Mutual Fund Fees and Services Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Mutual Fund Fees and Services flashcards as text
An advisor recommends a DSC fund to a client who may need access to their invested capital within one year. From a suitability standpoint, this recommendation is:
Answer: Potentially unsuitable because DSC fees could apply on early redemption
Recommending a DSC fund to a client with a short time horizon is potentially unsuitable because early redemption would trigger significant DSC fees.
The trading expense ratio (TER) of a mutual fund primarily reflects:
Answer: Brokerage commissions and other trading costs incurred by the fund
The TER captures brokerage commissions and other portfolio transaction costs, which are reported separately from the MER to give investors a complete cost picture.
A client enrolled in a systematic withdrawal plan (SWP) receives fixed monthly payments from their mutual fund. What risk must the advisor highlight?
Answer: Withdrawals may exceed investment returns, gradually depleting capital
If market returns are lower than the withdrawal rate, the client's capital will erode over time, which is a key risk advisors must disclose for SWPs.
Under client-focused reforms (CFRs) in Canada, how must advisors treat embedded commissions such as trailer fees?
Answer: They must disclose trailer fees and ensure recommendations are in the client's best interest
CFRs require advisors to disclose all compensation including trailers and prioritize client interests, though trailers themselves have not been banned in Canada.
A client switches $50,000 from a DSC fund in Fund Company A to a fund in Fund Company B. What is the most likely consequence?
Answer: DSC fees may be triggered because the switch is between different fund families
Switching to a different fund family is treated as a redemption from the original fund, which typically triggers DSC fees if the holding period schedule has not been completed.
Which of the following is a key benefit of the 'F-class' mutual fund series?
Answer: F-class funds have a lower MER because trailer fees are stripped out, suited for fee-based accounts
F-class (fee-based) funds do not include trailer commissions in their MER, so they are priced lower and are appropriate for fee-based advisory accounts where the client pays the advisor directly.
A mutual fund's prospectus states a maximum front-end load of 5%. A client negotiates a 2% front-end load with their advisor. Which statement is correct?
Answer: The client may pay any rate at or below the stated maximum, including 0%
Front-end loads can be negotiated downward from the stated maximum to as low as 0%, giving advisors and clients flexibility in determining the purchase commission.