Exam CIFC Topic 1 Question 153 Discussion

Actual exam question for IFSE Institute's CIFC exam
Question #: 153
Topic #: 1

Axis Wealth Management Inc. is a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA).
Indrek is a Branch Manager for the Guelph Branch and he is responsible for conducting suitability reviews in order to identify any unsuitable transactions or accounts. Which of the following accounts/transactions would be unsuitable?

A. Gilles has invested in various mutual funds using a leverage strategy recommended by his Dealing Representative. Gilles is 82, he is retired, he needs regular income, and his risk profile is "low". B. Hundolf holds the Fortune Small Cap Equity Fund. Hundolf is fully employed, he is saving for his retirement in 18 years, his investment objective is "growth", and his risk profile is "medium-high". C. Megara bought a principal protected note (PPN) with a 7-year maturity. Megara wants principal protection and has a long-term investment time horizon (10+ years). D. Ulani is saving for the final payment she will owe on her pre-construction condominium. Ulani has invested in the Harbour Money Market Fund because she is seeking "safety".

Suggested Answer: A Vote an answer

Explanation
This account/transaction is unsuitable because it does not match Gilles' investment needs and objectives, risk profile, and capacity for loss. A leverage strategy involves borrowing money to invest in mutual funds, which increases the potential returns but also the potential losses. This strategy is very risky and requires a high risk tolerance, a long-term investment horizon, and a sufficient income to cover the interest payments. Gilles is 82 years old, retired, and needs regular income, which means he has a low risk tolerance, a short-term investment horizon, and a limited income. He cannot afford to lose his principal or pay the interest costs. Therefore, a leverage strategy is not appropriate for him.
References = IFSE CIFC Module 3: Investment Products, page 3-24. What is Suitability? | MFDAMSN-0069 | MFDA

by Frederic at Nov 27, 2024, 06:37 AM

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