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

B. Discuss the mismatch, document it, and recommend holdings fitting his risk profile and horizon

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

A. Document the restriction in the KYC, exclude named sectors, recommend only from the suitable remainder

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

B. Loss aversion, feeling a loss more painfully than an equal gain

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RSE practice questions: registered accounts

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

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1
A client's stated objective is high growth, but his risk profile from KYC is moderate and his time horizon is three years. How should the RR address the mismatch when designing recommendations?
Outcome 7.1 · click for answer
A.Build the portfolio around aggressive growth equities to satisfy the stated goal
B.Discuss the mismatch, document it, and recommend holdings fitting his risk profile and horizonCorrect
C.Switch to a discretionary account so the RR can set the mix without client input
D.Treat the three-year horizon as secondary since growth is what the client asked for at account opening
When stated objectives conflict with risk profile or time horizon, the RR must address the inconsistency, educate the client, and recommend investments that fit the actual risk profile and horizon. The conversation must be documented under suitability requirements.
2
A client tells the RR she will not own any tobacco or weapons-related companies for ESG reasons. How should the RR proceed when constructing recommendations?
Outcome 7.2 · click for answer
A.Document the restriction in the KYC, exclude named sectors, recommend only from the suitable remainderCorrect
B.Note the preference informally but keep proposing any product that meets return targets
C.Satisfy the restriction by only adding a small ESG fund alongside the usual recommendations
D.Set the restriction aside since broad diversification always outweighs the client's stated personal values
Non-financial constraints (ESG, religious, equity/diversity preferences) form part of KYC and must be respected. The RR documents the restriction and narrows the suitable universe accordingly while still meeting the suitability obligation.
3
A client refuses to sell a losing stock because doing so would force him to admit he made a bad investment. Which behavioural bias is most likely at work?
Outcome 7.3 · click for answer
A.Confirmation bias, seeking information that supports his beliefs
B.Loss aversion, feeling a loss more painfully than an equal gainCorrect
C.Home country bias, favouring investments from his own country
D.Survivorship bias, judging results only by funds that endured
The client feels the sting of realizing a loss more acutely than he values an equivalent gain, so he avoids selling to avoid confronting that pain. This is loss aversion, and it is what drives the disposition effect of holding losers too long. Confirmation bias is wrong because the client is not filtering new information, he is avoiding the act of realizing a loss regardless of what any information shows. Home country bias is wrong because it concerns a preference for domestic investments, not a reluctance to sell a losing position. Survivorship bias is wrong because it concerns judging performance from a data set that omits failures, not an individual's refusal to crystallize his own loss.
4
A client believes that because the last five coin flips were heads, the next flip is more likely to be tails. Which behavioural bias is being demonstrated?
Outcome 7.3 · click for answer
A.Endowment effect, overvaluing an asset simply because it is already owned
B.Gambler's fallacy, expecting past coin flips to influence the next outcomeCorrect
C.Mental accounting, treating funds differently depending on their source
D.Anchoring, relying too heavily on the first piece of information received
Gambler's fallacy is the mistaken belief that independent random outcomes must even out in the short run, so five heads in a row makes tails "due." Each fair coin flip stays 50/50 regardless of history. Endowment effect concerns overvaluing owned assets, not probability. Mental accounting concerns treating money differently by source, not sequences of chance events. Anchoring concerns over-relying on an initial reference point, not streak-based probability beliefs.
5
A client only seeks out news articles that confirm her existing belief that a particular stock will rise. Which bias is most clearly at work?
Outcome 7.3 · click for answer
A.Confirmation bias, favouring information that supports her existing viewCorrect
B.Representativeness bias, judging the stock by a familiar success story
C.Hindsight bias, believing after the fact the outcome was predictable
D.Herding bias, following other investors instead of her own research
The client seeks out only news that confirms her existing bullish view, which is confirmation bias: favouring information that supports a prior belief while discounting contrary evidence. Representativeness bias involves judging a stock by how well it resembles a familiar pattern or story, not by selectively filtering news. Hindsight bias involves believing after the fact that an outcome was predictable, which does not apply since the client is still forming her view. Herding bias involves following other investors' actions rather than seeking confirming information on her own, so it does not fit the scenario either.
6
A client invests almost exclusively in Canadian companies because they feel familiar, even though her advisor's recommended portfolio includes meaningful foreign exposure. Which bias is most clearly at play?
Outcome 7.3 · click for answer
A.Endowment effect, the tendency to overvalue assets already owned.
B.Anchoring, the tendency to rely too heavily on an initial reference point.
C.Gambler's fallacy, the tendency to expect random events to self-correct.
D.Home country bias, the tendency to favour familiar domestic investments.Correct
The client is over-allocating to Canadian holdings purely because they feel familiar, not because of any risk-return analysis - this is home country bias. The endowment effect is wrong because it applies to assets the client already owns feeling more valuable simply by virtue of ownership, not to a preference for domestic markets. Anchoring is wrong because it describes over-reliance on an initial reference point, such as a purchase price, when making later decisions, which is not the behaviour described. Gambler's fallacy is wrong because it involves expecting random, independent events to "correct" after a streak, an unrelated statistical misconception with no connection to geographic allocation preferences.
7
An RR is recommending products to a moderate-risk client whose KYC shows a $25,000 emergency need within 12 months. Which factor most directly limits product selection?
Outcome 7.4 · click for answer
A.The client's age relative to typical retirement planning timelines
B.The client's near-term cash need, requiring liquid, low-volatility holdingsCorrect
C.The dealer's list of preferred in-house fund products for clients
D.The client's overall risk tolerance rating recorded on the KYC form last year
Suitability requires recommendations to fit the client's net worth, liquidity needs and time horizon. A near-term cash requirement forces a meaningful allocation to liquid, low-volatility instruments regardless of long-term objectives.
8
A dealer's product shelf does not include a particular type of structured product the RR believes might suit a client. What is the appropriate response?
Outcome 7.4 · click for answer
A.Proceed with the trade anyway since the client's interests override shelf limits
B.Sell the product since a documented suitability review with signed disclosure satisfies all requirements
C.Move the client to a differently licensed RR at the firm without telling them why
D.Stick to approved shelf products and check if a suitable one meets the client's needsCorrect
RRs are restricted to products on the dealer's approved shelf. If no suitable shelf product fits the client's needs, the RR should make that clear rather than transacting in unapproved products.
9
Which government pension feature is most relevant when designing retirement income recommendations for a 64-year-old Canadian client?
Outcome 7.4 · click for answer
A.CPP and OAS give indexed income, and CPP start-timing choices shape the retirement cash flow planCorrect
B.CPP must start at exactly age 60 to lock in the highest possible lifetime benefit amount
C.OAS pays the same fixed amount to every recipient regardless of their net income level
D.CPP and OAS are purely optional benefits that advisors exclude from retirement planning
CPP and OAS form a base of inflation-indexed retirement income. Timing decisions (early vs. delayed CPP, OAS clawback considerations) materially affect cash flow and should be integrated with portfolio recommendations.
10
When choosing a recommended portfolio for a new client, which sequence is most consistent with CIRO suitability requirements?
Outcome 7.5 · click for answer
A.Select a model portfolio first, then backfill KYC details afterward to match it
B.Confirm financial situation, risk profile, objectives and constraints, then map to a portfolioCorrect
C.Recommend the portfolio with the strongest trailing 12-month returns, then adjust KYC to fit it
D.Direct the client toward the firm's most profitable product, then document KYC after
Recommendations must follow KYC, not precede it. The RR confirms financial situation, objectives, risk profile and constraints before mapping the client to a suitable portfolio.

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FAQ

Can a retail client over-contribute to TFSA?

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

When does the FHSA window close?

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

What's the HBP repayment schedule?

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

When does RRSP convert to RRIF?

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

Spousal RRSP attribution?

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

RSE practice questions: registered accounts

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