A client's stated objective is high growth, but his risk profile from KYC is moderate and his time horizon is three years. How should the RR address the mismatch when designing recommendations?

B. Resolve the conflict between the client's stated expectation and his actual risk capacity and time horizon, document the discussion, and recommend a portfolio aligned to the moderate risk profile and short horizon.

A client tells the RR she will not own any tobacco or weapons-related companies for ESG reasons. How should the RR proceed when constructing recommendations?

B. Document the restriction in the KYC, narrow the suitable product universe to those that respect the constraint, and ensure recommendations remain suitable given the reduced opportunity set.

A client refuses to sell a losing stock because doing so would force him to admit he made a bad investment. Which behavioural bias is most likely at work?

B. Loss aversion combined with the disposition effect, where the discomfort of realizing a loss outweighs the rational case for selling.

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RSE practice questions: registered accounts

Ten RSE practice questions on registered accounts. TFSA (2025: $7,000), RRSP (2025: 18% × prior earned income up to $32,490), FHSA ($8,000/yr / $40,000 lifetime), RESP CESG (20% on first $2,500/yr; $7,200 lifetime), RRIF minimums by age, HBP and LLP withdrawal rules. The CRA indexes most figures annually; verify the current year before quoting.

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1
A client's stated objective is high growth, but his risk profile from KYC is moderate and his time horizon is three years. How should the RR address the mismatch when designing recommendations?
Outcome 7.1 · click for answer
A.Pursue high growth using aggressive equities to satisfy the client's stated objective.
B.Resolve the conflict between the client's stated expectation and his actual risk capacity and time horizon, document the discussion, and recommend a portfolio aligned to the moderate risk profile and short horizon.Correct
C.Open a discretionary account so the RR can override the KYC.
D.Ignore the time horizon since growth is the priority.
When stated objectives conflict with risk profile or time horizon, the RR must address the inconsistency, educate the client, and recommend investments that fit the actual risk profile and horizon. The conversation must be documented under suitability requirements.
2
A client tells the RR she will not own any tobacco or weapons-related companies for ESG reasons. How should the RR proceed when constructing recommendations?
Outcome 7.2 · click for answer
A.Override the request because diversification matters more than personal preferences.
B.Document the restriction in the KYC, narrow the suitable product universe to those that respect the constraint, and ensure recommendations remain suitable given the reduced opportunity set.Correct
C.Recommend any product as long as ESG funds are mentioned.
D.Ignore non-financial constraints since they are not regulated.
Non-financial constraints (ESG, religious, equity/diversity preferences) form part of KYC and must be respected. The RR documents the restriction and narrows the suitable universe accordingly while still meeting the suitability obligation.
3
A client refuses to sell a losing stock because doing so would force him to admit he made a bad investment. Which behavioural bias is most likely at work?
Outcome 7.3 · click for answer
A.Confirmation bias.
B.Loss aversion combined with the disposition effect, where the discomfort of realizing a loss outweighs the rational case for selling.Correct
C.Home country bias.
D.Survivorship bias.
Loss aversion makes losses feel more painful than equivalent gains. Combined with reluctance to admit a mistake, it produces the disposition effect, holding losers too long and selling winners too soon.
4
A client believes that because the last five coin flips were heads, the next flip is more likely to be tails. Which behavioural bias is being demonstrated?
Outcome 7.3 · click for answer
A.Anchoring.
B.Gambler's fallacy, the mistaken belief that independent random outcomes must even out in the short run.Correct
C.Endowment effect.
D.Mental accounting.
Gambler's fallacy is the false belief that past independent outcomes change the probability of future ones. Each fair coin flip remains 50/50 regardless of prior results.
5
A client only seeks out news articles that confirm her existing belief that a particular stock will rise. Which bias is most clearly at work?
Outcome 7.3 · click for answer
A.Representativeness.
B.Confirmation bias, the tendency to favor information that confirms prior beliefs while discounting contrary evidence.Correct
C.Hindsight bias.
D.Herding.
Confirmation bias leads investors to seek and weight information that supports existing views and dismiss contradicting evidence, distorting decisions.
6
A client invests almost exclusively in Canadian companies because they feel familiar, even though her advisor's recommended portfolio includes meaningful foreign exposure. Which bias is most clearly at play?
Outcome 7.3 · click for answer
A.Anchoring.
B.Home country bias, the tendency to over-allocate to domestic securities because of familiarity rather than analysis.Correct
C.Gambler's fallacy.
D.Endowment effect.
Home country bias is the systematic over-allocation to domestic securities driven by familiarity rather than risk-return considerations. It typically results in under-diversification.
7
An RR is recommending products to a moderate-risk client whose KYC shows a $25,000 emergency need within 12 months. Which factor most directly limits product selection?
Outcome 7.4 · click for answer
A.The client's eye color.
B.The client's near-term liquidity need, which means a portion of the portfolio must remain in highly liquid, low-volatility holdings.Correct
C.The Investment Dealer's preferred fund family.
D.The client's age alone.
Suitability requires recommendations to fit the client's net worth, liquidity needs and time horizon. A near-term cash requirement forces a meaningful allocation to liquid, low-volatility instruments regardless of long-term objectives.
8
A dealer's product shelf does not include a particular type of structured product the RR believes might suit a client. What is the appropriate response?
Outcome 7.4 · click for answer
A.Sell the product anyway since suitability is the only test.
B.Recommend only products on the dealer's approved shelf, since the RR cannot transact in products the firm has not approved; consider whether suitable alternatives on the shelf meet the client's needs.Correct
C.Refer the client to another RR with different licenses without disclosure.
D.Ignore the shelf restriction.
RRs are restricted to products on the dealer's approved shelf. If no suitable shelf product fits the client's needs, the RR should make that clear rather than transacting in unapproved products.
9
Which government pension feature is most relevant when designing retirement income recommendations for a 64-year-old Canadian client?
Outcome 7.4 · click for answer
A.CPP and OAS provide a guaranteed inflation-indexed income stream that should be incorporated into the cash flow plan, with timing decisions (e.g., when to start CPP) factoring into the overall retirement strategy.Correct
B.CPP must always be started at age 60.
C.OAS is unaffected by income level.
D.CPP and OAS are fully discretionary and unrelated to retirement planning.
CPP and OAS form a base of inflation-indexed retirement income. Timing decisions (early vs. delayed CPP, OAS clawback considerations) materially affect cash flow and should be integrated with portfolio recommendations.
10
When choosing a recommended portfolio for a new client, which sequence is most consistent with CIRO suitability requirements?
Outcome 7.5 · click for answer
A.Pick a model portfolio first, then collect KYC if asked.
B.Gather complete KYC, confirm risk profile, identify investment objectives and constraints, and only then map the client to an appropriate model or custom portfolio.Correct
C.Use whichever portfolio is currently outperforming.
D.Match the client to the firm's most profitable product.
Recommendations must follow KYC, not precede it. The RR confirms financial situation, objectives, risk profile and constraints before mapping the client to a suitable portfolio.

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FAQ

Can a retail client over-contribute to TFSA?

Yes, and the penalty is 1% per month on the excess. The retail rep must understand cumulative room (~$95,000 if eligible since 2009) before recommending a top-up.

When does the FHSA window close?

15 years after opening, or end of year holder turns 71, whichever is sooner. Unused FHSA balance must be transferred to RRSP or withdrawn (taxable if not used for first home).

What's the HBP repayment schedule?

15 years, starting the second calendar year after the year of withdrawal. CRA assesses tax on missed repayments as RRSP income.

When does RRSP convert to RRIF?

By Dec 31 of the year the holder turns 71. Failure to convert results in deemed full collapse and full taxation in that year.

Spousal RRSP attribution?

Three-year attribution rule: contributions made by one spouse and withdrawn by the receiving spouse within 3 calendar years of contribution attribute back to the contributor for income-tax purposes.

RSE practice questions: registered accounts

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