CSC Working with Retail Clients 4 — Questions and Answers
Question 1: What must a registrant do when they identify a material conflict of interest with a client?
- Immediately terminate the client relationship
- Disclose the conflict to the client and either avoid or manage it in the client's best interest (Correct answer)
- Keep the conflict confidential to avoid alarming the client
- Refer the client to another advisor without explanation
Correct answer: Disclose the conflict to the client and either avoid or manage it in the client's best interest
Registrants must disclose material conflicts of interest to clients and take steps to avoid or manage the conflict in the client's best interest.
Question 2: A client's estate plan requires assets to transfer to a specific beneficiary upon death. Which registered account feature directly supports this?
- Joint account with right of survivorship
- Designated beneficiary on a registered plan like an RRSP or TFSA (Correct answer)
- A trust account held at a dealer
- A margin account with a death benefit clause
Correct answer: Designated beneficiary on a registered plan like an RRSP or TFSA
Registered accounts such as RRSPs and TFSAs allow the account holder to designate a beneficiary so that assets pass directly outside of the estate upon death.
Question 3: Which type of account allows a retail client to borrow money from the dealer to purchase securities?
- Cash account
- Margin account (Correct answer)
- Registered account
- Trust account
Correct answer: Margin account
A margin account allows clients to borrow funds from the dealer to buy more securities than they could with their own cash, using the securities as collateral.
Question 4: What is the main regulatory concern with recommending a high-fee mutual fund when a lower-cost equivalent exists?
- Higher fees always indicate higher quality management
- It may represent a conflict of interest if the advisor earns higher compensation from the higher-fee product (Correct answer)
- Regulators prohibit mutual fund fees above 2%
- Clients are not permitted to purchase high-fee products in registered accounts
Correct answer: It may represent a conflict of interest if the advisor earns higher compensation from the higher-fee product
Under Client-Focused Reforms, recommending a higher-fee product when a materially similar lower-cost option exists may indicate the advisor's compensation interest outweighs the client's best interest.
Question 5: A power of attorney (POA) grants someone authority to act on a client's behalf. Which statement about POAs is correct for advisor dealings?
- Advisors can accept instructions from anyone claiming verbal POA
- The POA document must be reviewed and accepted by the firm before acting on the attorney's instructions (Correct answer)
- A POA automatically expires after one year
- POA holders cannot open new accounts on behalf of the grantor
Correct answer: The POA document must be reviewed and accepted by the firm before acting on the attorney's instructions
Advisors must obtain and have the firm review the POA documentation before accepting instructions from the attorney-in-fact to protect the client's interests.
Question 6: Under anti-money laundering (AML) rules in Canada, when is a registrant required to file a Suspicious Transaction Report (STR)?
- Only when a transaction exceeds $10,000 in cash
- When there are reasonable grounds to suspect a transaction is related to money laundering or terrorist financing (Correct answer)
- When a client requests anonymity about the source of funds
- Only when directed to do so by a supervisor
Correct answer: When there are reasonable grounds to suspect a transaction is related to money laundering or terrorist financing
STRs must be filed with FINTRAC when there are reasonable grounds to suspect a transaction or attempted transaction is connected to money laundering or terrorist financing, regardless of the dollar amount.
Question 7: Which best describes the role of the Ombudsman for Banking Services and Investments (OBSI) for retail clients?
- OBSI enforces regulatory penalties against investment dealers
- OBSI provides free, independent dispute resolution for clients who cannot resolve complaints with their firm (Correct answer)
- OBSI manages client compensation funds when a dealer becomes insolvent
- OBSI sets KYC standards for all Canadian registrants
Correct answer: OBSI provides free, independent dispute resolution for clients who cannot resolve complaints with their firm
OBSI is an independent complaints resolution service that investigates disputes between retail clients and investment firms at no cost to the client.
CSC Working with Retail Clients 4
What must a registrant do when they identify a material conflict of interest with a client?