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Question #:1
Sujay contributes 3% of his $60,000 salary to his employer’s defined contribution pension plan. His employer contributes the same amount to the plan. How will this affect his registered retirement savings plan (RRSP) contribution room for the year?
It will have no effect. RRSP contribution room is based on earned income only.
It will reduce Suiay's contribution room by 51,800.
It will reduce Suiay's contribution room by $1800
It will reduce Suiay's contribution room by $3,600.
Answer: D
Explanation
D is correct because Sujay’s registered retirement savings plan (RRSP) contribution room for the year will be reduced by $3,600. This is because his employer’s defined contribution pension plan is considered a registered pension plan (RPP), which affects his RRSP contribution room through a pension adjustment (PA). The PA is calculated as 18% of his earned income in the previous year minus his RPP contributions in the current year. In this case, Sujay’s PA for the current year is $3,600, which is 18% of his $60,000 salary minus his 3% contribution ($1,800) and his employer’s 3% contribution ($1,800). The PA reduces his RRSP contribution room for the next year by the same amount. It will have an effect on his RRSP contribution room (A), as it is not based on earned income only, but also on RPP contributions. It will not reduce his contribution room by $51,800 (B), as this is more than his earned income. It will not reduce his contribution room by $10,800 ©, as this is 18% of his earned income without subtracting his RPP contributions. References: Canadian Investment Funds Course (CIFC) | IFSE Institute
Question #:2
Pierre wants to discuss the merits of a specific mutual fund with his Dealing Representative, Simone. There are no trailer fees associated with this fund. Simone is familiar with the mutual fund that Pierre is referring to, which is not offered by her dealer. They schedule an appointment to further discuss his investment portfolio.
Which behaviour from Simone is ethical?
Simone's ability to keep her knowledge current on competitors' investment offerings shows that she is putting her client's interest first.
Knowing Pierre does not like that her dealer's funds have trailer fees, she chooses not to discuss the relationship between trailer fees and MER while making comparisons.
When comparing her dealer's own mutual funds to the one Pierre discovered, Simone emphasizes the importance of similar net rates of return and minimizes the significance of management expense ratios (MERs).
While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund.
Explanation
While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund. This behaviour from Simone is ethical because it shows that she is providing accurate and complete information to Pierre and helping him make an informed decision based on his personal circumstances and objectives4. Fund Facts is a document that summarizes key information about a mutual fund, such as its investment objectives, risks, fees, performance history, and investor rights5. By comparing Fund Facts of different mutual funds, Simone can help Pierre understand how each fund differs in terms of its suitability, costs, and potential returns. The other behaviours from Simone are unethical because they do not serve Pierre’s best interests or comply with professional standards. Simone’s ability to keep her knowledge current on competitors’ investment offerings does not necessarily show that she is putting her client’s interest first. She may have other motives for researching other funds, such as trying to persuade Pierre to stay with her dealer’s funds or finding new opportunities for herself4. Knowing Pierre does not like that her dealer’s funds have trailer fees, she chooses not to discuss the relationship between trailer fees and MER while making comparisons. This behaviour is unethical because it is misleading and omits relevant information that Pierre should know before investing4. Trailer fees are fees paid by the fund manager to the dealer for the ongoing services provided by the dealer and its advisors to unitholders5. Trailer fees are part of the management expense ratio (MER), which is the total cost of running and distributing a fund expressed as a percentage of its assets5. Trailer fees and MERs affect the net returns of a fund and may create conflicts of interest between the advisor and the client5. When comparing her dealer’s own mutual funds to the one Pierre discovered, Simone emphasizes the importance of similar net rates of return and minimizes the significance of management expense ratios (MERs). This behaviour is unethical because it is biased and does not present a balanced view of the pros and cons of each fund4. Net rates of return are not the only factor to consider when evaluating a fund’s performance. MERs are also important because they reduce the fund’s gross returns and may indicate how efficiently the fund is managed5. A fund with a lower MER may have an advantage over a fund with a higher MER, all else being equal5. References: Unit 2: Know Your Client, What’s a good MER fee plus 3 strategies to avoid high fees - Bellvest
Question #:3
Beatrice is looking for comprehensive information regarding the analysis of financial statements and fund management expenses as it relates to her current mutual fund investment.
Which document would provide the information she is looking for?
Annual Information Form
Fund Facts
Simplified Prospectus
Management Reports of Fund Performance
Answer: D
Explanation
The Management Reports of Fund Performance (MRFP) are documents that provide information about a
Explanation
An IPP is a registered, defined-benefit pension plan that provides a fixed retirement benefit to the person designated in the plan. It is similar to an RRSP, but with some differences in contribution limits, deductions, and tax benefits. One of the main advantages of an IPP is that it allows higher contribution limits than an RRSP, especially for older and higher-income individuals. The contributions are based on the actuarial calculations of the pension benefit, and are tax-deductible for the sponsoring corporation. The higher contribution limits can help Fabiola catch up on her retirement savings and reduce her taxable income123
References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.3: Individual Pension Plan (IPP) and web search results from search_web(query="individual pension plan")123
https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf
Question #:5
On January 2nd of this year Evan purchased 500 preferred shares of Ingram Ltd. The preferred shares have a par value of $25 per share and a quarterly dividend of $0.98 per share. They also give Evan the option to sell the shares back to Ingram at par value any time from now until September 1st two years from now. What type of preferred shares does Evan own?
retractable
convertible participating redeemable
Answer: A
Explanation
Retractable preferred shares are those that give the holder the option to sell them back to the issuer at a predetermined price and date. This is the case for Evan, who can sell his shares back to Ingram at par value any time from now until September 1st two years from now. References: Canadian Investment Funds Course (CIFC) | IFSE Institute
Question #:6
Raybert has a very short-term investment objective and has decided to purchase money market instruments. There are plenty of 90-day money market securities available for him to choose from. Although Raybert is aware that all the respective issuers have a similar need for his capital, no matter what he decides, he can only afford to purchase one.
In terms of financial markets and their relationship to the principles of supply and demand, which characteristic of investment capital are the issuers being exposed to?
Mobility
Answer: C
Explanation
Scarcity is a characteristic of investment capital that refers to the limited availability of capital relative to the demand for it. Scarcity affects the price and return of capital, as well as the allocation of capital among different issuers and sectors. When capital is scarce, issuers have to compete for it by offering higher returns or lower prices, or by adjusting their financing strategies. When capital is abundant, issuers have more access to it at lower costs or higher prices, or by diversifying their sources of capital. In this case, Raybert has a very short-term investment objective and has decided to purchase money market instruments. There are plenty of 90-day money market securities available for him to choose from, but he can only afford to purchase one. This means that the issuers of these securities are exposed to the scarcity of capital, as they have to attract Raybert and other investors with similar objectives by offering competitive rates or discounts.
Question #:7
D. Risk Scarcity Sensitivity
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 1: Economic Factors and Financial Markets, Section 5.1.1: Characteristics of Investment Capital1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.1.1 2
Your client, Kimberly has investments in both registered and non-registered plans. Which of the following investment strategies is best suited for Kimberly from a tax perspective?
Include investments paying capital gains in the registered plan and foreign pay investments in the non-registered plan.
Include domestic pay assets in the registered plan and foreign pay assets in the non-registered plan.
Include interest paying investments in the registered plan and dividend paying investments in the non-registered plan.
Include dividend paying investments in the registered plan and interest paying investments in the non-registered plan.
Answer: C
Explanation
According to the Canadian Investment Funds Course, different types of investment income are taxed differently in Canada. Interest income is fully taxed at the marginal rate, while dividend income is favourably taxed with a dividend tax credit. Capital gains are taxed on 50% of the gain at the marginal rate, and foreign income is subject to withholding tax. Therefore, a tax-efficient strategy is to include interest paying investments, such as bonds or GICs, in the registered plan, where they can grow tax-deferred until withdrawal. Dividend paying investments, such as Canadian stocks or ETFs, should be included in the non-registered plan,
where they can benefit from the lower tax rate and the dividend tax credit. Foreign income should also be avoided in the non-registered plan, unless it is held in a U.S. dollar account or a foreign currency hedged ETF, to reduce the impact of withholding tax and currency fluctuations.
References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)
Question #:8
Which of the following statements is TRUE about inflation?
Inflation results in a redistribution of income from borrowers to lenders.
Generally inflation will benefit those who are living on investment income.
Purchasing power rises as inflation rises.
An increase in the inflation rate could mean investors have less money to invest.
Answer: D
Explanation
Inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less than it used to. Inflation also erodes the real value of investment income, such as interest, dividends, and capital gains. Therefore, an increase in the inflation rate could mean that investors have less money to invest, as their income and savings lose value.
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 1: Economic Factors and Financial Markets, Section 5.1.2: Inflation1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.1.2 2
Question #:9
Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?
Index funds use an active investment management style, whereas ETFs use a passive investment management style.
Both types of funds are closed-end investments that are required to hold the same securities as the index at all times.
The market price of an ETF must match its net asset value (NAV), whereas there can be discrepancy in the pricing of index funds.
D.
Both types of funds attempt to replicate the return of a specific market index, but their returns may not perfectly match the index.
Answer: A
Explanation
Index mutual funds and traditional exchange-traded funds (ETFs) are both types of investment funds that use a passive investment management style, which means they try to track the performance of a specific market index, such as the S&P/TSX Composite Index or the S&P 500 Index. They do so by holding the same securities as the index or a representative sample of them, and by adjusting their portfolio composition and weighting to reflect any changes in the index. However, both types of funds may not be able to exactly replicate the return of the index for various reasons, such as fees, expenses, tracking error, rebalancing frequency, dividend reinvestment, and cash holdings. Therefore, there may be some deviation or difference between the fund’s return and the index’s return, which is called tracking difference.
References: Canadian Investment Funds Course, Chapter 4: Types of Investments1
Question #:10
Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm’s Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?
Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.
Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.
Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.
Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.
Answer: A
Explanation
Relationship Disclosure Information (RDI) is a document that provides important information about the nature and scope of the relationship between a registered firm and its clients. It covers topics such as the products and services offered by the firm, the fees and charges applicable to the client’s account, the risks associated with investing, the conflict of interest management policies of the firm, and the dispute resolution services available to the client. According to Section 14.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), registered firms must provide RDI to their clients before they purchase or sell securities for them or advise them to do so. Registered firms must also update RDI in a timely manner if there are any significant changes to it. To evidence that they have satisfied their RDI obligation, registered firms may retain a copy of the RDI in the client file with detailed notes to confirm that they have provided and explained RDI to their clients. This is one of the acceptable methods suggested by Alberta Securities Commission (ASC) in its presentation on RDI1. Delivering RDI only upon request or using a letter of engagement are not sufficient methods to comply with NI 31-103. Providing and explaining Fund Facts is a separate obligation under NI 31-101 Mutual Fund Distribution Rules. References: Relationship Disclosure Information August 2021, Relationship Disclosure Information, Relationship Disclosure Information