CPH

Chapter 1 Notes

NOTE: The following notes are intended to supplement (not replace) the required course materials.

Know your client and suitability

Suitability is based on the client’s current financial situation, investment knowledge, investment

objectives and time horizon, risk tolerance, and the account’s current investment portfolio

composition and risk level

also that the order type, trading strategy and method of financing the trade recommended and/or
adopted are also suitable for the client

Dealer members must use due diligence to ensure suitability assessments are undergone for each

of the prescribed triggers:

1) a trade is accepted,

2) a recommendation is made,

3) securities are transferred or deposited into the account,

4) there is a change of representative on the account, or

5) there is a material change to the KYC information for the account.

Know your product

Advisor must understand how the product is constructed and how it is likely to perform in various
market conditions

Some of the best practices dealers should follow when performing new product review:

 Formal written new product policies and procedures.

 Formation of a new product committee to review and approve or disapprove a product.
The standard of review should be clearly communicated and consistently applied
throughout the firm.
 Product training for registered representatives, as well as a post-approval follow-up
and review.
CPH
Chapter 1 Notes

best practices for distribution of non-arm’s length investment products:

Step 1 – Product Due Diligence. Dealer members and their sales representatives must
thoroughly understand the non-arm’s length products they intend to distribute.
Step 2 – Conflict of Interest assessment. Dealer members must identify any conflicts and
assess whether they can be addressed.
Step 3 – Suitability assessments must be made in respect of client orders and recommendations.

Code of Ethics and Standard of Care

IA has a duty under provincial and territorial securities laws to deal fairly, honestly and in good faith
with his or her clients
Standard A: Duty of Care
• Know Your Client - KYC
• Due Diligence – KYC and KYP
• Unsolicited Orders – check suitability according to NAAF (if not suitable, either reject the order or ask to update NAAF)

Standard B: Trustworthiness, Honesty and Fairness

• Priority of Client Interests – client’s interests (suitability) come first before the IA’s interests (commission)
• Protection of Client Assets
• Complete and Accurate Information – when IA inform client about the investment
• Disclosure – conflict of interest and investment risk

Standard C: Professionalism
• Client Business
– Client Orders
– Trades by Registered and Approved Individuals – Investment Advisor (RR), Investment Representative, or portfolio
manager
– Approved Securities – on the approval list of the investment dealer (i.e. your employer)
• Personal Business (i.e. IA)
– Personal Financial Dealing with Clients – not allowed
– Personal Trading Activity – all trading activities have to be done in Pro-Account, usually opened with your employer
– Other Personal Endeavours – you should disclose to your employer and seek approval
• Continuous Education – every year, you have to complete a certain amount of continuous education

Standard D: Conduct in accordance with the Securities Acts

• Compliance with the Securities Acts (e.g. Ontario Securities Act) and SRO Rules (e.g. IIROC rules)
– Insider Information – you should not use or tip your client with insider information (i.e. information not generally
available to the public)

Standard E: Confidentiality
• Client Information – IA should not disclose client information, including the details of the portfolio
• Use of Confidential Information – e.g. of a new issue being worked by the corporate finance department