Operations and Process Management Flashcards

What triggers a mandatory 'know your product' (KYP) obligation for a mutual fund representative?

Answer: Before recommending any investment product to a client

KYP requires that representatives understand the structure, risks, costs, and performance of any investment product before recommending it to any client.

A client complains that a mutual fund representative made unsuitable recommendations. Which body would investigate this complaint if the representative is MFDA-licensed?

Answer: Mutual Fund Dealers Association (MFDA)

The MFDA is the self-regulatory organization responsible for regulating the distribution and sales practices of mutual fund dealers and their representatives.

What is the function of the 'fund facts' document's 'quick facts' section?

Answer: To summarize key information such as fund date, total assets, MER, and minimum investment

The 'quick facts' section provides at-a-glance key information including the fund's inception date, total assets under management, MER, and minimum investment amount.

An investor purchases $10,000 of a front-end load mutual fund with a 3% sales charge. How much is actually invested in fund units?

Answer: $9,700

With a 3% front-end load, $300 (3% of $10,000) is deducted as a sales charge, leaving $9,700 invested in fund units.

Which of the following is an example of an operational risk in mutual fund management?

Answer: A system failure causing trade orders to be processed at incorrect prices

Operational risk refers to losses from inadequate or failed internal processes, people, or systems—such as technology failures causing pricing or processing errors.

Under Canadian securities regulations, which entity is responsible for calculating a mutual fund's NAV?

Answer: The fund manager or its appointed fund accountant

The fund manager, typically through its fund accounting team or an outsourced fund accountant, is responsible for calculating the fund's daily NAV.

What does 'dollar-cost averaging' achieve for an investor using a pre-authorized contribution plan?

Answer: It reduces the average cost per unit by purchasing more units when prices are low and fewer when prices are high

Dollar-cost averaging results in purchasing more units when prices are low and fewer when prices are high, potentially reducing the average cost per unit over time.