good choice! C. $13.44.* D. $13.24. Feedback: NAVPU x (1 – Sales Charge) = $14.00 x (1-.04) = $13.44 Reference | Chapter 7: Mutual Funds Performance Evaluation 8. If a fund has a net asset value per unit of $10.00 and a load of 2%, what is the sales charge as a percentage of the amount received? A. 2.00%. Good choice! B. 2.04%.* C. 2.50%. D. 1.99%. Feedback: Sales Charge / (1-Sales Charge) x 100 =.02/(1-.02) x 100 = 2.04% Reference | Chapter 7: Mutual Funds Performance Evaluation 9. What is the offering price for a no-load mutual fund with a management expense ratio of 2% and net asset value per unit of $19.00? A. $18.76. B. $18.99. C. $18.37. Good choice! D. $19.00.* Feedback: The funds offered by mutual fund dealer affiliates operating in branches of financial institutions are generally in the no-load category, which means that they do not charge commissions on purchase or redemption. If the offering or purchase price to investors is the NAVPU, there will be no fees or commissions applied, therefore the price is $19.00. The MER is not taken from the offering price. Reference | Chapter 7: Mutual Funds Performance Evaluation 10. What is the load of a mutual fund with a 3.5% load as a percentage of the amount invested? A. 3.50%. B. 3.55%. C. 3.37%. Good choice! D. 3.62%.* Feedback: Sales Charge / (1-Sales Charge) x 100 =.035/(1-.035) x 100 = 3.62% Reference | Chapter 7: Mutual Funds Performance Evaluation 1. A client walks into the branch and engages a sales representative in a conversation about the launch of a new fund. The sales representative tells the client that they are also excited about the fund because the fund managers are fantastic, and outperformance is guaranteed. As branch compliance officer, what is your primary concern with this conversation? Good choice! A. The sales representative made claims about the future performance of a fund.* B. The sales representative has not reviewed the client’s KYC yet. C. The sales representative did not provide standard performance data. D. The sales representative should not be talking to clients in open or public spaces. Feedback: A common cause of complaint is related to the performance of a client’s mutual funds. If a specific fund has performed poorly, possibly by underperforming the averages or declining in value, clients may register complaints. For example, they may complain that they were never told that a fund’s NAVPU could drop or that their investment’s value was not guaranteed. The sales representative made extravagant claims that the fund will outperform. Making claims as to the future performance of a fund is strictly prohibited. Reference | Chapter 8: Dealing with Complaints 2. What should a branch compliance officer do once a dispute is resolved? A. Notify the head office that the branch has resolved the complaint. B. Report the complaint resolution to CIRO. C. Require the client to sign a release form. Good choice! D. Advise the client that no further action is being contemplated by the dealer.* Feedback: Once a dispute is resolved, the client should receive confirmation of the resolution including details and an indication that no further action is contemplated. Reference | Chapter 8: Dealing with Complaints 3. With respect to complaint handling in Quebec, what does the Autorité des marchés financiers require of mutual fund dealers? A. They must survey a predetermined percentage of clients on their relationship with their sales representatives. B. They must certify semi-annually that their sales representatives have read and understood the firm’s complaint-handling policies. C. They must make available for clients and prospective clients a summary including the number and type of complaints they have received. Good choice! D. They must file an annual report with the number and type of complaints received.* Feedback: Dealers must file an annual report with the AMF outlining their complaint-handling policy, as well as the number and type of complaints files. Reference | Chapter 8: Dealing with Complaints 4. Which type of complaints should be reported to CIRO? A. Complaints about a delay in an account transfer from one dealer to another. Good choice! B. Complaints about a sales representative who transferred funds from a client’s dormant account to his own account.* C. Complaints about a decline in portfolio value due to market fluctuations. D. Complaints about increasing account charges without notifying clients. Feedback: If a complaint deals with serious matters such as forgery, theft, or misappropriation of funds, CIRO must be advised, most often by the head office compliance department. Reference | Chapter 8: Dealing with Complaints 5. What are the minimum procedures for dealing with written client complaints? A. The registered salesperson named in the complaint should not be notified until an investigation is completed. B. Written client complaints must be verbally acknowledged. Good choice! C. The results of an investigation into a client complaint must be handled by a member of the compliance staff.* D. Customer service representatives can handle written client complaints. Feedback: CIRO Mutual Fund Dealer Rule 300 specifies the minimum procedures for dealing with written client complaints. All written client complaints must be acknowledged in writing. The results of an investigation into a client complaint must be conveyed in writing to the client in due course and must be handled by a qualified supervisor or member of the compliance staff. The registered salesperson involved and their supervisors should be made aware of the complaint, and senior management should be informed of complaints alleging serious misconduct and of all legal actions arising from such complaints. Reference | Chapter 8: Dealing with Complaints 6. A client placed an order that is unsuitable and unreasonable. Who should inform the client that the order was refused? Good choice! A. Branch compliance officer.* B. Customer service representative. C. Registered salesperson. D. Regional compliance officer. Feedback: Refusing to accept an order is likely to lead to a client complaint. If a trade is unsuitable and unreasonable for a client, it should be refused. The branch compliance officer, not the sales representative, should inform the client that the order was refused. Reference | Chapter 8: Dealing with Complaints 7. Mark is an investor who needs tax advice before establishing the asset allocation in his portfolio. How can a registered salesperson help Mark? A. They can refer Mark to the taxation department at their firm. B. They can advise Mark to educate himself by attending a one-day taxation seminar offered by the firm. Good choice! C. They can direct Mark to consult with an independent professional tax advisor.* D. They can provide Mark with the tax advice he needs provided that they have the knowledge to do so. Feedback: Where tax or legal advice is needed, you should instruct your sales representative to direct the client to consult with an independent professional tax or legal advisor. Sales representatives are required, however, to alert clients of the tax consequences associated with any transaction resulting from their investment recommendation. Reference | Chapter 8: Dealing with Complaints 8. What is meant by “hot money” traders? A. Clients who trade in high-risk funds. B. Clients who trade in money market funds. Good choice! C. Clients who trade excessively.* D. Clients who trade through multiple dealers. Feedback: A serious problem is clients who trade very frequently, buying and redeeming funds on an extremely active basis, sometimes as often as daily. Such active traders, particularly if they are transacting in large amounts, can cause disruptions to the normal course of portfolio management and distortions to the calculations of net asset values per unit. Accordingly, the business of these frequent (or “hot money” traders as they are sometimes called) is not welcome at some mutual fund dealers. Reference | Chapter 8: Dealing with Complaints 9. A branch compliance officer discovers that a customer complaint is related to a compliance issue at the branch. What should the BCO do immediately? Good choice! A. Notify the regional compliance officer.* B. Notify CIRO. C. Send a written notice to the customer. D. Place the sales representative on close supervision. Feedback: If compliance problems related to a customer complaint develop at a branch, the BCO should immediately notify the RCO, especially regarding complaints about improper conduct by a sales representative. Reference | Chapter 8: Dealing with Complaints 10. A customer sends a written complaint that a sales representative has forged the customer’s signature on a legal document. Who should be promptly advised? A. The Royal Canadian Mounted Police. B. The sales representative. C. The Financial Transactions and Reports Analysis Centre of Canada. Good choice! D. CIRO or the securities regulators, or both.* Feedback: CIRO and the securities regulators must be informed promptly of serious complaints. Head office or the RCO should advise CIRO or the securities regulators (or both) if the complaint includes suspected forgery, theft, or misappropriation of funds. The sales representatives, BCO, and other branch staff should not contact CIRO or the securities regulator unless directed to do so by the RCO or head office compliance. Reference | Chapter 8: Dealing with Complaints CHAPTER_9 & 10 1. Under CIRO Mutual Fund Dealer Rule 5.3.5, how often must clients be provided with a performance report? Good choice! A. Annually.* B. At the client’s request. C. Monthly. D. Quarterly. Feedback: As described under CIRO Mutual Fund Dealer Rule 5.3.5, the sales representative and BCO must ensure that clients are provided with an annual performance report that covers, at a minimum, a twelve (12) month period. Reference | Chapter 9: Sales Representatives Supervision 2. Which activity is considered short-term trading? A. Redeeming mutual fund units within 120 days of purchasing them. Good choice! B. Redeeming mutual fund units within 90 days of purchasing them.* C. Redeeming mutual fund units within 30 days of purchasing them. D. Redeeming mutual fund units within 60 days of purchasing them. Feedback: Short-term trading is the redemption of mutual fund securities within 90 days of purchasing them. It can be potentially abusive to the long-term unit holders by causing additional transaction costs to the mutual funds. Reference | Chapter 9: Sales Representatives Supervision 3. When must the branch compliance officer approve new accounts opened by new sales representatives during their first 90 days of employment? A. Before any trading involving leverage takes place. B. Within one business day of trading involving leverage. C. Within one business day of any trading. Good choice! D. Before any trading takes place.* Feedback: For new sales representatives, the BCO during the first 90 days must approve all new accounts before any trading takes place. Subsequent trades must be approved within one business day, but if leverage was recommended, they must be approved before the transaction takes place. Reference | Chapter 9: Sales Representatives Supervision 4. Mark invested $100,000 in mutual funds and paid $3,000 in commissions. What is the load as a percentage of the amount invested? Good choice! A. 3.09%.* B. 9.07%. C. 9.70%. D. 3.00%. Feedback: The commissions on load funds are paid by the investor to the mutual fund dealer at the time of purchase and are calculated on the total investment. Invested amount = 100,000 - 3,000 = 97,000. Load = 3000/97000= 3.09%. Reference | Chapter 9: Sales Representatives Supervision 5. What is the difference between a trade trigger and a business trigger? Good choice! A. A trade trigger refers to trade transactions, and a business trigger refers to trading and advising in securities.* B. Both terms can be used interchangeably. C. The term trade trigger was replaced by the term business trigger in NI 31-103. D. A trade trigger refers to trade transactions that do not generate new net revenue, and a business trigger refers to transactions that generate new revenue. Feedback: Previously, non-registered individuals were prohibited from acting in furtherance of a trade. NI 31-103 changed this requirement to say that any person in the business of trading in securities or advising in securities requires registration. There was a shift from trade trigger to business trigger. Reference | Chapter 9: Sales Representatives Supervision 6. Maggie is writing a job posting for her branch. She has a list of activities she will need this new hire to do. The individual’s responsibilities will be limited to distributing brochures and fund performance updates to clients, receiving redemption requests, and handling general mutual fund- related inquiries from clients. Will the new hire need to be registered? A. No, as long as they have the education needed to participate in activities in furtherance of trades. B. Yes, because these activities are related to the business of trading and advising in securities. Good choice! C. No, as long as the information they will be providing clients is general in nature.* D. Yes, because they will be promoting mutual funds through the distribution of sales material. Feedback: Any person that is “in the business” of trading in securities or advising in securities requires registration. In this case, the individual will not need to be registered as long as the information they will be providing clients is general in nature. Reference | Chapter 9: Sales Representatives Supervision 7. Which activity is a non-registered sales staff member able to perform? A. Advise clients that they are working towards their registration as a sales representative under securities legislation. B. Respond to clients’ inquiries about the suitability of mutual funds. C. Accept unsolicited buy orders and submit them for processing. Good choice! D. Receive redemption requests to forward to a registered sales representative for processing.* Feedback: The important, albeit ancillary, mutual fund-related activities that your non-registered employees are allowed to perform are as follows: Advise customers that the financial institution has a mutual fund dealer subsidiary that sells mutual funds. Refer customers to the sales representatives, to the mutual fund dealer branch investment or sales centre, or to the telephone communications systems. Receive redemption requests to forward to a registered sales representative for processing. Reference | Chapter 9: Sales Representatives Supervision 8. What is an example of a prohibited activity for non-registered sales staff? A. Providing current account information. B. Distributing current fund prices and promotional material. C. Defining the general characteristic of mutual funds. Good choice! D. Advising clients about what securities to buy, hold, or sell.* Feedback: With the introduction of National Instrument 31-103 Registration Requirements (NI 31- 103), a principal change was made in the registration trigger. Previously, a non-registered individual could not participate in any activity that would be seen to be “acting in furtherance of a trade” or “trading in securities.” However, under NI 31-103 the registration trigger was changed from a “trade trigger” to a “business trigger.” Under the business trigger, any person that is “in the business” of trading in securities or advising in securities requires registration. Reference | Chapter 9: Sales Representatives Supervision 9. For how long does the branch compliance officer review all new sales representatives’ trading accounts? A. 9 months. B. 12 months. Good choice! C. 6 months.* D. 3 months. Feedback: To ensure compliance with the conflict-of-interest requirements, the BCO should review all sales representatives’ trading accounts as per the schedule for the first six months. After six months, they are treated the same as established sales representatives. Reference | Chapter 10: Supervisory and Control Systems 10. What is the purpose of regular monitoring and review of correspondence by the branch compliance officer? A. It ensures that all registered staff continue to be eligible to sell and advise on mutual funds. Good choice! B. It ensures that only qualified and registered sales representatives are conducting registerable activities.* C. It ensures that leverage is not used. D. It ensures that registered sales representatives are meeting commission goals. Feedback: Regular reviews allow the BCO to see who completed the trades and that the correct procedures were followed. Reference | Chapter 10: Supervisory and Control Systems