Exam CIFC Topic 1 Question 205 Discussion

Actual exam question for IFSE Institute's CIFC exam
Question #: 205
Topic #: 1

Reginald is a Dealing Representative, who feels pressure from management at the beginning of every calendar year, to open new registered retirement savings plans (RRSPs) and generate RRSP contributions. It is the end of February, and Reginald is close to reaching his personal sales objectives. He just finished an appointment with a prospective new client, Orel. Orel wants to open a tax-free savings account (TFSA) to build emergency savings. However, Reginald recommended to Orel that he should first contribute to an RRSP, and then use the tax savings for a TFSA contribution. With regards to account suitability, what can be said about Reginald's advice?

A. Reginald is putting the client's interest first by informing Orel why he should change his investment strategy. B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable. C. Recommending an investment solution that addresses two needs, is putting Reginald's client's interest first. D. By convincing Orel to contribute to an RRSP, instead of a TFSA, Reginald has put his client's interest first.

Suggested Answer: B Vote an answer

Explanation
Orel's goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.
References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1:
Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2
1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf 2:
https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

by Lennon at Jun 19, 2024, 06:09 AM

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