CSC Working with Retail Clients 3 — Questions and Answers
Question 1: What does the 'suitability' obligation require an advisor to assess when recommending an investment?
- Whether the investment is listed on a recognized exchange
- Whether the investment aligns with the client's KYC profile including objectives, risk tolerance, and time horizon (Correct answer)
- Whether the investment has a positive analyst rating
- Whether the investment meets a minimum liquidity threshold
Correct answer: Whether the investment aligns with the client's KYC profile including objectives, risk tolerance, and time horizon
Suitability requires advisors to ensure that any recommendation is appropriate given the client's individual financial circumstances, objectives, and risk profile.
Question 2: A client has a registered account and a non-registered account with the same advisor. How should suitability be assessed?
- Suitability must be assessed for each account separately (Correct answer)
- Suitability is assessed on a combined household basis only
- The registered account takes priority and the non-registered account follows the same rules
- Only the larger account requires a suitability assessment
Correct answer: Suitability must be assessed for each account separately
Each account has its own purpose and may have different objectives, so suitability must be assessed separately for each account.
Question 3: When must an advisor update a client's KYC information?
- Only when the client requests a change
- At least every five years regardless of changes
- Whenever there is a material change in the client's circumstances or at minimum periodically as required by regulation (Correct answer)
- Only when opening a new account
Correct answer: Whenever there is a material change in the client's circumstances or at minimum periodically as required by regulation
KYC must be updated when the advisor becomes aware of a material change in the client's circumstances and periodically to ensure the information remains current.
Question 4: What is a 'discretionary account' in the context of retail clients?
- An account where the client makes all investment decisions
- An account where the advisor has authority to make investment decisions without prior client approval for each trade (Correct answer)
- An account with no management fees
- An account limited to government securities
Correct answer: An account where the advisor has authority to make investment decisions without prior client approval for each trade
In a discretionary account, the advisor has been granted authority to buy and sell securities on the client's behalf without obtaining approval for each individual transaction.
Question 5: A retail client receives an unsolicited order form from a third party and brings it to their advisor to execute. What is this type of order called?
- A discretionary order
- An unsolicited order (Correct answer)
- A third-party order
- A leveraged order
Correct answer: An unsolicited order
An unsolicited order is one that originates from the client rather than from the advisor's recommendation, and it may be executed even if it is outside the client's profile.
Question 6: Which of the following best describes a 'managed account'?
- Any account monitored by a branch manager
- A fee-based account where a portfolio manager has discretionary authority over investments (Correct answer)
- An account managed by a robo-advisor with no human oversight
- A joint account managed by two advisors
Correct answer: A fee-based account where a portfolio manager has discretionary authority over investments
A managed account is a discretionary portfolio management arrangement typically fee-based, where a licensed portfolio manager makes investment decisions on behalf of the client.
Question 7: Under Canadian securities regulation, what is the 'client-focused reforms' (CFRs) framework primarily designed to achieve?
- To reduce compliance costs for investment dealers
- To ensure that the interests of the client take priority over the interests of the registrant and firm (Correct answer)
- To standardize commission rates across all dealers
- To eliminate all conflicts of interest in the financial industry
Correct answer: To ensure that the interests of the client take priority over the interests of the registrant and firm
Client-Focused Reforms require registrants to prioritize client interests over their own when conflicts arise, including enhanced KYC, suitability, and conflict-of-interest obligations.
CSC Working with Retail Clients 3
What does the 'suitability' obligation require an advisor to assess when recommending an investment?