CSC Exam 2 — CSI Canadian Securities Course (CSC) Cheat Sheet

Last revised: September 28, 2026

Cheat sheet: independent review for CSC Exam 2: investment products, taxation, suitability, client planning, analysis, and portfolio construction.

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Scope and study context

Scan the tables first. Mark any row that feels uncertain.
Do 10–20 topic drills in those weak areas.
Read detailed explanations, not just the answer key.
Redo missed questions without looking at the explanation.
Use mock exams only after topic gaps are narrowed.

For CSC Exam 2, independent companion practice is most useful when it forces you to apply concepts to client scenarios, not just define terms.

Scope and Exam Focus

This Cheat Sheet is for candidates preparing for the Canadian Securities Institute CSI Canadian Securities Course (CSC), CSC Exam 2. Use it as independent review support with your current course materials.

CSC Exam 2 questions are often scenario-based. Expect to connect:

Client facts: objectives, risk tolerance, time horizon, tax situation, liquidity, constraints.
Product mechanics: funds, ETFs, segregated funds, structured products, fee-based accounts, registered plans.
Tax treatment: interest, dividends, capital gains, return of capital, registered versus non-registered accounts.
Analysis and portfolio decisions: asset allocation, diversification, fundamental analysis, technical analysis, managed accounts, institutional needs.

High-Yield Map

Area	Know Cold	Common Exam Trap
KYC, KYP, suitability	Client profile, product risks, costs, liquidity, conflicts	Recommending a product because it has a high return without matching client risk and time horizon
Managed products	Mutual funds, ETFs, segregated funds, closed-end funds, alternatives, structured products	Confusing NAV-based mutual fund pricing with intraday ETF market pricing
Taxation	Interest, dividends, capital gains, losses, ACB, ROC, registered plans	Treating return of capital as investment yield or forgetting ACB adjustments
Registered accounts	RRSP, RRIF, TFSA, RESP, RDSP, FHSA, locked-in plans	Assuming all registered withdrawals are taxed the same way
Financial planning	Net worth, cash flow, retirement, insurance, estate basics	Ignoring liquidity and debt obligations when assessing suitability
Fundamental analysis	Economy, industry, company, ratios, valuation	Using one ratio in isolation without comparing industry, trend, and risk
Technical analysis	Trend, support/resistance, volume, moving averages, momentum	Treating chart signals as guarantees rather than probabilities
Portfolio theory	Risk-return trade-off, diversification, correlation, beta, CAPM, IPS	Thinking diversification eliminates systematic risk
Managed/fee accounts	Fee-based, discretionary, wrap, pooled, managed accounts	Assuming a fee-based account is automatically suitable for a low-activity investor

Suitability Decision Path

    flowchart TD
	    A[Update KYC] --> B[Define objective and time horizon]
	    B --> C[Assess risk tolerance and risk capacity]
	    C --> D[Identify tax, liquidity, legal, and unique constraints]
	    D --> E[Apply KYP: product risk, cost, liquidity, complexity]
	    E --> F{Product matches client?}
	    F -- No --> G[Reject or find lower-risk / more suitable alternative]
	    F -- Yes --> H[Compare alternatives and disclose key risks/costs]
	    H --> I[Document recommendation rationale]

Notes and examples

Product Suitability Decision Table

Client need	More likely suitable	Less likely suitable
Emergency liquidity	Cash equivalents, high-quality liquid products	Locked-in, illiquid, long-term structured products
Stable income	High-quality fixed income, income funds, annuities where appropriate	Speculative growth equities, volatile alternatives
Long-term growth	Diversified equity exposure, balanced portfolios	Excessive cash if inflation risk is high
Tax efficiency	Capital gains-oriented strategies, appropriate registered accounts	High-interest income in taxable accounts
Estate planning	Insurance products, beneficiary designations, appropriate account structures	Products that ignore estate and liquidity needs
Inflation protection	Equities, real assets, inflation-sensitive assets where suitable	Long-duration nominal fixed income only
Capital preservation	Lower-risk diversified assets, GIC-like products, high-quality bonds	Concentrated equities, leveraged products
Market-linked upside with protection	Some structured products if terms fit	Products with caps/liquidity limits if client needs flexibility

KYC, KYP, and Suitability Reference

Concept	What It Means	Exam Use
KYC	Know the client: financial facts, objectives, time horizon, risk profile, constraints	First step before recommending or accepting an order
KYP	Know the product: structure, risks, costs, liquidity, tax, conflicts, complexity	Required to judge whether a product fits the client
Suitability	Match KYC to KYP	A suitable investment must fit the whole client profile, not just one preference
Risk tolerance	Client’s willingness to accept volatility or loss	Psychological comfort with risk
Risk capacity	Client’s financial ability to absorb loss	Depends on income, assets, liabilities, dependants, time horizon
Time horizon	When funds are needed	Short horizon usually reduces suitability of volatile or illiquid products
Liquidity need	Need for access to cash	Illiquid funds, structured notes, DSC-style fees, and locked-in accounts may be unsuitable
Tax position	Marginal rate, account type, income needs, capital losses	Drives asset location but does not override suitability
Investment knowledge	Client’s ability to understand product risk	Complex products require stronger explanation and documentation
Concentration risk	Too much exposure to one issuer, sector, asset class, currency, or strategy	Often hidden in employer stock, sector ETFs, linked notes, and thematic funds

Notes and examples

Risk Profile Distinctions

Distinction	High-Yield Point
Tolerance vs capacity	A client may want high returns but lack capacity for loss; capacity can cap the recommendation
Objective vs product	“Income” does not automatically mean high-yield bonds; quality, risk, and sustainability matter
Short term vs long term	Short-term money should prioritize capital preservation and liquidity
Tax efficiency vs tax avoidance	Tax efficiency is a planning factor; unsuitable tax-driven recommendations remain unsuitable
Diversification vs dilution	Diversification reduces unsystematic risk; excessive holdings may create complexity without better control

Product Selection Matrix

Client Need	More Likely Fit	Be Careful With	Why
Capital preservation, short horizon	Cash, T-bills, money market funds, high-quality short-term fixed income	Equities, alternatives, long-duration bonds, structured products	Volatility and liquidity risk can dominate return
Regular income	Bonds, dividend funds, balanced funds, annuities, systematic withdrawal plans	High-yield funds, covered-call funds, ROC-heavy funds	Cash flow is not the same as guaranteed or sustainable income
Long-term growth	Equity funds, ETFs, diversified portfolios, growth-oriented managed accounts	Concentrated sector funds, leveraged/inverse ETFs	Growth needs time horizon and risk capacity
Tax efficiency in non-registered account	Capital-gain-oriented investments, Canadian dividend exposure, ROC-aware products	Interest-heavy products, frequent trading strategies	Tax treatment affects after-tax return
Estate/beneficiary planning	Segregated funds, insurance, trusts, beneficiary designations where appropriate	Products with poor liquidity or high fees if not needed	Estate features may justify cost only if client needs them
Inflation protection	Equities, real assets, inflation-sensitive income strategies	Fixed nominal income only	Purchasing power risk matters over long horizons
Speculation	Options, leveraged ETFs, commodities, high-volatility sectors	For conservative, income-dependent, or short-horizon clients	Speculation requires clear risk tolerance and capacity
Hands-off portfolio management	Balanced funds, asset allocation ETFs, managed accounts, robo/portfolio solutions	High-cost or unsuitable discretionary programs	Service level and cost must match client needs

Managed Products and Fund Mechanics

Mutual Funds

Feature	Exam Reference
Pricing	Bought and redeemed at next calculated NAV after the order is received, not intraday market price
NAVPS	Fund assets minus liabilities divided by units or shares outstanding
Distributions	May include interest, dividends, capital gains, foreign income, and return of capital
MER	Ongoing management and operating costs; reduces investor return
TER	Trading expense ratio; reflects portfolio trading costs separately from MER
Sales charges	Front-end, back-end/deferred, low-load, or no-load structures may appear in product comparisons
Fund facts/prospectus	Key disclosure documents for costs, risk, holdings, performance, and suitability
Reinvestment	Reinvested distributions buy more units and generally increase ACB in non-registered accounts

Notes and examples

\[ \text{NAVPS} = \frac{\text{Market value of fund assets} - \text{liabilities}} {\text{units or shares outstanding}} \]

ETF Versus Mutual Fund

Point	Mutual Fund	ETF
Trading	Purchased/redeemed through fund company/dealer	Trades on exchange like a stock
Pricing	End-of-day NAV	Intraday market price; may trade at premium/discount to NAV
Costs	MER, possible sales charges, embedded costs	MER, bid-ask spread, brokerage commissions where applicable
Liquidity	Redeemed through fund company	Depends on exchange liquidity and underlying holdings
Orders	Dollar-based purchases are common	Market, limit, stop orders may be used
Tax	Distributions and ACB tracking matter	Distributions, reinvested distributions, and ACB tracking matter
Trap	NAV is not known at order entry	Market price is not always equal to NAV

ETF Variants

Type	Main Use	Key Risk
Broad-market index ETF	Low-cost diversified exposure	Market risk
Sector/thematic ETF	Targeted exposure	Concentration risk
Bond ETF	Fixed-income exposure with trading liquidity	Interest rate, credit, liquidity, tracking risk
International ETF	Foreign market exposure	Currency, withholding tax, political risk
Currency-hedged ETF	Reduce currency exposure	Hedge cost and imperfect tracking
Leveraged ETF	Magnified daily exposure	Compounding and daily reset effects
Inverse ETF	Profit from decline in reference index	Short-term tactical use; high tracking complexity
Commodity ETF	Commodity exposure	Volatility, futures roll, structure risk

Segregated Funds

Feature	Exam Reference
Issuer	Insurance company contract, not a mutual fund trust
Guarantees	May provide maturity and/or death benefit guarantees subject to contract terms
Beneficiary	Named beneficiary can support estate planning
Creditor protection	May be possible in some circumstances; depends on facts and law
Reset option	May lock in higher guarantee base if available under contract
Costs	Often higher than comparable mutual fund because insurance features have value
Suitability	Useful where insurance, estate, or guarantee features matter
Trap	Guarantee is not the same as no risk; terms, holding period, and issuer matter

Closed-End Funds, Split Shares, Alternatives, and Structured Products

Product	Core Feature	Suitable When	Watch For
Closed-end fund	Fixed number of shares/units, exchange traded	Investor wants portfolio exposure with market trading	Premium/discount to NAV, liquidity, leverage
Split share corporation	Portfolio split into preferred shares and capital shares	Different investors want income priority or leveraged capital exposure	Asset coverage, leverage, distribution sustainability
Alternative mutual fund/liquid alternative	May use shorting, leverage, derivatives, alternative strategies	Investor understands strategy and risk	Complexity, liquidity, leverage, manager risk
Hedge fund/private alternative	Flexible strategy, often less liquid and less transparent	Sophisticated investor with high risk capacity	Lockups, valuation, leverage, performance fees
Principal protected note	Return linked to reference asset with principal protection terms	Client wants market-linked exposure with principal protection if held as required	Issuer credit risk, capped return, fees, liquidity
Market-linked GIC	Deposit-style product with return linked to market/index	Conservative client wants possible upside with principal protection terms	Return formula, caps, participation rate, early redemption limits
Annuity	Converts capital into income stream	Longevity risk or income certainty is key	Loss of liquidity, inflation risk, insurer risk
Labour-sponsored/venture-style product	Exposure to small/private businesses, possible tax incentives	High-risk capital and long horizon	Illiquidity, valuation, policy/tax dependency

Mutual Funds

A mutual fund pools investor money and invests according to a stated mandate. Investors buy units or shares and typically transact at net asset value.

Feature	Review point
NAV	Fund assets minus liabilities, divided by units outstanding
MER	Ongoing management and operating costs expressed as a percentage
Loads	Sales charges may be front-end, back-end, low-load, or no-load depending on structure
Distributions	Interest, dividends, capital gains, or return of capital may be distributed
Suitability	Depends on objective, risk, cost, liquidity, tax, and fund strategy
Diversification	Fund may diversify, but a sector or specialty fund can still be concentrated

ETF vs Mutual Fund

Feature	Mutual fund	ETF
Pricing	Usually priced at NAV after market close	Trades intraday on an exchange
Transaction price	NAV-based	Market price, may differ from NAV
Costs	MER, possible sales charges or embedded costs	MER, bid-ask spread, commissions if applicable
Management style	Active or passive	Often passive, but active ETFs exist
Tax efficiency	Varies by fund	Often tax-efficient, but not automatically
Liquidity	Fund redemption process	Exchange liquidity plus underlying asset liquidity

ETF Traps

Market price can trade at a premium or discount to NAV.
Thinly traded ETFs may have wider bid-ask spreads.
Leveraged and inverse ETFs can be unsuitable for long-term buy-and-hold investors.
Tracking error matters; index-like name does not guarantee exact index return.
Underlying asset liquidity matters, especially in stressed markets.

Segregated Funds

Segregated funds are insurance contracts with investment features.

Feature	Review point
Maturity/death benefit guarantees	Protection features depend on contract terms
Beneficiary designation	Can support estate planning objectives
Creditor protection	May be available in some circumstances; do not assume universally
Fees	Often higher than comparable mutual funds
Liquidity	Surrenders may have fees or restrictions
Suitability	More relevant where insurance, estate, or guarantee features matter

Hedge Funds and Alternative Strategies

Strategy/product idea	Key risk
Long/short equity	Manager skill, short-selling risk
Market neutral	Model risk, leverage risk
Global macro	Economic and currency risk
Event-driven	Deal failure or event risk
Managed futures	Trend reversal and derivatives risk
Private or illiquid alternatives	Valuation and liquidity risk

Do not assume “alternative” means safer. Alternatives may reduce correlation, but they can introduce leverage, derivatives, short selling, valuation uncertainty, and liquidity limits.

Fund Charges, Compensation, and Return

Cost or Fee	What to Remember
Management fee	Paid to manager for portfolio management and administration
MER	Broader ongoing cost measure; reduces published fund returns
Trailer fee	Ongoing dealer compensation embedded in some fund classes
Front-end load	Sales charge paid at purchase; reduces amount invested
Deferred sales charge / low-load	Redemption charge may apply if sold before schedule ends, where applicable
Short-term trading fee	Designed to discourage rapid in/out trading
Performance fee	Common in alternatives; aligns with performance but can encourage risk-taking
Bid-ask spread	ETF trading cost; wider spreads increase investor cost
Advisory or fee-based account fee	Explicit fee based on assets or service model; suitability still required

Tax Cheat Sheet

Tax Character of Investment Returns

Return Type	Tax Treatment Concept	High-Yield Trap
Interest	Generally fully taxable as ordinary income	Strip bonds and accrued interest can create tax without matching cash flow
Canadian dividends	Gross-up and dividend tax credit system may apply	Eligible and non-eligible dividends are not identical
Foreign dividends	Generally taxed as foreign income; withholding tax may apply	Not eligible for Canadian dividend tax credit
Capital gains	Only the applicable inclusion-rate portion is taxable	Unrealized gains are not taxed until disposition, subject to deemed disposition rules
Capital losses	Generally offset capital gains, subject to tax rules	Cannot normally be used like an ordinary income deduction
Return of capital	Generally reduces ACB; not immediate income when received	ROC is not the same as earned yield
Reinvested distributions	Usually increase units and ACB	Ignoring ACB increase can overstate taxable gain later
Foreign exchange gain/loss	Currency movement can affect taxable result	Security gain and currency gain may both matter

Notes and examples

\[ \text{Capital gain or loss} = \text{proceeds of disposition} - \text{ACB} - \text{selling costs} \]\[ \text{Taxable capital gain} = \text{capital gain} \times \text{applicable inclusion rate} \]\[ \text{ACB per unit} = \frac{\text{total adjusted cost base}}{\text{number of units held}} \]

ACB Adjustment Rules

Event	ACB Effect
Purchase of more units	Increases total ACB
Reinvested distribution	Increases total ACB because investor is treated as receiving and reinvesting
Return of capital distribution	Decreases ACB
Sale of part of holding	Uses average ACB per unit for the units sold
Fund switch in non-registered account	May trigger disposition unless structured otherwise
Corporate action	Adjust ACB based on transaction details provided

Tax-Efficient Asset Location

Investment Type	Often More Tax-Efficient In	Reason
Interest-heavy investments	Registered account, when suitable	Interest is generally fully taxable in non-registered accounts
High-turnover strategies	Registered account, when suitable	Frequent taxable distributions can reduce after-tax return
Canadian dividend equities	Non-registered account may be efficient for some investors	Dividend tax credit may improve after-tax result
Capital-gain-oriented equities	Non-registered account may be efficient for some investors	Deferral until sale and partial inclusion may help
Foreign dividend securities	Depends on account and treaty/withholding details	Withholding tax and account type matter
ROC/distribution products	Non-registered account only if client understands ACB impact	Cash flow may be partly capital returned

Registered and Tax-Advantaged Plans

Plan	Contribution Tax Treatment	Growth	Withdrawal Tax Treatment	Best Exam Association
RRSP	Contributions generally deductible	Tax-deferred	Withdrawals generally taxable	Retirement savings during earning years
Spousal RRSP	Contributor may deduct; spouse owns plan	Tax-deferred	Attribution rules may matter	Income splitting planning
RRIF	Funded from RRSP/registered assets	Tax-deferred	Minimum withdrawals generally taxable	Retirement income phase
TFSA	Contributions not deductible	Tax-sheltered	Qualifying withdrawals generally tax-free	Flexible savings, emergency or long-term goals
RESP	Contributions not deductible	Tax-sheltered	Education assistance payments taxable to student; contribution withdrawals generally not taxable	Education funding
RDSP	Contributions not deductible	Tax-sheltered	Withdrawals include taxable and non-taxable components	Long-term disability savings
FHSA	Contributions generally deductible	Tax-sheltered	Qualifying home purchase withdrawals generally tax-free	First-home savings planning
Locked-in RRSP/LIRA	Usually from pension assets	Tax-deferred	Withdrawals restricted; later income vehicle required	Preserving pension money
LIF/LRIF-type plans	Locked-in retirement income	Tax-deferred	Withdrawal minimums/maximums may apply	Retirement income from locked-in assets

Notes and examples

Registered Plan Traps

Trap	Correct Reasoning
“TFSA contribution gives a tax deduction”	TFSA contributions are not deductible
“RRSP withdrawals are taxed only on gains”	RRSP/RRIF withdrawals are generally taxable as income
“RESP belongs only to the child”	Subscriber contributions, grants, earnings, and withdrawals have distinct rules
“Registered account always best”	Suitability, liquidity, tax rate, contribution room, and time horizon still matter
“TFSA loss is deductible”	Losses inside a TFSA generally do not create deductible capital losses
“Locked-in account is like regular RRSP”	Locked-in assets have withdrawal restrictions tied to pension rules

Financial Planning Reference

Core Planning Areas

Area	Candidate Should Connect To
Cash management	Emergency fund, debt payments, liquidity needs
Credit planning	Interest costs, debt service, leverage risk
Insurance planning	Life, disability, critical illness, long-term care, property coverage
Tax planning	Asset location, income character, deductions, credits, timing
Retirement planning	Savings rate, RRSP/RRIF, pensions, CPP/OAS concepts, longevity risk
Estate planning	Wills, powers of attorney, beneficiaries, trusts, tax at death
Education/disability/home savings	RESP, RDSP, FHSA suitability
Investment planning	IPS, asset allocation, product selection, rebalancing

Notes and examples

Client Financial Ratios

Measure	Formula	Use
Net worth	Total assets - total liabilities	Overall financial position
Cash flow surplus	Income - expenses	Capacity to save or service debt
Liquidity ratio	Liquid assets / monthly expenses	Emergency cash strength
Debt-to-income	Debt payments / gross income	Debt burden
Savings ratio	Savings / income	Retirement and goal funding discipline
Debt-to-asset	Total debt / total assets	Leverage risk
Net investment assets	Investable assets - investment debt	True investment base

Estate and Insurance Concepts

Concept	Exam Relevance
Will	Directs estate distribution; dying without one can create unwanted outcomes
Power of attorney / mandate	Allows someone to act if client cannot manage affairs
Beneficiary designation	Can transfer certain assets outside estate administration, depending on product/account
Probate/estate administration	Cost and delay considerations may influence planning
Trust	Separates legal control from beneficial enjoyment; used for control, tax, or estate goals
Life insurance	Provides capital at death; can fund dependants, debts, taxes, or buy-sell obligations
Disability insurance	Protects earning power during disability
Critical illness insurance	Lump sum on covered diagnosis, subject to contract
Long-term care insurance	Helps cover care costs if independence declines
Deemed disposition at death	Tax planning issue for non-registered and registered assets

Fundamental Analysis

Top-Down Versus Bottom-Up

Approach	Sequence	Best Use
Top-down	Economy -> industry -> company	Asset allocation, sector selection, macro-sensitive investing
Bottom-up	Company -> industry -> economy	Security selection based on company fundamentals
Growth style	Looks for above-average earnings/revenue growth	Can overpay if valuation ignored
Value style	Looks for undervalued securities	Can be value trap if fundamentals deteriorate
Income style	Focuses on dividends, distributions, stability	Yield may signal risk if payout is unsustainable

Notes and examples

Economic and Industry Factors

Factor	Investment Impact
Interest rates	Affect discount rates, bond prices, borrowing costs, dividend stock valuation
Inflation	Reduces purchasing power; may pressure margins and rates
GDP/business cycle	Cyclical sectors tend to respond more to expansions/contractions
Currency	Affects importers, exporters, foreign investments, translated returns
Commodity prices	Important for resource-heavy Canadian sectors
Regulation	Can materially affect banks, utilities, telecom, pipelines, health care
Competitive position	Pricing power, barriers to entry, margins, and growth durability

Company Ratio Reference

Category	Ratio	Formula	Interpretation
Liquidity	Current ratio	Current assets / current liabilities	Ability to meet short-term obligations
Liquidity	Quick ratio	Quick assets / current liabilities	Stricter liquidity test excluding less liquid current assets
Leverage	Debt-to-equity	Total debt / shareholders’ equity	Financial leverage and solvency risk
Leverage	Interest coverage	EBIT / interest expense	Ability to service debt
Profitability	Gross margin	Gross profit / sales	Production or direct cost efficiency
Profitability	Operating margin	Operating income / sales	Core operating profitability
Profitability	Net margin	Net income / sales	Overall profitability after all expenses
Profitability	ROA	Net income / total assets	Efficiency of asset base
Profitability	ROE	Net income / shareholders’ equity	Return generated for common shareholders
Valuation	EPS	Earnings available to common shareholders / average common shares	Base for P/E and earnings analysis
Valuation	P/E	Market price per share / EPS	Price paid for earnings
Valuation	P/B	Market price per share / book value per share	Useful for asset-heavy sectors
Valuation	Dividend yield	Annual dividend / market price	Cash income relative to price
Valuation	Payout ratio	Dividends / earnings	Dividend sustainability indicator

Ratio Traps

Trap	Correct Approach
High ROE always good	Check leverage; debt can inflate ROE
Low P/E always cheap	Could indicate poor growth, high risk, or falling earnings
High dividend yield always attractive	Could reflect falling share price or unsustainable payout
Current ratio too high always good	Excess working capital may indicate inefficient asset use
Compare ratios across unrelated industries	Use industry, trend, and peer context
Ignore accounting policy differences	Accounting choices can affect comparability

Fundamental Analysis Cheat Sheet

Fundamental analysis evaluates securities using economic, industry, company, and financial information.

Top-Down vs Bottom-Up

Approach	Starts with	Then considers	Best description
Top-down	Economy and markets	Sectors, industries, companies	Macro first
Bottom-up	Individual companies	Industry and economy later	Company first

Financial Statement Roles

Statement	What it shows	High-yield use
Balance sheet	Assets, liabilities, shareholders’ equity at a point in time	Financial position and leverage
Income statement	Revenue, expenses, profit over a period	Profitability and margins
Cash flow statement	Operating, investing, financing cash flows	Cash quality and sustainability
Notes	Accounting policies, details, contingencies	Hidden risk and assumptions

Ratio Review Table

Ratio	Plain-text formula	What it tests
Current ratio	Current assets / current liabilities	Short-term liquidity
Quick ratio	Cash + marketable securities + receivables / current liabilities	Stricter liquidity
Debt-to-equity	Total debt / shareholders’ equity	Financial leverage
Interest coverage	EBIT / interest expense	Ability to service debt
Gross margin	Gross profit / sales	Production or cost efficiency
Net profit margin	Net income / sales	Overall profitability
Return on equity	Net income / average shareholders’ equity	Profit earned on owners’ capital
Return on assets	Net income / average total assets	Profit earned on asset base
EPS	Earnings available to common shareholders / weighted average common shares	Profit per share
P/E ratio	Market price per share / EPS	Price paid for earnings
Dividend yield	Annual dividend per share / market price per share	Cash income relative to price
Dividend payout	Dividends per share / EPS	Portion of earnings paid out
Price-to-book	Market price per share / book value per share	Market value versus accounting equity

Ratio Interpretation Traps

Trap	Better approach
“Higher current ratio is always better”	Too high may indicate idle assets or poor working capital use
“Low P/E means cheap”	Could reflect low growth, high risk, or poor earnings quality
“High dividend yield means attractive”	Could signal falling share price or unsustainable dividend
“High ROE means strong company”	Could be inflated by leverage
“Positive net income means healthy cash flow”	Check operating cash flow and accounting quality
“One ratio is enough”	Compare trend, peers, industry, and business model

Dividend Discount Model

\[ P_0=\frac{D_1}{r-g} \]

Use this only when assumptions are reasonable: expected dividend \(D_1\), required return \(r\), and sustainable growth rate \(g\). A small change in \(r\) or \(g\) can materially change the valuation.

Technical Analysis

Tool or Pattern	Signal Concept	Exam Caution
Trendline	Direction of price movement	Breaks may signal reversal but can be false
Support	Price area where buying has appeared	If broken, may become resistance
Resistance	Price area where selling has appeared	If broken, may become support
Volume	Confirms strength of price move	Price rise on weak volume is less convincing
Moving average	Smooths price trend	Lagging indicator
Moving average crossover	Short MA crossing long MA may signal momentum change	Whipsaws occur in sideways markets
RSI	Momentum/overbought-oversold indicator	Overbought can remain overbought in strong trends
MACD	Trend/momentum indicator	Lag and false signals possible
Head and shoulders	Potential reversal pattern	Needs confirmation
Double top/bottom	Potential reversal	Wait for breakout/confirmation
Flags/pennants	Potential continuation	Short-term pattern, not certainty

Notes and examples

Fundamental Versus Technical

Fundamental Analysis	Technical Analysis
Studies value, earnings, economy, industry, management	Studies price, volume, momentum, patterns
More linked to intrinsic value and long-term outlook	More linked to trading psychology and timing
Uses statements, ratios, forecasts, discount rates	Uses charts, indicators, support/resistance
Trap: valuation model assumptions may be wrong	Trap: chart signals are not guarantees

Technical Analysis Cheat Sheet

Technical analysis focuses on price, volume, trends, and market psychology rather than intrinsic value.

Concept	Meaning	Watch for
Trend	Direction of price movement	Uptrend, downtrend, sideways trend
Support	Price area where buying may emerge	Break below support can be bearish
Resistance	Price area where selling may emerge	Break above resistance can be bullish
Moving average	Smooths price data	Crossovers may signal trend changes
Volume	Trading activity	Confirms or weakens price moves
Momentum	Speed of price movement	Can identify overbought/oversold conditions
Relative strength	Performance versus benchmark or peers	Not the same as absolute return

Technical analysis can help with timing, but it does not eliminate risk. In suitability scenarios, a technical signal does not override the client’s objectives, risk profile, and constraints.

Portfolio Theory and Management

Return and Risk Formulas

\[ E(R_p) = \sum_{i=1}^{n} w_i E(R_i) \]\[ \sigma_p^2 = w_A^2\sigma_A^2 + w_B^2\sigma_B^2 + 2w_Aw_B\sigma_A\sigma_B\rho_{A,B} \]\[ E(R_i) = R_f + \beta_i\left(E(R_m)-R_f\right) \]\[ \text{Sharpe ratio} = \frac{R_p - R_f}{\sigma_p} \]\[ \text{Treynor ratio} = \frac{R_p - R_f}{\beta_p} \]\[ \alpha = R_p - \left[R_f + \beta_p(R_m - R_f)\right] \]

Portfolio Concepts

Concept	Exam Meaning
Expected return	Weighted average of expected asset returns
Standard deviation	Total volatility of returns
Correlation	Degree to which assets move together
Diversification	Reduces unsystematic risk when assets are not perfectly correlated
Systematic risk	Market-wide risk; cannot be diversified away
Unsystematic risk	Company/industry-specific risk; can be reduced by diversification
Beta	Sensitivity to market movements
Alpha	Return above or below expected return for beta risk
Efficient frontier	Portfolios offering highest expected return for each risk level
Strategic asset allocation	Long-term target mix based on objectives and constraints
Tactical asset allocation	Shorter-term deviations from strategic target
Rebalancing	Restores target mix; controls drift and risk
Active management	Attempts to outperform benchmark through selection/timing
Passive management	Attempts to replicate benchmark exposure at lower cost

Risk Type Reference

Risk	Meaning	Typical Control
Market risk	Broad market decline	Asset allocation, time horizon
Interest rate risk	Bond prices fall when rates rise	Duration management, laddering
Credit/default risk	Issuer fails to pay	Credit quality diversification
Reinvestment risk	Cash flows reinvested at lower rates	Laddering, matching maturities
Inflation risk	Purchasing power declines	Growth assets, inflation-sensitive assets
Liquidity risk	Cannot sell quickly at fair price	Liquid reserves, product selection
Currency risk	FX movement affects return	Hedging, diversification
Concentration risk	Too much exposure to one holding/sector	Diversification limits
Political/regulatory risk	Rule or policy changes affect investment	Jurisdiction diversification
Manager risk	Poor decisions by portfolio manager	Due diligence, monitoring
Leverage risk	Borrowing magnifies gains/losses	Limits, stress testing

Investment Policy Statement

IPS Element	What to Specify
Return objective	Required return and desired return
Risk objective	Tolerance, capacity, volatility/loss limits
Time horizon	Single-stage or multi-stage horizon
Liquidity	Cash needs, withdrawals, emergency reserves
Tax	Account types, tax rate, income character
Legal/regulatory	Trust, pension, mandate, or account restrictions
Unique circumstances	Ethical preferences, concentration issues, family needs
Asset allocation	Strategic target ranges
Rebalancing	Frequency or threshold method
Monitoring	Benchmarks, reporting, review triggers

Notes and examples

Core Ideas

Concept	Quick review	Exam trap
Diversification	Combining assets whose returns do not move perfectly together	Diversification reduces specific risk, not all risk
Correlation	Measures how assets move together	Low or negative correlation improves diversification
Efficient frontier	Portfolios offering best expected return for a given risk level	A portfolio below the frontier is inefficient
Asset allocation	Mix among cash, fixed income, equities, alternatives, etc.	Usually more important than individual security selection
Strategic allocation	Long-term target allocation	Should align with objectives and constraints
Tactical allocation	Short-term shifts from target weights	Adds active management risk
Rebalancing	Returning portfolio to target weights	Forces discipline but may trigger costs/taxes
Active management	Attempts to outperform benchmark	Higher costs and manager risk
Passive management	Attempts to track benchmark	Lower cost, tracking error still matters

Portfolio Return Formula

\[ E(R_p)=\sum_{i=1}^{n} w_iE(R_i) \]

Where \(w_i\) is the portfolio weight of asset \(i\), and \(E(R_i)\) is its expected return.

Two-Asset Portfolio Risk

\[ \sigma_p^2=w_A^2\sigma_A^2+w_B^2\sigma_B^2+2w_Aw_B\sigma_A\sigma_B\rho_{AB} \]

The key term is correlation, \(\rho_{AB}\). If two assets are less than perfectly positively correlated, diversification can reduce portfolio risk.

Beta and CAPM

\[ E(R_i)=R_f+\beta_i\left(E(R_m)-R_f\right) \]

Term	Meaning
\(R_f\)	Risk-free rate
\(E(R_m)-R_f\)	Market risk premium
\(\beta_i\)	Sensitivity to market movements
\(\beta > 1\)	More volatile than the market
\(\beta < 1\)	Less volatile than the market
\(\beta < 0\)	Moves opposite to the market, in theory

Common Portfolio Mistakes

Assuming a high expected return automatically means a good investment.
Ignoring whether risk is compensated.
Treating a concentrated portfolio of many securities in the same industry as diversified.
Rebalancing without considering taxes and transaction costs.
Matching products to return goals while ignoring liquidity needs.
Confusing risk tolerance with risk capacity.

Institutional Client Reference

Institution	Main Objective	Key Constraints
Defined benefit pension plan	Fund promised future benefits	Liability matching, actuarial assumptions, liquidity, regulation
Defined contribution pension plan	Provide participant investment options	Participant education, menu design, governance
Endowment/foundation	Preserve capital while funding spending	Spending policy, long horizon, donor restrictions
Insurance company	Match assets to policy liabilities	Liquidity, duration matching, credit quality, regulation
Mutual fund/ETF manager	Deliver mandate-specific performance	Prospectus limits, liquidity, benchmark, redemptions
Corporation	Manage operating cash and reserves	Liquidity, safety, yield, capital projects
Bank/trust company	Balance liquidity, credit, and regulatory needs	Capital, liquidity, interest rate exposure
High-net-worth family office	Preserve/grow multigenerational wealth	Tax, estate, governance, concentration, privacy

Notes and examples

Institutional Client Review

Institutional clients often have formal mandates, governance rules, and measurable liabilities.

Institutional client	Main concern	Portfolio implication
Pension plan	Meet future pension obligations	Liability-driven investment focus may matter
Insurance company	Match assets to policy liabilities	Interest rate and liquidity management
Mutual fund	Follow stated mandate	Liquidity and benchmark discipline
Foundation/endowment	Fund spending while preserving capital	Long horizon, spending policy, governance
Corporation	Manage treasury or pension assets	Liquidity, safety, return, policy constraints

Institutional vs Retail Trap

Retail suitability often starts with personal objectives and constraints. Institutional suitability often starts with mandate, liabilities, governance, cash-flow obligations, and policy limits.

Managed, Discretionary, and Fee-Based Accounts

Account or Service	Key Feature	Suitable When	Watch For
Commission account	Client pays per transaction or embedded product compensation	Infrequent trading or transaction-based service	Churning/conflict risk if activity excessive
Fee-based account	Client pays asset-based or service fee	Ongoing advice, monitoring, reporting, active service	May be unsuitable for buy-and-hold with little service
Discretionary managed account	Approved manager makes trades within mandate	Client delegates day-to-day decisions	Requires clear mandate, IPS, oversight
Wrap account	Bundled portfolio management and account services	Client wants integrated managed solution	Fee layering, model suitability
Separately managed account	Individual portfolio managed to mandate	Larger portfolios needing customization	Minimums, cost, tax management
Pooled fund	Investors share a portfolio	Efficient access to mandate/manager	Less customization
Robo/digital advice	Model portfolios through automated platform	Lower-complexity goals, cost sensitivity	KYC quality, model fit, limited customization

Notes and examples

Fee-Based Account Trap

A fee-based account is not automatically better than a commission account. The correct answer depends on service level, trading frequency, portfolio size, client preferences, and total cost.

Product and Scenario Traps

Scenario Clue	Better Exam Response
Retired client needs monthly cash flow	Check sustainability, capital preservation, tax, and inflation risk before recommending high-yield products
Client has short-term home purchase goal	Prioritize liquidity and capital preservation
Young client wants growth but panics during downturns	Risk tolerance may be lower than time horizon suggests
Client asks for “guaranteed market return”	Explain caps, participation, issuer risk, liquidity, and opportunity cost in structured products
Client wants tax savings only	Tax benefit cannot justify unsuitable risk or illiquidity
Client wants to sell losing investment and rebuy immediately	Consider superficial loss/denied loss concepts under applicable tax rules
Client reinvests all fund distributions	Track ACB to avoid overstating gain later
Client buys leveraged ETF for long-term hedge	Daily reset and compounding can make long-term results diverge from simple multiple
Client compares fund returns only	Compare risk, benchmark, time period, fees, tax, and mandate
Client holds employer stock heavily	Identify concentration and employment-income correlation risk

Compact Formula Sheet

Area	Formula
Total return	(ending value - beginning value + income) / beginning value
NAVPS	(fund assets - liabilities) / units outstanding
Capital gain/loss	proceeds - ACB - selling costs
ACB per unit	total ACB / units held
Expected portfolio return	sum of each weight times expected return
Two-asset portfolio variance	wA^2 sdA^2 + wB^2 sdB^2 + 2 wA wB sdA sdB corrAB
CAPM required return	risk-free rate + beta × market risk premium
Sharpe ratio	portfolio excess return / portfolio standard deviation
Treynor ratio	portfolio excess return / portfolio beta
Current ratio	current assets / current liabilities
Debt-to-equity	total debt / shareholders’ equity
ROE	net income / shareholders’ equity
P/E	market price per share / EPS
Dividend yield	annual dividend / market price

Final Review Checklist

Before answering a CSC Exam 2 scenario, ask:

What is the client’s primary objective: safety, income, growth, tax efficiency, liquidity, estate planning, or speculation?
What is the client’s time horizon and cash need?
Does risk capacity support the stated risk tolerance?
Is the product liquid enough?
What are the product’s embedded costs, compensation, and conflicts?
What is the tax character of the return?
Is the account registered or non-registered?
Does the recommendation increase concentration risk?
Are there simpler or lower-cost alternatives?
Can the rationale be documented clearly from KYC and KYP?

Notes and examples

Fast Final Review Checklist

Before moving into mock exams, confirm you can answer these without notes:

What is the difference between risk tolerance and risk capacity?
Which client constraints can override return objectives?
How do correlation and diversification reduce portfolio risk?
What is beta, and how is it different from standard deviation?
When is a low P/E ratio not attractive?
How do mutual funds and ETFs differ in pricing, trading, and costs?
Why can a principal-protected product still have risk?
How do interest, dividends, capital gains, and return of capital differ for tax purposes?
How do reinvested distributions and return of capital affect ACB?
Why might an RRSP, TFSA, or non-registered account be more suitable in different scenarios?
When is a segregated fund’s insurance feature relevant?
How do fee-based, commission-based, advisory, and discretionary models differ?
What should you do when KYC is incomplete?
Why is disclosure not always enough to make a recommendation suitable?

Independent Cheat Sheet

This page is an independent Cheat Sheet for candidates preparing for the Canadian Securities Institute CSI Canadian Securities Course (CSC), CSC Exam 2. It is designed for fast review before you move into topic drills, mock exams, and detailed explanations.

Use it to refresh the big ideas, spot common traps, and decide where to focus your question-bank practice. It is not affiliated with the Canadian Securities Institute and does not replace the official course materials.

High-Yield Review Map

The exact organization of your study materials may vary, but CSC Exam 2 preparation commonly requires you to connect products, taxation, portfolio construction, client needs, and suitability. Think less like a memorizer and more like an advisor applying rules to a client scenario.

Area	What to know cold	Common exam trap
Client discovery and suitability	Objectives, constraints, risk tolerance, risk capacity, time horizon, liquidity needs, tax situation	Recommending a product before identifying the client’s actual constraint
Portfolio approach	Diversification, correlation, asset allocation, rebalancing, active vs passive management	Confusing “more securities” with true diversification
Risk and return	Expected return, standard deviation, beta, market risk, specific risk, risk-adjusted return	Treating beta and standard deviation as the same thing
Fundamental analysis	Financial statements, ratios, earnings quality, valuation, industry and company analysis	Using one ratio in isolation
Technical analysis	Trends, support/resistance, moving averages, volume, momentum	Treating technical indicators as guarantees
Managed products	Mutual funds, ETFs, segregated funds, hedge funds, alternative strategies	Ignoring fees, liquidity, structure, and tax treatment
Structured products	Principal protection, participation, caps, credit risk, liquidity risk	Assuming “principal protected” means risk-free or always liquid
Taxation	Interest, dividends, capital gains/losses, ACB, registered vs non-registered accounts	Forgetting that reinvested distributions affect ACB
Retirement and insurance planning	RRSPs, RRIFs, TFSAs, pensions, annuities, insurance products	Matching long-term tax-deferred products to short-term liquidity needs
Accounts and service models	Commission, fee-based, managed, advisory, discretionary, execution-only	Confusing fee structure with investment suitability
Ethics and compliance	KYC, KYP, suitability, conflicts, disclosure, documentation	Choosing the “best investment” instead of the suitable one

Client Suitability: The Core Decision Framework

Many questions can be answered by asking: What does this client need, and what constraint dominates?

KYC and Suitability Inputs

Input	What it means	Why it matters
Investment objective	Income, growth, preservation, speculation, tax efficiency	Determines appropriate product and risk level
Risk tolerance	Client’s psychological comfort with loss	A nervous client may reject volatility even with high capacity
Risk capacity	Financial ability to absorb loss	High income or long horizon may increase capacity
Time horizon	When funds are needed	Short horizons reduce tolerance for volatility and illiquidity
Liquidity needs	Need for cash access	Limits use of locked-in, illiquid, or deferred products
Tax situation	Marginal tax rate, registered room, capital gains/losses	Changes after-tax suitability
Knowledge and experience	Familiarity with products and risk	Complex products may be unsuitable without understanding
Financial circumstances	Income, assets, debt, dependants, obligations	Determines affordability and resilience
Constraints/preferences	Ethical screens, currency, legal, estate, insurance needs	Can override otherwise attractive investments

Notes and examples

Risk Tolerance vs Risk Capacity

Scenario	Likely issue	Suitability response
High tolerance, low capacity	Client wants risk but cannot afford loss	Do not let enthusiasm override financial reality
Low tolerance, high capacity	Client can afford risk but dislikes volatility	Use education, diversification, and lower-volatility choices
Long horizon, high liquidity need	Time horizon looks long, but cash need is near	Liquidity constraint dominates
High tax bracket, non-registered account	After-tax return matters	Consider tax-efficient income and capital gains treatment
Retired income client	Capital preservation and cash flow often matter	Avoid overconcentration in volatile or illiquid products

Suitability Decision Path

    flowchart TD
	    A[Client scenario] --> B{Is the objective clear?}
	    B -- No --> C[Gather more KYC information]
	    B -- Yes --> D{Any hard constraint?}
	    D -- Liquidity / time horizon --> E[Eliminate unsuitable illiquid or volatile options]
	    D -- Tax constraint --> F[Compare after-tax outcomes]
	    D -- Risk constraint --> G[Match risk tolerance and risk capacity]
	    D -- No major constraint --> H[Compare diversified alternatives]
	    E --> I{Product understood and appropriate?}
	    F --> I
	    G --> I
	    H --> I
	    I -- No --> J[Do not recommend / explain alternatives]
	    I -- Yes --> K[Document rationale and disclose key risks/costs]

Structured Products

Structured products combine traditional securities or deposits with derivative-like payoffs.

Product feature	Meaning	Trap
Principal protection	Some or all principal may be protected if held to maturity	Protection may depend on issuer credit and maturity holding
Participation rate	Percentage of underlying return credited to investor	Less than 100% reduces upside
Cap	Maximum return	Strong market performance may not fully benefit investor
Barrier/threshold	Payoff changes if underlying crosses a level	Risk can be non-linear
Callable feature	Issuer may redeem early	Investor faces reinvestment risk
Secondary market	Ability to sell before maturity	Liquidity may be limited
Credit exposure	Dependence on issuer	“Protected” does not mean no credit risk

Notes and examples

Principal-Protected Note Decision Rule

A principal-protected note may be more suitable when the client wants market-linked upside and can accept lower liquidity, credit exposure, formula complexity, and limited income. It is less suitable when the client needs predictable cash flow, immediate liquidity, transparent pricing, or full upside participation.

Canadian Taxation Cheat Sheet

Tax rules can change, and exams may use rates or assumptions from current Canadian Securities Institute materials. For calculations, follow the rate or rule stated in the question or current materials.

Tax Treatment by Income Type

Income type	General treatment	Common trap
Interest income	Generally fully taxable as income	Usually least tax-efficient in non-registered accounts
Eligible Canadian dividends	Gross-up and dividend tax credit mechanics may apply	Dividend yield is not the same as after-tax yield
Foreign dividends	Generally treated differently from Canadian eligible dividends	Foreign withholding tax may matter
Capital gains	Taxable portion depends on the applicable inclusion rate	Only realized gains/losses usually matter for tax
Return of capital	Usually reduces ACB	Not immediately the same as income, but affects future gain
Reinvested distributions	Increase units and/or ACB depending on structure	Forgetting ACB adjustment leads to double taxation risk

Notes and examples

ACB and Capital Gain Formula

\[ \text{Capital gain or loss}=\text{proceeds of disposition}-\text{selling costs}-\text{ACB} \]\[ \text{Taxable capital gain}=\text{capital gain}\times\text{applicable inclusion rate} \]

ACB Traps

Situation	What to remember
Buying more units	Add purchase cost to total ACB
Selling part of a position	Use average ACB per unit
Reinvested distributions	Usually increase ACB
Return of capital	Usually reduces ACB
Superficial loss situations	Loss may be denied or deferred under applicable rules
Foreign securities	Currency conversion can affect gain/loss

Registered vs Non-Registered Accounts

Account/product	Contribution treatment	Growth	Withdrawal treatment	Key suitability point
Non-registered account	No deduction	Taxable according to income type	Not a registered withdrawal	Flexible, but annual tax matters
RRSP	Contributions may be deductible subject to rules	Tax-deferred	Generally taxable as income	Strong for retirement deferral
RRIF	Funded from retirement savings	Tax-deferred	Withdrawals generally taxable	Retirement income vehicle
TFSA	Contributions not deductible	Tax-free under rules	Withdrawals generally tax-free	Flexible tax-sheltered savings
RESP	Contributions not deductible	Tax-deferred	Educational assistance payments taxable to student under rules	Education planning
RDSP	Disability savings structure	Tax-assisted under rules	Withdrawal taxation depends on source	Specialized long-term planning

Tax-Efficient Asset Location

Investment type	Often better suited to	Reason
Interest-bearing investments	Registered accounts where appropriate	Interest is generally highly taxed in non-registered accounts
High-turnover funds	Registered accounts may reduce annual tax friction	Frequent realized gains can create taxable distributions
Canadian dividend equities	Non-registered may be acceptable for some investors	Dividend tax credit may improve after-tax result
Capital-gains-oriented equities	Non-registered may be acceptable	Tax often deferred until realization
Foreign dividend securities	Depends on account and withholding tax rules	After-tax result can vary

Do not answer tax questions based only on pre-tax yield. Suitability depends on after-tax return, account type, time horizon, liquidity, and risk.

Retirement, Estate, and Insurance Planning

Retirement Planning Concepts

Concept	Quick review	Exam trap
Accumulation phase	Client saves and invests for retirement	Growth and contribution discipline matter
Decumulation phase	Client draws income from assets	Sequence risk and sustainability matter
RRSP	Tax-deferred retirement savings	Withdrawals are generally taxable
RRIF	Retirement income from registered savings	Minimum withdrawal rules may apply
Pension plans	Employer-sponsored retirement benefits	DB and DC risk differs
Locked-in plans	Pension-related restrictions	Less flexible than regular RRSP assets
Annuities	Convert capital into income stream	Liquidity and inflation risk matter

Notes and examples

Defined Benefit vs Defined Contribution

Plan type	Benefit depends on	Main risk to member
Defined benefit	Formula, often salary and service based	Employer/plan solvency and inflation features
Defined contribution	Contributions and investment performance	Investment and longevity risk

Insurance Product Review

Product	Main purpose	Suitability signal
Term life	Temporary death benefit protection	Low-cost coverage for temporary need
Whole life	Permanent insurance with cash value	Long-term estate or insurance planning
Universal life	Flexible permanent insurance and investment component	Needs ongoing monitoring and suitability
Disability insurance	Income replacement if disabled	Important where earned income is key
Critical illness insurance	Lump sum if specified illness occurs	Protection against health-event financial shock
Annuity	Guaranteed or structured income	Longevity risk management

Insurance is not automatically an investment substitute. Identify whether the client’s need is protection, income, estate planning, tax planning, or investment growth.

Account Types, Service Models, and Fees

Service Model Comparison

Model	Client/advisor role	Key issue
Execution-only	Client makes decisions	No personalized recommendation expected
Advisory	Advisor recommends; client approves	Suitability of recommendations matters
Discretionary/managed	Authorized manager makes decisions	Clear mandate and authority required
Fee-based	Fee often tied to assets	Cost transparency and service value matter
Commission-based	Compensation tied to transactions/products	Conflict management matters

Notes and examples

Fee and Cost Review

Cost type	Why it matters
Commission	Affects transaction economics and potential conflicts
MER	Reduces fund return over time
Trading expense	Adds to fund cost beyond management fee concepts
Bid-ask spread	Especially relevant for ETFs and thinly traded securities
Deferred sales charge or redemption fee	Can reduce liquidity and flexibility
Performance fee	Aligns incentives partly, but can encourage risk-taking
Advisory fee	Must be evaluated against services provided

A lower-cost product is not automatically suitable, and a higher-cost product is not automatically unsuitable. The question is whether the cost is justified by the client’s needs, features received, alternatives, and disclosure.

Ethics, Compliance, and Professional Judgment

CSC Exam 2 questions often reward the most professional answer, not the most aggressive investment answer.

Professional Conduct Rules of Thumb

Situation	Best response
Incomplete KYC	Do not recommend until information is sufficient
Client wants unsuitable trade	Explain risks, document, escalate or decline as required by firm policy
Conflict of interest	Disclose, manage, and prioritize client interest
Product not understood	Do not recommend until KYP and suitability are satisfied
Complaint or error	Follow firm procedures promptly
Confidential information	Protect client confidentiality
Unsure authority	Verify account permissions before acting

Common Ethical Traps

Choosing the highest-return product without addressing risk.
Treating disclosure as a substitute for suitability.
Assuming client consent cures every conflict.
Recommending complex products because the client is wealthy.
Ignoring concentration risk because the client requested it.
Failing to document why a recommendation fits the client.

Calculation and Interpretation Quick Sheet

Topic	Know how to do	Watch for
Expected portfolio return	Weighted average return	Weights must sum to 100%
Standard deviation	Measure total volatility	Not the same as beta
Beta	Market sensitivity	Does not measure company-specific risk directly
CAPM	Required return using beta	Use market risk premium, not market return alone
NAV per unit	Net assets / units	Use liabilities in net asset calculation
Current yield	Annual income / market price	Not total return
ACB per unit	Total ACB / units held	Adjust for purchases, reinvestments, ROC
Capital gain/loss	Proceeds minus costs minus ACB	Use average ACB, not original lot unless instructed
Dividend yield	Annual dividend / price	Pre-tax measure
P/E ratio	Price / EPS	Low P/E may reflect risk
MER impact	Ongoing drag on returns	Small percentages compound over time

Common CSC Exam 2 Candidate Mistakes

Mistake	Why it costs marks	Better habit
Memorizing product definitions only	Questions often test suitability	Ask: “For whom is this product appropriate?”
Ignoring taxes	After-tax result can change the answer	Identify account type and income type
Forgetting liquidity	A good product can be wrong for a near-term cash need	Check time horizon and access needs
Overusing risk tolerance	Capacity and constraints may dominate	Separate willingness from ability
Treating guarantees as free	Guarantees have costs, limits, and conditions	Read product terms conceptually
Ignoring fees	Costs affect net returns and conflicts	Compare total cost and value
Confusing ETF liquidity	Exchange trading does not erase underlying liquidity risk	Consider bid-ask spread and NAV
Assuming diversification by name	A fund or ETF can be concentrated	Check mandate and holdings
Using one ratio	Ratios require context	Compare trend, peers, and business model
Picking the “best return”	Exam often asks for most suitable recommendation	Match to client objective and constraints

Practice Plan: Turn Review Into Exam Readiness

Use this Cheat Sheet as a diagnostic tool, then move into original practice questions:

Topic drills first: taxation, managed products, portfolio theory, and suitability scenarios.
Review detailed explanations: focus on why wrong answers are wrong.
Build an error log: label misses as concept gap, calculation error, wording trap, or suitability judgment.
Mix topics only after drilling weak areas: CSC Exam 2 scenarios often combine product, tax, and client constraints.
Use mock exams for timing and integration: do not waste full mocks before core weaknesses are fixed.

Practical next step: choose one weak area from the tables above and complete a focused question bank drill with detailed explanations before attempting your next mixed mock exam.

Put the review into practice

Finance Prep

Start CSC Exam 2 \u2014 CSI Canadian Securities Course (CSC) on Web

Use the web app to preview question style, then practise the topics you need to revisit.

Original Finance Prep practice, independent from CSI: not official CSI questions, copied live-exam content, or exam dumps.

Current alignment Aligned to the relevant syllabus, exam elements, competency areas, and topic weights where they are available.

Practice modes Use topic drills, timed mocks, scenario questions, and focused review before deeper mixed practice.

Teaching explanations Explanations show the client, product, compliance, or calculation rule that makes the best answer defensible.

Stable bank Questions are prebuilt and reviewed before publication, so practice is stable and inspectable, not improvised during a quiz.

Study Plan