CMFAS RES5 practice questions, with answers and explanations

Why C: the study text names three areas in which an exempt person must meet the fit and proper criteria: honesty, integrity and reputation; competence and capability; and financial soundness. The criteria themselves are in the Guidelines on Fit and Proper Criteria, FSG-G01 (Ch 1 §6.3).

Sales performance, time in business and the number of representatives are not among the areas the paragraph names.

Why B: Section 43(1) of the FAA says that no licensed financial adviser shall, with intent to deceive, write on a form given or sent to an insurer anything material to a proposed contract of insurance that is false or misleading in a material particular (Ch 2 §8.2). Whether the proposed insured smokes is material to the contract, and the form says something false about it.

A, C and D each add a condition the provision does not have. It carries no exception for the client's consent or for telling compliance, and it does not wait for a claim.

Why D: Section 36 requires a reasonable basis for any recommendation on an investment product made to a person who may reasonably be expected to rely on it. In particular, the adviser must give due consideration to that person's investment objectives, financial situation and particular needs (Ch 3A §1.13).

The items in A, B and C may come up in a fact-find, but they are not the three things the section names.

Why A: to identify a customer, a financial adviser must obtain at least the customer's full name, including any aliases; a unique identification number, such as an identity card or passport number; an address; the date of birth, establishment, incorporation or registration; and the nationality, place of incorporation or place of registration (Ch 5 §6.5).

Income and net worth, family members' names and investment experience are not on that list.

Why C: so that it can monitor switching that may harm a client's interests, a financial adviser should require the client to declare in writing whether one of its representatives advised him to give up or reduce his interest in an original product in order to acquire, or increase his interest in, a replacement product (Ch 9B §1.10).

The paragraph asks for a written declaration. It does not set a waiting period, an approval from MAS or a fee.

Why B: a person with inside information on a corporation or its securities must not enter into transactions in those products, and must not communicate the information to other parties (Ch 12 §8.5).

A is the trap: it does not matter that he had no intention of using the inside information (§8.5). C is wrong because passing the information on is itself prohibited. The paragraph gives no exception for telling an employer, so D is wrong.

Why D: a conflict of interest is a situation in which the aims of two persons are different or incompatible, where a person is in a position to gain personally from his own actions or decisions (Ch 16 §3.8). Here the representative's gain from the higher commission pulls against the client's interest, and the incentive tempts him to act against that interest (§3.9).

Nothing in the facts says that he has disclosed confidential information or made a false statement, so A and B do not fit. C names a duty, not the situation described.

Why A: the five fair dealing outcomes are that clients have confidence that fair dealing is central to the institution's corporate culture; that products and services are suitable for their target clients; that representatives are competent and give quality advice and appropriate recommendations; that clients receive clear, relevant and timely information; and that complaints are handled in an independent, effective and prompt manner (Ch 19 §5.12). A is the fifth.

None of the five speaks of a fixed return, the lowest fees or offering every product in the market.

Why C: where a client does not want to provide the information required, the representative must clearly document that decision (Ch 22 §3.6).

A puts the representative's guess in place of the client's information. B leaves no record, which is the opposite of what the paragraph asks. D goes around the client's own decision.

Why B: active listening needs to be supplemented by active observing, because a client's body language is often a better guide to his feelings and level of interest than his words (Ch 22 §14.5).

Observing adds to listening; it does not replace asking questions or the client's own input, so A and D are wrong. C confuses observation with identifying the customer, which is a separate matter.