Retail Securities Exam: 24 Sample Questions & Simulator

RSE rewards candidates who can read the client facts, risk profile, horizon, liquidity needs, and product characteristics together before making a recommendation. If you are searching for RSE sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iOS or Android with the same account. This page includes 24 sample questions with detailed explanations so you can try the exam style before opening the full app question bank.

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What this RSE practice page gives you

• a direct route into the Securities Prep simulator for the Retail Securities Exam
• targeted practice around KYC, suitability, product fit, recommendations, execution, and ongoing client monitoring
• detailed explanations that show why the correct answer best fits the client facts and compliance constraints
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

RSE exam snapshot

• Regulator: CIRO
• Exam: Retail Securities Exam (RSE)
• Format: 120 multiple-choice questions in 3 hours
• Pacing target: about 90 seconds per question
• Readiness benchmark: aim to clear several timed mixed sets or mock exams at 75%+ before booking

Topic coverage for RSE practice

• Client discovery and suitability: KYC, suitability, authority, documentation, and defensible recommendation workflow
• Products and analysis: fixed income, equities, managed products, securities analysis, and investment-theory basics
• Portfolio and recommendation judgment: portfolio construction, investment recommendations, and best-fit scenario reasoning
• Execution and relationship maintenance: execution, market integrity, monitoring, reporting, and ongoing client relationship duties

How to use the RSE simulator efficiently

1. Start with KYC, suitability, and product-fit drills so the client-recommendation workflow becomes automatic.
2. Review every miss until you can explain which client fact, product feature, cost, tax issue, or conduct rule changed the answer.
3. Move into mixed sets once you can shift between products, analysis, recommendations, and monitoring scenarios without losing pace.
4. Finish with timed runs so the 120-question exam feels controlled.

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• Free preview: a smaller web set so you can validate the question style and explanation depth.
• Premium: the full RSE bank, focused drills, mixed sets, timed mocks, detailed explanations, and progress tracking across web and mobile.

24 RSE sample questions with detailed explanations

These sample questions cover multiple blueprint areas for RSE. Use them to check your readiness here, then move into the full Securities Prep question bank for broader timed coverage.

Question 1

You are reviewing Maple Devices Inc.’s financial statements (all amounts in CAD). Exhibit: Selected financial statement line items (year ended Dec 31, 2025) | Item | Amount | |—|—:| | Balance sheet (equity): Share capital | $120 | | Balance sheet (equity): Retained earnings | $45 | | Balance sheet (equity): AOCI | $5 | | Balance sheet (equity): Total equity | $170 | | Statement of comprehensive income: Net income | $25 | | Statement of comprehensive income: OCI | $3 | | Statement of changes in equity (opening total equity) | $142 | | Share issue (to share capital) | $10 | | Dividends (to retained earnings) | ($10) | | Statement of changes in equity (closing total equity) | $170 | Which interpretation is most directly supported by the exhibit about the purpose of the statement of changes in equity and its link to the other statements?

• A. It reports only shareholder transactions and excludes OCI effects.
• B. It reconciles opening to closing equity using net income, OCI, and owner transactions.
• C. It explains why cash increased by $28 during the year.
• D. It explains why total assets increased by $28 during the year.

Best answer: B

Explanation: The statement of changes in equity is a reconciliation: it starts with opening equity balances and shows all changes during the period to arrive at closing equity balances. Those changes include (1) results flowing from the statement of comprehensive income (net income to retained earnings and OCI to AOCI) and (2) transactions with owners (e.g., share issues and dividends). In the exhibit, opening total equity of $142 is increased by the share issue ($10) and total comprehensive income ($28), and reduced by dividends ($10), giving closing total equity of $170. That closing equity must match the equity section on the balance sheet, which it does. The key takeaway is that this statement connects performance and equity transactions to the balance sheet equity ending balance.

Question 2

A retail client at an Investment Dealer agrees to buy a corporate bond that your firm will sell from its own inventory (a principal transaction). The client buys $250,000 par at 99.60, and the firm’s cost was 99.10. Ignore accrued interest. Bond prices are quoted as a percentage of par (1 point = 1% of par). What disclosure best reflects the Investment Dealer client relationship model and your responsibility to the client on this trade? (Round to the nearest dollar.)

• A. Disclose agency capacity; commission about $1,250
• B. Disclose principal capacity; markup about $1,250
• C. Disclose principal capacity; markup about $1,239
• D. Disclose principal capacity; markup about $12,500

Best answer: B

Explanation: Under the Investment Dealer client relationship model, the firm may trade as an agent (arranging a trade for the client for a commission) or as a principal (selling to or buying from the client as the counterparty). When acting as principal, the RR must ensure the client understands the dealer’s capacity and how the dealer is compensated (typically via a markup/markdown embedded in the price). Here, the dealer’s markup is the price difference in points applied to par: [ \begin{aligned} \text{Markup (points)} &= 99.60 - 99.10 = 0.50 \ \text{Markup ($)} &= 0.50% \times 250{,}000 = 0.005 \times 250{,}000 = 1{,}250 \end{aligned} ] The key takeaway is to link capacity (principal vs. agent) to what the RR must disclose to the retail client.

Question 3

An Investment Dealer’s RR can recommend Fund A or Fund B. Fund A pays the dealer a 2.0% upfront sales commission; Fund B pays 0.5%. A client invests $80,000. Assume both funds are otherwise equally suitable. What is the dealer’s additional upfront commission if Fund A is recommended instead of Fund B, and what is the appropriate high-level response to this conflict of interest?

• A. $12,000; disclose and manage in the client’s best interest
• B. $1,200; proceed without disclosure if suitable
• C. $1,200; disclose and manage in the client’s best interest
• D. $800; disclose and manage in the client’s best interest

Best answer: C

Explanation: A common firm-client conflict of interest is product-linked compensation that could reasonably influence an RR’s recommendation. Here, the conflict is the higher upfront commission on Fund A. Compute the incremental incentive: [ \begin{aligned} \text{Rate difference} &= 2.0% - 0.5% = 1.5%\ \text{Extra commission} &= 0.015 \times 80{,}000 = 1{,}200 \end{aligned} ] At a high level, the firm/RR should identify the compensation conflict, ensure the recommendation is made in the client’s best interest (not driven by the higher payout), and provide clear disclosure of the material conflict; if it cannot be managed in the client’s best interest, it should be avoided.

Question 4

You are the RR on the Patel Family Trust account. The trust agreement on file shows two trustees (Raj and Neha) with joint signing authority; the account is non-discretionary. KYC for the trust is income-focused with low risk tolerance and a 5-year horizon. Today, the adult beneficiary calls and instructs you to sell the trust’s investment-grade bond ETF and use the proceeds to buy a speculative mining stock “before the close,” saying, “I’m a beneficiary so you can take my instructions.” What is the best action?

• A. Do not trade until both trustees authorize the instruction
• B. Trade now and seek trustee ratification after execution
• C. Take the order from either trustee and document it
• D. Place the trade and document the beneficiary’s call

Best answer: A

Explanation: This situation tests authority and documentation in a trust (legal relationship) versus an agency relationship. The account holder is the trust, and the trustees are the authorized persons who can bind the trust; beneficiaries generally have no authority to direct trading. Separately, the RR is not a trustee and, in a non-discretionary retail account, cannot exercise discretion or “trade first, confirm later.” Given joint signing authority on file, the RR should: - Decline the beneficiary’s instruction and explain authority limits - Contact both trustees to obtain and document the required authorization (and update documentation if authority is to change) - Then assess suitability of any proposed trade against the trust’s KYC Key takeaway: act only within documented authority—trustee instructions (per the trust agreement) drive what the RR may execute.

Question 5

A client who day-trades a TSX-listed stock calls you with an instruction: place a series of very large visible sell limit orders just above the best ask, then cancel them quickly once other participants react, and finally buy a smaller amount at a lower price. The client says, “It usually nudges the price down so I can buy cheaper.” As the Registered Representative, what is the best next step?

• A. Warn the client the strategy is prohibited, then enter the first order to test liquidity
• B. Stop taking the instruction and immediately escalate to supervisor/compliance
• C. Enter the orders as unsolicited but add detailed notes to the file
• D. Proceed only if the client agrees to keep each order open for at least 10 minutes

Best answer: B

Explanation: UMIR prohibits manipulative or deceptive activities intended to create a false or misleading appearance of trading activity or an artificial price. Placing large visible orders with the intent to cancel (to influence other participants) and then trading on the price impact is characteristic of layering/spoofing. When you detect this type of abusive trading request, the proper next step is to: - Not enter or continue the orders - Preserve relevant details (instructions, timestamps, order details) - Escalate immediately to your supervisor/compliance (and your firm’s market integrity function) for direction and any required regulatory reporting Client disclosure or after-the-fact documentation does not make a manipulative order acceptable.

Question 6

Your client, Nadine (age 68), is a Canadian citizen with a non-registered account and a moderate risk profile. She tells you she has moved her primary residence to Arizona, provides a U.S. mailing address, and expects to live in the U.S. about 8 months each year going forward. She asks you to recommend and place a buy order next week for an income-oriented ETF. What is the BEST action to take now?

• A. Treat the trade as unsolicited and place it now; update residency at the next scheduled KYC review
• B. Ask her to keep a Canadian mailing address on file so normal service can continue
• C. Proceed because she is still a Canadian citizen and the account is held in Canada
• D. Update KYC/residency, escalate to compliance to confirm U.S.-jurisdiction permission, and pause recommendations until approved

Best answer: D

Explanation: When a client resides in the U.S. (including snowbirds who become U.S.-resident for servicing purposes), the dealer and the RR may face additional requirements or restrictions before they can provide investment advice or solicit trades into that jurisdiction. Under CIRO expectations, the RR must promptly update KYC for the change in address/residency, document the trigger event, and escalate to the firm’s supervisory/compliance process to determine whether servicing is permitted (and under what conditions, such as limiting activity, using an approved affiliate, or restricting to certain types of client-initiated orders). Key takeaway: do not continue “business as usual” recommendations until the firm confirms it can service that U.S. jurisdiction for that client.

Question 7

An RR at a CIRO investment dealer services the Lee Family Trust account. The account documents show two trustees: Maya Lee and Jordan Lee. The trust agreement states: “For any trade with gross value (including commissions) over $50,000, written authorization from both trustees is required; otherwise either trustee may act alone.” Maya phones to buy $48,000 face value of ABC Corp 4% 2029 bonds at 104.00 (price per $100 par) plus a $150 commission. Round to the nearest dollar. What should the RR do?

• A. Refuse the trade because only beneficiaries can authorize trades
• B. Accept Maya’s verbal instruction and place the order
• C. Place the order after getting Maya’s written instruction only
• D. Get written authorization from both trustees before placing the order

Best answer: D

Explanation: This scenario tests the difference between agency and trust in practice: the RR is not a trustee and does not have inherent authority to act; the RR’s authority to accept instructions comes from the client’s legal capacity and the account’s governing documents. For a trust account, that authority is set by the trust agreement and the trustees’ signing/trading rules. Compute gross value (including commission): [ \begin{aligned} \text{Bond value} &= 48{,}000 \times 1.04 = 49{,}920 \ \text{Gross value} &= 49{,}920 + 150 = 50{,}070 \end{aligned} ] Because $50,070 is over the $50,000 threshold, the RR must obtain written authorization from both trustees and keep appropriate documentation before placing the order.

Question 8

You are preparing a valuation note on two TSX-listed issuers using the limited information below. - Maple Utilities: mature, regulated utility; stable dividend history; expected dividend next year of $1.20/share; long-run dividend growth estimate 3%; required return estimate 7%; this year’s EPS is depressed by a one-time impairment (dividend unaffected). - NovaTech: high-growth SaaS issuer; no dividends; negative EPS expected for the next 2 years; next-year revenue estimate $500 million; peer group trades at a median price-to-sales of 6(\times). Which equity valuation approach is most appropriate for each issuer as a primary valuation anchor?

• A. Maple: DCF on free cash flow; Nova: P/E multiple
• B. Maple: dividend discount model; Nova: price-to-sales multiple
• C. Maple: price-to-sales multiple; Nova: dividend discount model
• D. Maple: P/E multiple; Nova: P/E multiple

Best answer: B

Explanation: The key differentiator is what “cash flow to equity” measure is both meaningful and available for each issuer. Maple Utilities is a mature, regulated business with a stable dividend stream, and you are given inputs that directly support a dividend discount model (next dividend, long-run dividend growth, and required return). NovaTech has no dividends and negative earnings for the near term, so earnings-based multiples (like P/E) are not informative; with only a revenue forecast and a peer price-to-sales benchmark, a revenue multiple is the most defensible primary anchor. A full free-cash-flow DCF can be appropriate in many cases, but it requires credible multi-year cash flow forecasts that are not provided here.

Question 9

Which action is required if a Registered Representative receives material non-public information about an issuer from the firm’s investment banking or corporate finance area?

• A. Wait for public release, then trade without reporting it
• B. Cease related activity and escalate to compliance/supervision
• C. Share the information with research for a timely update
• D. Proceed if the client order is unsolicited and documented

Best answer: B

Explanation: When investment banking or corporate finance is working on transactions (e.g., financings, mergers, strategic alternatives), personnel may have access to material non-public information (MNPI). If an RR receives MNPI, the issue is not “how to use it,” but how to prevent misuse and protect market integrity and client confidentiality. Appropriate handling typically includes: - Do not trade, recommend, or solicit activity in the issuer (and do not tip others). - Immediately notify/escalate to a supervisor/compliance so the firm can implement controls (e.g., restricted list, monitoring, information-barrier enforcement). The key takeaway is that escalation and stopping related activity are required; documentation or good intentions do not cure an MNPI conflict.

Question 10

You are reviewing a Canadian issuer’s annual financial statements to understand what drove the year-over-year change in shareholders’ equity. Which statement about the statement of changes in equity is INCORRECT?

• A. It explains how cash and cash equivalents changed during the period.
• B. It shows how total comprehensive income affects equity for the period.
• C. Its ending equity balances tie to the equity section of the balance sheet.
• D. It reconciles opening equity balances to closing equity balances.

Best answer: A

Explanation: The statement of changes in equity is a bridge between two statements. It starts with the prior period’s ending equity balances (which match the balance sheet at that date), then explains the movements during the period. Those movements typically include: - Total comprehensive income (net income plus other comprehensive income), which links it to the statement of comprehensive income - Owner-related transactions recorded directly in equity (e.g., share issuances/repurchases, dividends, certain reserves) After adding/subtracting these items, the statement arrives at ending balances for share capital, retained earnings, accumulated other comprehensive income (if applicable), and total equity, which must match the equity section on the current balance sheet. It does not describe cash movements; that is covered by the statement of cash flows.

Question 11

An issuer plans to distribute newly issued common shares in Canada and is choosing between two approaches: - Approach A: Market the shares broadly to the general public through a dealer syndicate. - Approach B: Sell the shares only to purchasers who are confirmed to be accredited investors (as defined in NI 45-106). Assume no other NI 45-106 exemptions will be used. Which approach can be completed without filing a prospectus under NI 41-101?

• A. Neither approach
• B. Approach A only
• C. Both approaches
• D. Approach B only

Best answer: D

Explanation: The core concept is that a prospectus is the default requirement for a distribution of securities, and NI 41-101 governs the prospectus disclosure regime. NI 45-106 provides prospectus exemptions that allow an issuer to distribute securities without a prospectus when the distribution is restricted to specified circumstances or purchasers. Here, selling only to purchasers who are confirmed to be accredited investors fits a NI 45-106 prospectus exemption, so the issuer can complete that distribution without filing a prospectus. By contrast, broadly marketing and selling to the general public does not fit the accredited investor exemption and would generally require a prospectus under NI 41-101. The decisive differentiator is the purchaser category (general public versus exempt purchasers).

Question 12

An RR receives an unsolicited call from a long-time client who wants to invest an additional $75,000 in a volatile junior mining stock. During the call, the client mentions they were laid off last month, are now using savings to cover living expenses, and recently co-signed a large loan for an adult child. The RR’s KYC on file (last updated four years ago) shows “high risk tolerance” and “long-term growth” based on stable employment and surplus income. What is the primary compliance risk/red flag the RR must address before proceeding with any recommendation or trade discussion?

• A. KYC may be outdated due to material new information and must be updated and documented
• B. A confidentiality breach because the client discussed a family loan
• C. A conflict of interest because the client requested a specific issuer
• D. Abusive trading risk because the issuer is volatile

Best answer: A

Explanation: KYC is not “set and forget.” When an RR learns new information or a client reports a material change in circumstances (e.g., employment/income disruption, increased liabilities, change in cash-flow needs), the RR must treat this as a KYC-update trigger. The RR should pause and refresh the KYC details that could reasonably be impacted (such as financial situation, risk tolerance/risk capacity, investment objectives, and time horizon), obtain the client’s confirmation, and document the update (what changed, when it was learned, and the client’s acknowledgement). Only after the KYC is current can the RR properly assess whether the requested purchase is appropriate/suitable and how to handle an unsolicited instruction if it is inconsistent with the updated profile. The key risk is proceeding on stale KYC, not the volatility alone.

Question 13

A Canadian issuer reports the following (CAD millions) for the year. Exhibit: Income statement (selected) | Item | Amount | |—|—:| | Revenue | 500 | | Cost of goods sold | 320 | | Selling & administrative | 110 | | Depreciation | 20 | | Interest expense | 15 | Using interest coverage defined as (\text{EBIT} / \text{interest expense}), what is the issuer’s interest coverage ratio (round to two decimals), and what does it indicate?

• A. 0.30x; interest is 0.30 times EBIT
• B. 333%; EBIT is 333% of interest expense
• C. 4.67x; EBITDA covers interest about 4.67 times
• D. 3.33x; EBIT covers interest about 3.33 times

Best answer: D

Explanation: Interest coverage is a solvency measure of how many times operating earnings (EBIT) can pay the period’s interest expense. First calculate EBIT from the exhibit, then divide by interest expense: [ \begin{aligned} \text{EBIT} &= 500 - 320 - 110 - 20 = 50 \ \text{Interest coverage} &= 50 / 15 = 3.33\text{x} \end{aligned} ] Interpreting the result: EBIT covers interest expense about 3.33 times; all else equal, a higher multiple implies more cushion and better debt-servicing capacity than a lower multiple. The closest trap is using EBITDA (adding back depreciation), which overstates coverage versus the stated EBIT-based definition.

Question 14

Your client has been a long-time Canadian resident with a non-registered account at your investment dealer. On a call, they advise they have moved to Texas permanently, now have a U.S. home address and phone number, and want you to keep providing trade recommendations as usual. Under firm procedures for clients residing in the United States, what is the best next step?

• A. Immediately close the account and require the client to liquidate all positions
• B. Have the client sign discretionary authority so you can continue trading while they are in the United States
• C. Continue servicing normally because the client is a Canadian citizen
• D. Escalate to compliance, update KYC for U.S. residence/tax status, and apply any servicing/trading restrictions before providing recommendations

Best answer: D

Explanation: When a client becomes resident in a foreign jurisdiction (including the United States), it is a material change that can affect both KYC information and what activities the dealer and RR may perform for that client. The correct workflow is to (1) update the client’s address/residency and any related tax-residency information on the KYC record, and (2) escalate to compliance to determine whether the firm can continue to service the account and, if so, under what conditions (for example, restrictions on providing recommendations/solicitation, product limitations, or the need to transfer the account). The key point is to confirm and document the firm’s permitted servicing approach before giving advice or proceeding with “as usual” recommendations to a U.S.-resident client.

Question 15

An investor has a minimum expected return requirement of 6% and a non-financial constraint that only ESG-screened funds may be used. The only eligible funds and their expected annual returns are Fund B: 5% and Fund C: 4%. If the portfolio must be equally weighted across all eligible funds, what is the portfolio’s expected return and the implication for meeting the return requirement?

• A. 4.5% expected; return constraint not met
• B. 5.0% expected; return constraint met
• C. 4.0% expected; return constraint not met
• D. 6.0% expected; return constraint met

Best answer: A

Explanation: Non-financial constraints (such as ESG screens) shrink the opportunity set by removing otherwise investable choices, which can reduce the portfolio’s achievable expected return (or change its risk). Here, only two funds remain eligible and the portfolio must be equally weighted, so expected return is the weighted average: [ \begin{aligned} E[R_p] &= (0.50 \times 5%) + (0.50 \times 4%)\ &= 2.5% + 2.0%\ &= 4.5% \end{aligned} ] Since 4.5% is below the 6% minimum expected return requirement, the portfolio cannot satisfy both the ESG preference and the return constraint as stated; the client would need to adjust constraints, expectations, or contributions/time horizon to restore suitability.

Question 16

A new client, Priya (age 33), has completed KYC and is assessed as moderate risk for retirement savings (15+ year horizon). She also wants to buy a home in about 18 months and estimates she will need a $40,000 down payment. Priya has $25,000 in a chequing account, no emergency fund, and $5,000 of credit card debt at 19% interest. She asks you to invest the entire $25,000 today in an equity mutual fund “to grow it faster.” As her Registered Representative, what is the best next step to incorporate cash management planning and savings strategies into your recommendation?

• A. Review cash flow; prioritize debt, emergency fund, and down-payment cash
• B. Process the purchase as an unsolicited order and document it
• C. Invest the full amount now and rebalance later if needed
• D. Use margin to increase expected return for the down payment

Best answer: A

Explanation: Cash management planning is part of a sound investment recommendation because it identifies what portion of a client’s assets is truly investable for long-term goals versus needed for near-term obligations and reserves. Here, Priya has (1) expensive revolving debt and (2) a material short-term savings goal, plus no emergency fund. Before recommending any long-term growth investment, the RR should complete a cash-flow/living-expense review and earmark funds for: - Paying down high-interest debt (often a risk-free “return” equal to the interest rate) - Building an emergency reserve for unexpected expenses - Setting aside/down-payment savings in low-volatility, cash-equivalent or short-term vehicles Only the remaining surplus should be invested for retirement in line with her moderate risk profile. The key takeaway is to separate short-term cash needs from long-term investing before implementing product selection.

Question 17

An RR is drafting an equity valuation summary and, for this report, groups industries into four broad sectors: consumer products, manufacturing, services, and technology (software/platform businesses). Which statement is INCORRECT?

• A. An industrial pump maker fits manufacturing; capex and economic cycles matter in peer comparisons.
• B. A domestic airline fits services; operating metrics and input costs are key profitability drivers.
• C. A subscription-based cloud accounting platform fits services and should be valued mainly on tangible book value.
• D. A branded packaged foods issuer fits consumer products; stable demand can support P/E comparisons.

Best answer: C

Explanation: Industry context helps you choose appropriate peer groups and valuation drivers. Under the stated framework, software/platform businesses belong in the technology sector, where investors often focus on recurring revenue quality, growth rates, operating leverage, and forward-looking cash-flow potential; tangible book value is usually a weak anchor because assets are often intangible. By contrast, consumer products firms are commonly compared on margin stability and earnings-based multiples, manufacturing firms on capital intensity and cycle sensitivity, and services firms on operating efficiency and key operating metrics that drive profitability. The incorrect statement is the one that misclassifies the software/platform issuer and anchors valuation to tangible book value.

Question 18

A Canadian issuer has two classes of common shares. One class carries one vote per share and shares equally in dividends and any surplus assets on dissolution. The other class has no voting rights but has the same dividend and dissolution (surplus) rights as the voting class. Which term best matches the second class of shares?

• A. Restricted voting common shares
• B. Voting common shares
• C. Non-voting common shares
• D. Multiple voting common shares

Best answer: C

Explanation: Common shares represent an equity (residual) interest in a corporation, but issuers may create multiple classes with different rights. The three key differentiators are: - Voting rights (full, limited, multiple, or none) - Dividend rights (same as other common shares or preferential/variable by class) - Rights to surplus on dissolution (how remaining assets are shared after all liabilities and prior-ranking claims) In the scenario, the only difference is that the second class has no voting rights; its dividend entitlement and residual claim on dissolution are the same as the voting class. A share class defined by the absence of voting rights is a non-voting common share, not a limited-vote or enhanced-vote class.

Question 19

All amounts are in CAD. A client has signed a written limited trading authorization appointing their spouse as an agent to place trades in the client’s non-registered account, with a maximum market value of $25,000 per order (ignore commissions). The spouse instructs the RR to buy 600 shares of XYZ at $44.30. The client cannot be reached today. What is the most appropriate action?

• A. Enter the buy order and send confirmations to spouse.
• B. Enter the order but cap it at $25,000.
• C. Do not enter; get the client’s instruction first.
• D. Enter the order and obtain client sign-off later.

Best answer: C

Explanation: In an agency relationship, the agent acts on behalf of the account holder (the principal) and can bind the principal only within the scope of the written authority on file; the RR must follow (and document) those limits. A trust relationship is different: a trustee has legal title and acts under the trust agreement for beneficiaries. Here, the written agency limit is $25,000 per order, and the spouse’s instruction is: - Market value = 600 shares (\times) $44.30 = $26,580 - Since $26,580 (>) $25,000, the agent is acting outside their authority The RR should not enter the order until the principal gives instructions (or a properly documented change expands the agent’s authority).

Question 20

Your client, age 79, has a non-registered cash account and is documented as balanced/moderate risk with an income objective and no third-party trading authority on file. He calls requesting an immediate redemption of -40,000 of mutual funds and asks you to wire the proceeds today to a new third-party “investment program.” During the call he repeats questions, cannot recall your prior conversation from yesterday, and becomes agitated when you ask clarifying questions. A Trusted Contact Person (TCP) is on file, but the client says not to contact family. What is the single best action for you to take now?

• A. Process the redemption and wire as an unsolicited client order
• B. Contact the TCP and follow the TCP’s instructions on the transfer
• C. Escalate, document, contact TCP, and consider a temporary hold
• D. Refuse the request and tell the client to obtain legal advice

Best answer: C

Explanation: When diminished capacity or potential financial exploitation is suspected, the RR should not simply process an urgent disbursement as -just unsolicited.- The expected response path is to document objective observations, escalate to the firm’s supervisory/compliance process, and determine whether a temporary hold on the transaction is appropriate to protect the client. A TCP is not a decision-maker and cannot provide trading/disbursement instructions, but can be contacted in line with firm policy to help confirm the client’s well-being or assist in reaching the client. Even if the client resists family involvement, the presence of serious warning signs makes escalation and controlled next steps the prudent, client-protective approach.

Question 21

A client has $150,000 (CAD) in a non-registered account and wants diversified exposure using one fund family. She expects to rebalance quarterly between Canadian equity and fixed income funds as her risk tolerance changes, and she is concerned about realizing taxable capital gains every time she switches. She does not need intraday trading; she is comfortable with once-daily pricing at NAV and wants daily liquidity. Which managed product structure is the single best recommendation?

• A. An index ETF pair (equity ETF and bond ETF)
• B. A mutual fund corporation with multiple share classes
• C. A mutual fund trust family with equity and bond funds
• D. A closed-end fund that holds a balanced portfolio

Best answer: B

Explanation: This is primarily a product-structure decision driven by taxes and trading mechanics. Open-end mutual funds redeem at NAV (once per day), while ETFs and closed-end funds trade on an exchange intraday and typically create a taxable sale when the investor switches between products. For a client who expects regular switches inside a non-registered account, a mutual fund corporation can be advantageous because it may allow rebalancing by switching between share classes within the same corporation without a current-year taxable disposition (contrast with mutual fund trusts, where switching funds is generally a disposition). The client also prefers NAV-based pricing and daily liquidity, which aligns with conventional open-end mutual fund dealing. The closest alternative is using ETFs for low cost, but it does not meet the client’s tax-on-switching concern.

Question 22

A Registered Representative is comparing two Canadian issuers. All figures are in CAD (millions). Using (\text{ROA}=\frac{\text{Net income}}{\text{Average total assets}}), which issuer had the higher return on assets (ROA) for the year? | | Net income | Average total assets | |—|—:|—:| | NorthCo | $120 | $1,500 | | SouthCo | $90 | $900 |

• A. Both issuers have the same ROA
• B. Cannot be determined from the information provided
• C. SouthCo (higher ROA)
• D. NorthCo (higher ROA)

Best answer: C

Explanation: Return on assets (ROA) is a profitability/efficiency ratio that shows net income generated per dollar of assets employed. Using the provided average total assets (so no averaging step is required), compute ROA for each issuer: [ \begin{aligned} \text{ROA}{\text{NorthCo}} &= \frac{120}{1{,}500} = 0.08 = 8% \ \text{ROA}{\text{SouthCo}} &= \frac{90}{900} = 0.10 = 10% \end{aligned} ] Even though NorthCo has higher absolute net income, SouthCo generates more profit per dollar of assets, which is what ROA is designed to compare.

Question 23

A client placed an order earlier in the day. You check the order management system. Exhibit: Order blotter snapshot text Time: 10:14:03 Symbol: ABC Side: BUY Qty: 5,000 Type: LMT 10.00 TIF: DAY Status: PARTIAL Filled: 2,000 @ 9.98 Open: 3,000 Order ID: 845721 At 10:20, the client instructs you to increase the total to 6,000 shares and to make the remaining shares a market order. What is the most compliant way to handle this change while maintaining proper documentation and audit trail?

• A. Edit Order ID 845721 to 6,000 market so it shows one order
• B. Cancel Order ID 845721 and re-enter one new 6,000 market order
• C. Enter a separate 1,000 market order and leave the 3,000 limit open
• D. Cancel the open 3,000 and enter a new 4,000 market order

Best answer: D

Explanation: Order changes must be handled in a way that preserves an accurate order history and time-stamped client instructions. When an order is partially filled, the executed portion cannot be “changed” or cancelled; it is a completed trade that must remain on the books. To implement the client’s instruction for the remaining shares: - Confirm the fill details (2,000 already executed) and the open balance (3,000). - Cancel the open balance. - Enter a new order for the client’s revised intent (remaining 3,000 plus the additional 1,000 = 4,000) using the new order terms. This cancel/replace approach maintains a clean audit trail rather than overwriting the original order record.

Question 24

You are an RR meeting a new client, Priya, who is investing $100,000 in a TFSA for long-term growth with a 12-year horizon. Her risk tolerance is moderate and she wants a broadly diversified portfolio with limited volatility; you and Priya agree an 80/20 equity/fixed income mix is appropriate. She has a strict ESG requirement to exclude fossil fuels, tobacco, and weapons and says she will not compromise, and she also prefers low ongoing fees and minimal trading. Priya asks to invest the entire TFSA today in a “Clean Energy Leaders” equity ETF she found online (35 holdings, MER 0.65%) because she believes it will be diversified enough on its own. What is the single best recommendation/action that satisfies all constraints and aligns with CIRO expectations?

• A. Provide ETF Facts; use diversified ESG equity/bond ETFs; cap thematic slice.
• B. Invest 100% in the clean energy ETF to meet values.
• C. Buy a basket of renewable stocks to diversify.
• D. Use a low-cost broad-market balanced ETF without ESG screens.

Best answer: A

Explanation: The core trade-off is that tighter ESG/ethical screens reduce the investable universe, which can make a portfolio less diversified (e.g., fewer sectors/issuers) and more sensitive to specific themes. In Priya’s case, putting 100% of a TFSA into a clean-energy thematic ETF concentrates risk in one segment of equities and also fails the agreed 80/20 equity/fixed income risk profile. A CIRO-aligned approach is to recommend a diversified, low-cost ESG-screened equity ETF for the equity “core” and an ESG-oriented bond ETF for the fixed-income sleeve to achieve the 80/20 mix. If Priya wants clean-energy exposure, keep it as a smaller “satellite” allocation and document that the ESG constraints may affect diversification and return/volatility relative to the broad market, and deliver ETF Facts before the trade.