CIFC practice question 21 of 30

10 years ago, Felipe opened a registered retirement savings plan (RRSP) account and purchased a mutual fund. The mutual fund purchased included a…

10 years ago, Felipe opened a registered retirement savings plan (RRSP) account and purchased a mutual fund. The mutual fund purchased included a 7-year deferred sales charge (DSC). At the time of making his investment, him and his Dealing Representative agreed that he had a 25-year growth objective. Since Felipe knew that he was not planning to use his investment until he retired, he was not concerned about the DSC. Although the rate of return did vary from year-to-year, he never noticed his mutual fund having a drop in value. This gave Felipe more confidence in the investment. As a result, he has never made any changes to his investment. What category of Know Your Client (KYC) information has been given?

Answer options

A: Financial circumstances

B: Investment experience Correct answer

C: Risk profile

D: Personal circumstances

Correct Answer:

B. Investment experience

Explanation

The information provided describes Felipe's history and behaviour as an investor. It details the length of time he has been invested (10 years), the type of product he holds (a DSC mutual fund), his understanding of its specific features (the 7-year DSC schedule), and his reaction to its performance over time. These elements collectively form a picture of his knowledge and practical experience with investments, which is a key component of the Know Your Client (KYC) rule.

Why Incorrect

A. Financial circumstances relate to a client's income, net worth, and ability to invest, none of which are detailed in the scenario.
C. Risk profile is a client's willingness and ability to assume risk. While his comfort with a growth fund is a clue, the focus is on his history, not his stated tolerance.
D. Personal circumstances include age, dependents, and employment status. The scenario only vaguely alludes to his future retirement.

References

1. IFSE Institute, Canadian Investment Funds Course (CIFC), Part 1, Module 1, Section 1.4 "The Suitability Obligation". The text outlines the core components of KYC information, explicitly including "investment knowledge and experience" as a distinct category.

2. Canadian Securities Administrators (CSA), National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, Part 13, Division 1, Section 13.2 "Know your client". This regulation requires registrants to collect information on the client's investment needs, financial circumstances, risk profile, and investment knowledge. The scenario clearly provides information for the "investment knowledge" component.

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