CIFC Exam Dumps - IFSE Institute Investments & Banking Questions and Answers

The element of the Know Your Client (KYC) information that Malik has been able to learn is Charlotte’s risk preference. KYC information is a collection of personal and financial information that registered firms and individuals must obtain from their clients before providing any investment advice or services. KYC information helps registered firms and individuals understand their clients’ needs, goals, risk tolerance, time horizon, and personal circumstances, as well as comply with regulatory obligations such as suitability, disclosure, and reporting. One of the components of KYC information is risk preference, which is a measure of how much risk an investor is willing to take on in their portfolio. It reflects the investor’s attitude, personality, and emotional factors that influence their investment decisions. Risk preference can be classified into three categories: risk-seeking, risk-averse, or risk-neutral. Based on Charlotte’s statement that she does not know much about trading ETFs, but she wants to invest in ETFs, and that she feels fortunate to have this money and that she’s not worried about losing it because she never planned on having any of it, Malik can infer that Charlotte has a high-risk preference or a risk-seeking attitude. This means that Charlotte is willing to take on more risk in exchange for higher potential returns, even if it means losing some or all of her money. Therefore, option C is correct regarding what element of KYC information Malik has been able to learn. The other options are not correct regarding what element of KYC information Malik has been able to learn. Option A is false because risk profile is not an element of KYC information; rather, it is an outcome of KYC information that summarizes the investor’s overall suitability for different types of investments based on their KYC information. Option B is false because risk capacity is not an element of KYC information; rather, it is a measure of how much risk an investor can afford to take on in their portfolio based on their financial situation and goals. Option D is false because risk tolerance is not an element of KYC information; rather, it is a measure of how much risk an investor can handle in their portfolio without losing sleep or changing their plans. References: [Know Your Client (KYC) | IFIC], [Know Your Client (KYC) | GetSmarterAboutMoney.ca], [Risk Preference | Investopedia]

Your client, James, would like to work beyond the normal retirement age. He comes to you for advice on his registered retirement savings plan (RRSP). What are the rules regarding terminating an RRSP?

• James must terminate the plan by the end of the year he turns 65.
• James must terminate the plan by the end of the year he turns 67.
• James must terminate the plan by the end of the year he turns 70.
• James must terminate the plan by the end of the year he turns 71.

Answer: D

According to the Canadian Investment Funds Course, an RRSP is a retirement savings plan that allows individuals to defer taxes on their contributions and investment income until they withdraw the funds. However, an RRSP cannot be held indefinitely and must be terminated by the end of the year the annuitant turns 71. At that point, the annuitant has three options to withdraw the funds from the RRSP:

• Make a lump-sum withdrawal, which is subject to withholding tax and income tax.
• Convert the RRSP to a registered retirement income fund (RRIF), which provides a steady stream of income with a minimum amount that must be withdrawn each year.
• Purchase an annuity, which offers a guaranteed income for life or for a specified period.

References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)

The federal tax on eligible Canadian dividends is calculated as follows:

• First, the dividend amount is grossed up by 38%, which means multiplying it by 1.38. This is to account for the corporate tax that has already been paid by the company. Eleanora’s grossed-up dividend is $500 x 1.38 = $690.
• Second, the grossed-up dividend is multiplied by the federal marginal tax rate to get the gross federal tax. Eleanora’s gross federal tax is $690 x 0.29 = $200.10.
• Third, the grossed-up dividend is multiplied by the federal dividend tax credit rate to get the federal tax credit. This is to avoid double taxation of the dividend income. Eleanora’s federal tax credit is $690 x 0.1502 = $103.64.
• Fourth, the federal tax credit is subtracted from the gross federal tax to get the net federal tax. Eleanora’s net federal tax is $200.10 - $103.64 = $96.46.

Therefore, Eleanora will pay $96.46 in federal tax on her dividend. References: How Dividends Are Taxed and Reported on Tax Returns - Investopedia, Dividend Tax Credit in Canada - TurboTax

 A portfolio with a beta less than 1 would be suitable for Gregory, who is a conservative investor and wants to reduce his exposure to market risk. A beta less than 1 means that the portfolio is less volatile than the market index and tends to dampen its movements. This implies that the portfolio would fall less than the market in a downturn, but also rise less than the market in an upturn. A portfolio with a beta equal to 1 would move in the same direction and magnitude as the market, while a portfolio with a beta greater than 1 would be more volatile than the market and amplify its movements.

References: Canadian Investment Funds Course, Chapter 3: Risk and Return1

In a mutual fund dealer, the chief compliance officer (CCO) is the person responsible for establishing and maintaining compliance policies and procedures as well as monitoring and assessing compliance by the dealer and its representatives. The CCO must report to the board of directors or senior management of the dealer and must meet certain proficiency requirements, such as passing the Mutual Fund Dealers Compliance Exam. The CCO is also accountable to the securities regulators and self-regulatory organizations for any compliance issues or breaches. References: Guide to Broker-Dealer Registration

 Underwriting is the process through which an individual or institution takes on financial risk for a fee. This risk most typically involves loans, insurance, or investments. In the case of securities, underwriting involves conducting research and assessing the degree of risk each applicant or entity brings to the table before assuming that risk. During the underwriting process, investment bankers raise investment capital from investors on behalf of corporations and governments issuing securities. They also help determine the company’s underlying value compared to the risk of funding its IPO. References: Underwriting: Definition and How the Various Types Work - Investopedia, The future of insurance underwriting | Deloitte Insights

Gross domestic product (GDP) is a measure of the total economic activity in a country. It is calculated by adding up the market value of all the final goods and services produced within a country’s borders in a given period of time, usually a year or a quarter. Final goods and services are those that are sold to the end users, such as consumers, businesses, or the government, and are not used as inputs for further production. For example, a loaf of bread sold to a consumer is a final good, but the flour used to make the bread is not. The market value of goods and services is the price that buyers are willing to pay for them in the market. This reflects the value added by the producers at each stage of production and avoids double counting. For example, if a farmer sells wheat for $10 to a miller, who then sells flour for $20 to a baker, who then sells bread for $30 to a consumer, the value added at each stage is $10, $10, and $10, respectively. The total value added is $30, which is equal to the market value of the final good (bread). Therefore, GDP only includes the market value of final goods and services and excludes intermediate goods and services.

References: Canadian Investment Funds Course, Unit 4, Section 4.1; 5; 6; 7; 8

Disclosure documents are documents that provide information about a mutual fund’s features, risks, performance, fees, and expenses to investors and regulators. Disclosure documents are required by securities laws and must be prepared and filed by the fund manager in accordance with the prescribed rules and standards. Disclosure documents relating to mutual funds include the following:

• Statement of net assets: This is a document that shows the value of the fund’s assets and liabilities as of a specific date. It also shows the net asset value per unit (NAVPU) of the fund, which is the price at which investors can buy or sell units of the fund. The statement of net assets is part of the fund’s financial statements, which are prepared and filed semi-annually and annually.
• Annual information form (AIF): This is a document that provides additional information about the fund that is not included in the simplified prospectus or the fund facts. The AIF includes information such as the fund’s history, organization, management, governance, policies, risks, conflicts of interest, fees, expenses, taxation, and legal matters. The AIF is prepared and filed annually.
• Management reports of fund performance (MRFP): These are documents that provide information about the fund’s financial performance, portfolio composition, risk profile, and management expenses. The MRFPs are prepared by the fund manager and filed semi-annually and annually. The MRFPs include sections such as financial highlights, past performance, summary of investment portfolio, management discussion of fund performance, and financial statements.

References: Canadian Investment Funds Course, Chapter 6: Fund Operations and Regulations1

A put option is a contract that gives the buyer the right, but not the obligation, to sell an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a put option is obligated to buy the stock if the buyer exercises the option. Patrick can purchase put options for the fund’s existing assets, which means he can lock in a minimum selling price for his stocks in case the market value drops below the strike price. This way, he can protect against potential losses and hedge his portfolio against market risk. References: What Is a Put Option and How to Use It With Example - Investopedia, How to Hedge With Stock Index Futures - Investopedia

The client mobility exemption is a provision in the National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations that allows a registered individual to continue dealing with a client who moves to another jurisdiction without having to register in that jurisdiction, subject to certain conditions. One of the conditions is that the individual must not have more than five clients in each of the other jurisdictions where they are not registered. Therefore, the client mobility exemption would apply to Lori’s situation, as she has five or fewer clients in Alberta, where she is not registered. The client mobility exemption would not apply to the other situations, as they do not meet the conditions for the exemption. For example, Olaf’s mutual fund dealer is not registered in New Brunswick, which is a requirement for the exemption. Sigrid’s brother-in-law is not an existing client who moved to another jurisdiction, but a new client who resides in a different jurisdiction. Karl has more than five clients in British Columbia, where he is not registered, which exceeds the limit for the exemption.

References: Canadian Investment Funds Course, Chapter 1: The Canadian Financial Services Industry1

Shirley’s risk profile is the primary consideration for Jonathan when making an investment recommendation. Risk profile is a measure of how much risk an investor is willing and able to take on in their portfolio. It is determined by factors such as age, income, net worth, investment objectives, time horizon, and personal preferences. It is essential for a dealing representative to assess the risk profile of their client before recommending any investment products or strategies, as they have a fiduciary duty to act in the best interest of their client and ensure that their recommendations are suitable for their client’s needs and goals. The other variables are also important, but they are secondary to the risk profile. References: [Risk Profile], [Know Your Client (KYC)]