1. B
The Mutual Fund Dealers Association (MFDA) is the self-regulatory organization (SRO) that directly oversees mutual fund dealers and their registered representatives in Canada. While the CSA coordinates provincial securities regulators and IIROC oversees investment dealers, the MFDA specifically regulates the distribution side of mutual funds.

2. C
Religious affiliation is not a required piece of information under KYC rules and collecting it could potentially violate human rights and privacy legislation. KYC requires collecting information about investment objectives, risk tolerance, time horizon, investment knowledge, and financial circumstances to ensure suitable recommendations.

3. D
There is no regulatory maximum on front-end sales charges in Canada; however, the charge must be fully disclosed to the client. In practice, front-end loads typically range from 0-5%, but this is determined by negotiation between the advisor and client rather than regulatory limits.

4. B
Liquidity risk refers to the risk that an investment cannot be sold quickly enough in the market to prevent or minimize a loss. This is particularly relevant for securities that trade infrequently or in thin markets. Mutual funds generally have low liquidity risk due to daily redemption features.

5. B
The Management Expense Ratio (MER) represents the total annual costs of operating a mutual fund, expressed as a percentage of the fund’s average net assets. It includes management fees, operating expenses, and taxes, but excludes brokerage costs and sales charges.

6. B
Under National Instrument 81-102 (Investment Funds), a mutual fund generally cannot invest more than 10% of its net asset value in securities of any single issuer. This concentration limit helps ensure diversification and reduces single-issuer risk.

7. B
Segregated funds are insurance products that offer principal guarantees on maturity (typically 75-100% after 10 years) and on death. Mutual funds do not offer these guarantees. This fundamental difference reflects that segregated funds are regulated as insurance products while mutual funds are securities.

8. D
An income and preservation objective focuses on generating regular income while protecting the principal investment, making it most suitable for retired clients who need cash flow but cannot afford significant capital losses. This typically involves a conservative mix of fixed-income securities and some equities.

9. B
A redemption fee, also known as a deferred sales charge (DSC) or back-end load, is charged when selling mutual fund units purchased under a DSC option. The fee typically declines over time according to a schedule and eventually reaches zero after the holding period (usually 5-7 years).

10. C
Canadian securities regulations require mutual fund companies to process redemption requests within 3 business days of receiving the request. The payment must be made within this timeframe, ensuring reasonable liquidity for investors.

11. B
Dollar-cost averaging involves investing fixed amounts at regular intervals regardless of market conditions. This strategy reduces the impact of market volatility by purchasing more units when prices are low and fewer units when prices are high, resulting in a lower average cost per unit over time.

12. C
Labour-Sponsored Venture Capital Corporations (LSVCCs) provide federal tax credits and sometimes provincial tax credits to investors. They invest in small to medium-sized Canadian businesses. However, they have restrictions on redemptions (usually must hold for 8 years) and carry higher risk than conventional mutual funds.

13. B
The simplified prospectus is a condensed, user-friendly version of the full prospectus that must be delivered to investors. It contains key information about the fund including objectives, strategies, risks, fees, and past performance. It is a required regulatory document under National Instrument 81-101.

14. C
KYC information must be updated at least annually and whenever there are significant changes in the client’s circumstances. This ensures that recommendations remain suitable as clients’ financial situations, objectives, and risk tolerance evolve over time.

15. B
A systematic withdrawal plan (SWP) allows investors to receive regular, predetermined payments from their mutual fund investments, providing predictable cash flow. This is particularly useful for retirees or those seeking regular income. It does not eliminate market risk or guarantee principal.

16. B
Insider trading under Canadian securities law refers to trading securities while in possession of material non-public information (information that would likely affect the security’s price and has not been publicly disclosed). This is illegal and subject to significant penalties.

17. B
Standard deviation measures the volatility or variability of a fund’s returns around its average return. A higher standard deviation indicates greater volatility and therefore higher risk. It is one of the most common statistical measures of investment risk.

18. C
Under National Instrument 31-103, dealing representatives who trade mutual funds must complete the Investment Funds in Canada (IFC) course or an equivalent approved course. The Canadian Securities Course (CSC) is required for investment dealers but IFC is the standard for mutual fund dealers.

19. B
The equity risk premium is the excess return that investing in the stock market provides over a risk-free rate (typically government treasury bills). It represents the compensation investors require for taking on the higher risk of equity investments compared to risk-free investments.

20. B
The Tax-Free Savings Account (TFSA) allows Canadians to contribute after-tax dollars and withdraw both contributions and investment earnings completely tax-free at any time. RRSPs provide a tax deduction on contributions but withdrawals are taxable, making TFSAs unique in their tax treatment.

21. B
RRSP contribution room is calculated as 18% of the previous year’s earned income, up to an annual maximum dollar limit set by the government (which increases with inflation). Unused contribution room carries forward indefinitely, and room is reduced by any pension adjustment.

22. C
Asset allocation is the process of distributing investments among different asset categories such as stocks, bonds, and cash equivalents. This is considered one of the most important decisions in portfolio management, as studies show asset allocation explains most of the variation in portfolio returns.

23. B
The client-focused reforms (CFRs) introduced requirements for registrants to put the client’s interest first when making recommendations. This includes enhanced KYC requirements, suitability assessments, and addressing material conflicts of interest. The reforms strengthen the duty of care owed to clients.

24. A
Load funds charge sales commissions (either front-end, back-end/deferred, or low-load), while no-load funds do not charge sales commissions. However, both types charge management fees through the MER. No-load funds can be purchased directly from fund companies or through some advisors.

25. A
Exchange-traded funds (ETFs) trade on stock exchanges throughout the trading day like stocks, with prices fluctuating based on supply and demand. Mutual funds, in contrast, are priced once daily at the net asset value (NAV) calculated at the end of each trading day.

26. A
The trading expense ratio (TER) represents the costs incurred by the fund for buying and selling securities within the portfolio. These costs include brokerage commissions and are separate from the MER. TER is disclosed in the Management Report of Fund Performance but is not included in the MER calculation.

27. D
Under National Instrument 81-106, mutual fund companies must send both the Management Report of Fund Performance (MRFP) and audited annual financial statements to investors at least annually. The MRFP includes performance data, MER, and portfolio manager commentary.

28. B
The Fund Facts document provides key information about a mutual fund in a standardized, easy-to-read, two-page format. It must be delivered to investors before they purchase fund units and includes information on investment objectives, risks, performance, and costs.

29. B
The suitability requirement obligates representatives to ensure that any investment recommendation is suitable and appropriate given the client’s KYC information including investment objectives, risk tolerance, time horizon, and financial circumstances. Suitability does not guarantee profitability.

30. B
A trailer fee (trailing commission) is an ongoing annual commission paid by the fund company to the advisor’s firm, typically ranging from 0.25% to 1.00% of assets. It is embedded in the fund’s MER and compensates advisors for ongoing service and advice.

31. B
Index funds are passively managed funds designed to replicate the performance of a specific market index (such as the S&P/TSX Composite). They hold the same securities in the same proportions as the index they track, resulting in lower management fees compared to actively managed funds.

32. C
The Canadian Investor Protection Fund (CIPF) protects client assets (up to specified limits) if an IIROC member firm becomes insolvent. It does not protect against market losses or poor investment performance, only against the loss of assets due to firm insolvency.

33. B
Under privacy legislation (PIPEDA and provincial equivalents), financial institutions must protect client personal information, obtain consent for its collection, use, and disclosure, and only use it for the purposes for which it was collected unless additional consent is obtained.

34. B
Rebalancing involves adjusting a portfolio back to its target asset allocation when market movements cause the actual allocation to drift from the target. For example, if stocks outperform and grow from 60% to 70% of the portfolio, rebalancing would involve selling some stocks and buying other assets to return to 60%.

35. C
In Canada, the maximum deferred sales charge schedule is 7 years, after which no redemption fee can be charged. The DSC percentage must decline over this period. As of June 1, 2022, the MFDA prohibited the sale of mutual funds with deferred sales charges to retail clients, though existing DSC positions continue under their original schedules.

36. B
A systematic withdrawal plan (SWP) is an arrangement that allows investors to automatically redeem or withdraw a predetermined fixed dollar amount or percentage from their mutual fund holdings at regular intervals (monthly, quarterly, etc.). This provides investors with a steady income stream, making it particularly useful for retirees. Unlike a systematic investment plan (SIP) which involves regular purchases, an SWP involves regular redemptions. It does not guarantee returns or protect against market losses, and if withdrawals exceed investment returns, the capital will gradually be depleted.