Index mutual funds and traditional exchange-traded funds (ETFs) are both types of investment funds that use a passive investment management style, which means they try to track the performance of a specific market index, such as the S & P/TSX Composite Index or the S & P 500 Index. They do so by holding the same securities as the index or a representative sample of them, and by adjusting their portfolio composition and weighting to reflect any changes in the index. However, both types of funds may not be able to exactly replicate the return of the index for various reasons, such as fees, expenses, tracking error, rebalancing frequency, dividend reinvestment, and cash holdings. Therefore, there may be some deviation or difference between the fund’s return and the index’s return, which is called tracking difference.

Canadian Investment Funds Course, Chapter 4: Types of Investments1

The Fund Facts document provides essential information to ensure the fund’s objectives and risk profile align with the investor’s needs. The feedback from the document states:

" The fundamental purpose of a Fund Facts document is to provide ‘full, plain and true’ disclosure of material information concerning the securities and the issuer of the securities, so that potential purchasers can make informed decisions about purchasing the new securities. The fundamental investment objectives of a mutual fund can be found in the Fund Facts. It specifies what the fund intends to accomplish and how it is to be done. "

The representative failed to verify that the client’s KYC information was current, which is critical for assessing suitability, especially given the client’s recent job loss. The feedback from the document states:

" Standard A - Duty of Care starts with the Know Your Client rule. It is impossible to apply due diligence and assess the suitability of an investment if the client’s information has not been updated. Client account documentation should reflect all material information about the client’s current status, and should be updated to reflect any material change to the client’s status in order to assure suitability of investment recommendations. "

Strategic asset allocation involves selecting a long-term asset mix, monitoring it, and rebalancing as needed to maintain the desired allocation. The feedback from the document states:

" When a portfolio manager develops a strategy to maximize portfolio returns, he or she does so with a particular asset mix or allocation in mind… This base policy mix is called the strategic asset allocation. This is the long-term mix that will be adhered to by monitoring and, when necessary, rebalancing. "

The statement that is correct about Maalik’s identification requirements is option A. According to Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), registered firms and individuals must report any suspicious transactions or attempted transactions to FINTRAC, which is Canada’s financial intelligence unit that collects, analyzes, and discloses information related to money laundering and terrorist financing activities. A suspicious transaction or attempted transaction is one that there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence. Therefore, if Maalik determines that there is anything suspicious about John’s transaction, he must report the matter to his dealer, who must report it to FINTRAC within 30 days of making the determination. The other statements are not correct about Maalik’s identification requirements. Option B is false because Maalik does not need to report John as a PEFP to his dealer; rather, he must take reasonable measures to determine whether John is a PEFP or a family member or close associate of a PEFP, and if so, he must obtain senior management approval before opening an account for John, take enhanced measures to verify John’s identity, and conduct enhanced ongoing monitoring of John’s account activity. Option C is false because Maalik does not need to collect personal information about John and report it to his dealer if John wants to make a large cash deposit; rather, he must verify John’s identity using an original, valid, and current document or information from a reliable source, keep a record of John’s name and address and the date and amount of the deposit, and report any large cash transactions of $10,000 or more in Canadian currency or its equivalent to FINTRAC within 15 days of receiving the cash. Option D is false because Maalik does not need to report the attempt to his dealer if John attempts to make a suspicious deposit; rather, he must report the attempt directly to FINTRAC within 30 days of detecting the suspicion, regardless of whether the transaction was completed or not. References: [FINTRAC - Home], [FINTRAC - Reporting] , [FINTRAC - Guideline 2: Suspicious Transactions], [FINTRAC - Guideline 6A: Record Keeping and Client Identification for Financial Entities]

This answer is correct because according to FINRA Rule 3270, a registered representative must notify their firm in writing of any outside business activity (OBA) that involves compensation or the reasonable expectation of compensation from another person, or that may be viewed by customers or the public as part of the member’s business. However, if the OBA does not involve any of these factors, then the notification is not required. In this case, Reagan’s role as the Chief Revenue Officer of a charitable organization may not involve any compensation or any connection to her securities business, especially if none of her colleagues from the charity become clients. Therefore, she is not required to inform her dealer of this outside activity.

References = Outside Business Activities and Private Securities Transactions, Selling Away in Securities: Understanding FINRA Rule 3270

To calculate Firmansyah’s federal tax liability from the investment income, we need to follow these steps:

Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question. The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD. Therefore, Firmansyah’s foreign dividend in CAD is:

500×1.3605=680.25

Step 2: Calculate Firmansyah’s grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%. Therefore, Firmansyah’s grossed-up dividend income from both sources is:

(1800+680.25)×(1+0.38)=3426.35

Step 3: Apply Firmansyah’s federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah’s federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah’s federal tax before credits is:

0.29×3426.35=993.64

Step 4: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%, while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah’s federal dividend tax credit from both sources is:

(1800+680.25)×0.38×0.15=297.88

Step 5: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah’s net federal tax liability from the investment income is:

993.64−297.88=695.76

Hence, option C is correct. References: [Canadian Investment Funds Course (CIFC) | IFSE Institute], [Dividend Tax Credit | TurboTax Canada Tips] , [Federal Income Tax Rates for Canada - TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]