CIFC Glossary Flashcards
1
Q
Accredited investor (AI)
A
High income earners or high net worth individual investors that qualify to invest in prospectus exempt securities. Certain institutions like banks, trust companies, insurance companies may also qualify as AIs.
2
Q
Accumulated income payment (AIP)
A
Payment of accumulated income from an RESP account, made to the subscriber in the event none of the beneficiaries pursue post-secondary education.
3
Q
Active management
A
An investment strategy where the portfolio manager relies on his or her abilities to choose securities for the fund in an attempt to outperform its benchmark. Common styles include top-down, bottom-up, value, growth, or a combination thereof.
4
Q
Allowance
A
An income-tested benefit for the spouse or common-law partner of low-income seniors that qualify.
5
Q
Annual Information Form (AIF)
A
Disclosure document that provides a more detailed version of the information contained in the simplified prospectus including additional details about the mutual fund’s contracts, officers, directors, and trustees.
6
Q
Annuitant
A
An individual who is designated to receive payments from an annuity. An annuity contract can have more than one annuitant. It also refers to the owner of an RRSP or RRIF.
7
Q
Annuity
A
A contract that guarantees a series of payments in exchange for a lump sum investment.
8
Q
Asset allocation
A
An investment strategy of determining portions of different assets such as stocks, bonds and money market instruments to be included in an investment portfolio.
9
Q
Asset allocation fund
A
A mutual fund providing a blend of cash, fixed income, and equity in specific or varying proportions in response to changing market conditions.
10
Q
Authorized firm representative (AFR)
A
A designated official authorized to submit information about the dealer and sponsored individuals to the National Registration Database (NRD).
11
Q
Autorité de marchés financiers (AMF)
A
A regulatory body mandated by the government of Québec to regulate the province’s financial markets notably in the areas of insurance, securities, deposit institutions (other than banks) and the distribution of financial products and services. The AMF is also mandated to provide assistance to consumers of financial products and services.
12
Q
Average tax rate (ATR)
A
The total income tax payable for a year divided by the taxable income for a year.
13
Q
Back-end load
A
A sales charge levied when mutual fund units are redeemed.
14
Q
Balanced fund
A
A mutual fund which has an investment policy of balancing its portfolio, generally by including cash, fixed income, and equities in varying proportions influenced by the mutual fund’s investment objectives and outlook.
15
Q
Bankers’ acceptance
A
Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer’s bank.
16
Q
Beta
A
A statistical term used to compare the volatility of a financial asset like a stock or mutual fund to the volatility of a benchmark like a stock market index.
17
Q
Bond
A
A long-term debt instrument, secured by specific assets of the issuer corporation, with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.
18
Q
Bond fund
A
A mutual fund portfolio that consists primarily of bonds.
19
Q
Book value
A
The value of an asset computed as original cost less its accumulated depreciation.
20
Q
Broker
A
An agent who handles client orders to buy and sell securities, commodities, or other property. A commission also known as brokerage fee is generally charged by the broker for this service.
21
Q
Business cycles
A
Economies experience fluctuations in economic activity over a period of time. Business cycles comprise of irregular waves of varying periods of economic expansion followed by periods of economic contraction. Business cycles are also known as economic cycles
22
Q
Business risk
A
The risk that the issuers of financial instruments may not be able to meet their debt obligations or the stock of a company will not be profitable.
23
Q
Call option
A
A derivative that gives the owner the right to purchase a particular underlying security at a certain price until a particular date.
24
Q
Canada disability savings bond (CDSB)
A
Bonds paid by the federal government to low-income persons with disabilities, irrespective of the amount of contributions, up to a yearly maximum.
25
Canada disability savings grant (CDSG)
Matching grants of 100% to 300% paid by the federal government based on the beneficiary’s family income and the amount contributed to an RDSP account.
26
Canada education savings grant (CESG)
A grant provided by the federal government equivalent to the contributions made to an RESP for each beneficiary up to an annual and a lifetime maximum.
27
Canada Housing and Mortgage Corporation (CHMC)
Canada’s national and government-owned housing agency. It is a premier provider of mortgage loan insurance and mortgage-backed securities.
28
Canada learning bond (CLB)
Children of low-income families, born after a stipulated date whose primary caregiver is the recipient of the National child benefit supplement are given an additional incentive by the government with an amount of up to $2,000 every year.
29
Canada mortgage bonds (CMBs)
Bonds on which principal and interest is guaranteed by Canada Housing and Mortgage Corporation (CHMC) and backed by the Government of Canada.
30
Canada Pension Plan (CPP)
A federal government program designed to provide monthly pensions to contributors in retirement, to disabled contributors and their children, and to the widows, widowers and orphaned children of deceased contributors.
31
Canada Revenue Agency (CRA)
A federal agency administering tax laws for the Government of Canada and for most provinces and territories and various social and economic benefit and incentive programs delivered through the tax system.
32
Canada savings bond (CSBs)
A bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value plus accrued interest.
33
Canadian Investment Funds Standards Committee (CIFSC)
This committee sets the standards used to classify mutual funds into specific categories. Its classification is based on the type of investments held in a mutual fund.
34
Canadian Securities Administrators (CSA)
Policy making body composed of members from each provincial and territorial securities commission. Its mandate is to harmonize securities regulation across Canada.
35
Canadian-controlled private corporation (CCPC)
A Canadian private corporation that is not controlled directly or indirectly by one or more non-residents or public corporations.
36
Capital dividend
A payment that is considered return of capital. There are no tax consequences arising from the payment but it reduces the individual’s adjusted cost base.
37
Capital gain
Gain realized from the sale of a capital asset when the proceeds of disposition are greater than the adjusted cost base of the capital asset.
38
Capital loss
Loss realized from the sale of a capital asset where the proceeds of disposition are less than the adjusted cost base of the capital asset
39
Chambre de la sécurité financière (CSF)
The self-regulatory organization (SRO) in Québec that regulates financial professionals including mutual fund representatives.
40
Chief Compliance Officer (CCO)
NI 31-103 requires all registered firms, including mutual fund dealers, to have a Chief Compliance Officer (CCO) who is registered with the securities commissions. The CCO must be an officer, partner or the sole proprietor of the firm entrusted with responsibilities of overseeing and managing regulatory compliance matters.
41
Churning
The practice of a dealing representative recommending a trade which provides little or no economic benefit to the client and which has little or no rationale other than the generation of commissions or other benefits for the dealing representative. Also known as excessive trading, it is an activity that is prohibited.
42
Client communication
Any written communication by a mutual fund dealer or dealing representative to a client, including trade communications and account statements. This does not include advertising or sales communication.
43
Client relationship model (CRM)
Regulatory disclosure and reporting requirements relating to costs, charges, compensation and account performance to be disclosed periodically by dealers and advisors.
44
Closed-end fund
An investment fund that issues a fixed number of shares that are bought and sold on stock exchanges or over-the-counter market.
45
Commercial papers (CPs)
A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.
46
Commission-based compensation
A system of remuneration whereby the dealer is compensated by means of commissions such as front-end loads, redemption fees, or deferred sales charges, and trailer fees paid by the fund manager. An alternative to fee-based compensation.
47
Compliance regime
The system of controls and supervision that all mutual fund dealers must establish. Includes a compliance department, policies, procedures, documentation and training.
48
Consumer price index (CPI)
CPI measures the change in the cost of living for consumers. It is calculated by tracking the retail prices of a basket of goods and services purchased by a typical household. It is used to illustrate the extent that prices have increased or decreased over a time period.
49
Convertible
A security that can be exchanged for another. Bonds or preferred shares are often convertible into common shares of the same company.
50
Corporation
A legal business entity created under federal or provincial statutes. Since the corporation is a separate entity from its owner, shareholders have no legal liability for its debts.
51
Currency risk
Risk of a change in value of one currency against another currency. It is the risk that exists when dealing in investments denominated in different currencies. Movements in the currencies may result in an exchange gain or loss. Also known as exchange rate risk.
52
Current yield
The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.
53
Custodian
A financial institution, usually a bank or trust company that holds a mutual fund's securities and cash in safekeeping.
54
Debenture
A bond unsecured by any pledge of property. It is supported by the general credit of the issuing corporation.
55
Deemed disposition
Certain transactions involving disposition of assets without receipt of any proceeds but presumed or deemed by the Income Tax Act to be dispositions attracting tax liability.
56
Deferred profit sharing plan (DPSP)
A plan, in the form of trust fund registered with CRA in accordance with the Income Tax Act, to which an employer makes contributions on behalf of its employees. Contributions are made from company profits.
57
Deferred sales charge (DSC)
A redemption charge paid by the unitholder when redeeming mutual fund units sold on a back-end load basis. The deferred sales charge is typically expressed as a percentage and usually decreases each year the mutual fund is held.
58
Defined-benefit pension plans (DBPPs)
Employer-sponsored retirement benefit plans designed to provide employees with specified benefit upon retirement, usually based on an employee's earnings and the number of years of service.
59
Defined-contribution pension plans (DCPPs)
Employer-sponsored retirement plans where the employers guarantee the contributions made to the employees' plans but not the income at retirement. Retirement income is determined by the performance of the underlying investments. It is also known as a money purchase plan.
60
Demand
Demand represents consumer’s desire, ability and willingness to pay the asking price for a good or service.
61
Demand curve
A graphical representation of the relationship between variations in demand in relation to a range of different prices. There is an inverse relationship between quantities demanded and prices. Quantities demanded will increase at lower prices.
62
Disability assistance payments (DAPs)
Annual withdrawals from an RDSP account, commencing by the end of the year in which the beneficiary turns 60 continuing during the life of the beneficiary.
63
Disclosure
Communicating to the client any relevant facts or information as may be required by legislation and regulations. Examples: risk disclosure, conflict of interest disclosure, referral arrangements, etc.
64
Discretionary trading
When the holder of an account authorizes a dealer or dealing representative to buy and sell securities on his or her behalf without obtaining the account holder's consent for each trade. It can be either absolutely or subject to certain restrictions.
65
Diversification
Investment in a number of different securities aimed at reducing the risks inherent in investing. Diversification may be among types of securities, companies, industries or geographical locations.
66
Dividend
A per-share payment designated by a company's board of directors to be distributed among shareholders. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company.
67
Dividend fund
A mutual fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as in preferred shares.
68
Dividend gross-up
The first part of the dividend gross-up and tax credit scheme. Dividends received from Canadian public corporations and Canadian-controlled private corporations, are required to be grossed up by a certain percentage and included as taxable income for the year by investors.
69
Dividend tax credit (DTC)
The second part of the dividend gross-up and tax credit scheme. Taxpayers are entitled to claim income tax credits on the grossed-up dividend amounts.
70
Do not call list (DNCL)
An initiative of the Canadian Radio-television and Telecommunications Commission (CRTC) to protect consumers from unwanted telemarketing calls. Consumers can register their phone number with the National DNCL.
71
Dollar cost averaging
Investing in equal payments at regular intervals in the hope of reducing average cost by acquiring more securities in periods of lower securities prices and fewer shares in periods of higher securities prices.
72
Due diligence
A process of investigation into the details of a potential investment or product to verify all material facts. Part of the fiduciary duty owed to clients when making recommendations.
73
Duration
Risk measure for fixed income investments measured as the number of years it will take for the bondholder to receive the present value of the interest and principal payments.
74
Earned income
The basis for calculating the current RRSP contribution limits; generally includes net income from employment, business and rentals.
75
Educational assistance payments (EAPs)
The portion consisting of interest and grants within an RESP account that can be withdrawn by the beneficiary once he or she is enrolled full-time or part-time in a qualifying post-secondary educational program.
76
Efficient frontier
See modern portfolio theory.
77
Efficient Market Hypothesis (EMH) theory
The theory that market prices of securities already reflect all publicly available information.
78
Equity fund
A mutual fund portfolio that consists primarily of equity securities, such as common stocks.
79
Ethics
Standard of conduct to which one is expected to adhere.
80
Exchange traded fund (ETF)
An investment fund whose units are traded like stocks on an exchange. Purchased or sold through an investment dealer or broker. Most are designed to track an index. An alternative to mutual funds.
81
Exempt market
The market in which exempt securities are traded. An exempt security is a security that is distributed under an exemption from the prospectus requirement.
82
Exempt market dealer
Dealers who only deal in securities that are exempt from the prospectus requirement (exempt securities).
83
Face value
The principal amount or value at maturity of a debt obligation. Also known as the par value.
84
Fair market value
The estimated price of a security if it was to be bought or sold on the market. The standard at which property is valued for a deemed disposition.
85
Fee based
A system of remuneration whereby the dealer is compensated by means of an overall fee paid directly by the client. The overall fee is expressed as an annual percentage of assets under administration and covers services provided by the dealer, whether in respect of advice or transactions. An alternative to commission-based compensation.
86
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
An independent government agency involved with collecting, analyzing and disclosing information to help detect and prevent money laundering from occurring both domestically and abroad.
87
Fiscal policy
Economic policy pursued by governments to manage the economy through taxes, spending, and transfer payments.
88
Fixed income investments
Investments that generate a fixed amount of income that does not vary over the life of the investment.
89
Fixed income funds
Mutual funds that invest in fixed income products with a view to earning interest income and perhaps capital gains.
90
Flow through
A tax concept whereby investment and property income, including capital gains, dividends and interest, pass to the investor while retaining its character for tax purposes.
91
Front-end load
A sales charge levied on the purchase of mutual fund units.
92
Fund fact sheets
A disclosure document provided by the mutual fund company highlighting key information about individual mutual funds including past performance, risks, and the costs of investing.
93
Fund of funds (FOF)
A managed portfolio solution to meet specific investment objectives by investing in a basket of other mutual funds instead of individual bonds and equities.
94
Fundamental analysis
A method of evaluating the future prospects of a company by analyzing fundamental facts by a detailed analysis of its financial statements and the environment in which the company operates. It may also involve interviewing the management of the company.
95
Global funds
Mutual funds that invest in global securities including the mutual fund company’s home country.
96
Gross domestic product (GDP)
Gross domestic product (GDP) is a measure of the total market value of all the final goods and services produced in the economy in a year.
97
Gross national product (GNP)
It is the market value of final goods and services produced within the country plus income earned by citizens of the country including those working abroad less the income of non-residents located in that country.
98
Group RRSP
A collection of individual RRSPs (basic or self-directed) grouped together for administrative purposes. Typically sponsored by an employer, union or professional association.
99
Growth at a reasonable price (GARP)
An investment strategy using a combination of growth and value investing in individual stock selection.
100
Guaranteed income supplement (GIS)
Non-taxable benefits available to low-income pensioners who meet a basic income test. Benefit paid in additional to old age security benefits.
101
Home buyers' plan (HBP)
Permitted tax-free withdrawals from RRSP accounts for first-time home buyers, subject to restrictions of maximum amount of withdrawals, repayment terms and time limits for purchase of a home.
102
Index fund
A mutual fund that matches its portfolio to a specific financial market index, with the objective of duplicating the general performance of the market in which it invests.
103
Inflation
A condition of increasing prices. In Canada, inflation is generally measured by the consumer price index.
104
Inflation risk
The chance that the real purchasing power of money invested will be reduced by a rise in the general level of prices.
105
International funds
Mutual funds that invest almost exclusively in securities outside of Canada and North America.
106
Investment fund
A pool of money belonging to many investors that is used to collectively purchase stocks, bonds or other securities. The most common type of investment fund is a mutual fund, but there are other specialized types.
107
Investment fund manager
The entity within a mutual fund complex responsible for the overall business and administration of the mutual fund. It is compensated on a percentage of the mutual fund's total assets.
108
Investment Industry Regulatory Organization of Canada (IIROC)
The national self-regulatory organization (SRO) for the securities industry.
109
Investment objective
Investment goals based on needs of income generation, growth, preservation of capital, time horizon and risk tolerance.
110
Know your client (KYC)
Information that mutual fund dealing representatives are required to gather on all clients in order to make appropriate investment decisions. Questions include: the client's age, annual income and net worth, occupation, tolerance for risk, investment objectives, investment knowledge, and experience. Steps taken to know your client is known as the KYC process.
111
Know your product (KYP)
The requirement that, in order to make an appropriate suitability assessment of certain investment decisions, a mutual fund dealing representative has in-depth knowledge of all products that are traded for, or recommended to, clients. He or she must understand a product well enough to explain the product’s risks, key features, and initial and ongoing costs and fees. Steps taken to know your product is known as the KYP process.
112
Labour-sponsored investment funds (LSIFs)
Sponsored by organized labour organizations, LSIFs are investment funds that invest in small and medium-sized Canadian companies. Investors receive tax credits on their investments although these incentives are being phased out federally and in most provinces.
113
Letter of engagement
Letter establishing a formal relationship with a client spelling out responsibilities of both parties, levels of service, and fees for service.
114
Leverage
The use of borrowed funds to invest. Returns and losses may be enhanced considerably. The use of leverage requires a suitability assessment and full disclosure of its inherent risks.
115
Life income fund (LIFs)
Type of registered account that pays out retirement income. Since the money in a LIF originates from a pension plan, withdrawals are restricted to between the minimum annual payment and the maximum limit.
116
Life cycle investing
A long term investment strategy where the target date of the portfolio coincides with certain long term life events like retirement. The investment portfolio is initially heavily weighted towards riskier assets but as the target date approaches, the portfolio shifts towards lower risk assets.
117
Lifelong learning plan (LLP)
An eligible individual is allowed to make tax-free withdrawals from an RRSP to finance full-time training or education for himself or herself, spouse or common-law partner.
118
Limited authorization form (LAF)
A form signed at the option of the investor, authorizing a dealing representative to act on client trade instructions without obtaining signed written instructions for each trade in a client name account. Also known as limited trading authorization (LTA) form.
119
Loads
Commissions charged to holders of mutual fund units at the time of making purchases or redemptions.
120
Locked-in retirement accounts (LIRAs)
RRSPs from which the release of funds is locked-in, by pension legislation, unless the release is in the form of a retirement income from a life income fund. Used to receive a transfer of vested benefits from a pension plan following termination of employment prior to retirement. Also called locked-in RRSP.
121
Locked-in retirement income fund (LRIFs)
RRIFs, available in certain provinces that receive funds from a locked-in retirement account and provides for a life income by restricting both the minimum and maximum plan withdrawals.
122
Management expense ratio (MER)
A standardized measure expressing the costs of a mutual fund as a percentage of its average net asset value during a period.
123
Management fee
The sum paid to the investment company's adviser or manager for supervising its portfolio and administrating its operations.
124
Marginal tax rate (MTR)
The rate of tax that a taxpayer will have to pay on his last dollar of taxable income.
125
Market index
A vehicle used to denote trends in securities markets. The most popular in Canada is the S&P/TSX Composite Index.
126
Market price
In the case of a security, market price is usually considered the last reported price at which the security was sold.
127
Market risk
The risk that a change in security prices, exchange rates, interest rates, inflation and other market factors will have a negative impact on a business.
128
Market value
The current value of a security.
129
Marketability
The ease with which an asset can be bought or sold.
130
Material change
Any significant change in an individual’s personal circumstances including: change of name, change of address, or declaration of personal bankruptcy.
131
Maturity
The date at which a loan or bond or debenture comes due and must be redeemed or paid off.
132
MFDA Investor Protection Corporation (IPC)
A contingency fund for investors in the event of bankruptcy or insolvency of an MFDA member.
133
Minimum amount
In accordance with the Income Tax Act, the amount that must be withdrawn from a RRIF each year beginning the year after the RRIF is established.
134
Mobility exemption
An exemption to registration requirements when a client moves from one jurisdiction to another. Provided certain conditions are satisfied, registrants may continue to serve the client in the new jurisdiction, known as the local jurisdiction, without having to register in the local jurisdiction.
135
Modern portfolio theory
A portfolio theory aimed at constructing optimal portfolios that provide maximum returns for given levels of risk. For different risk levels there are different optimal portfolios. The efficient frontier is the graphical representation of such optimal portfolios for given levels of risks.
136
Monetary policy
An economic stabilization policy whereby the government controls the supply of money in the economy by affecting interest rates.
137
Money laundering
The process of concealing illicit funds by converting them into seemingly legitimate income. Dirty money produced through criminal activity is transformed into clean money, the criminal origin of which is difficult to trace.
138
Money market
A sector of the capital markets where short-term obligations such as Treasury bills, commercial paper and bankers' acceptance are bought and sold.
139
Money market fund
A type of mutual fund that invests primarily in treasury bills and other low-risk short-term investments.
140
Mortgage fund
A mutual fund that invests in mortgages, usually first mortgages on Canadian residential property, although some funds also invest in commercial mortgages.
141
Mortgage-backed securities
Securities that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.
142
Mutual fund
An investment entity that pools shareholder or unitholder funds and invests in various securities. The units or shares are redeemable by the mutual fund on demand of the investor. The value of the underlying assets of the mutual fund influences the current price of units.
143
Mutual fund dealer
A dealer who is registered to trade only in securities of mutual funds, labour sponsored investment corporations or labour sponsored venture capital corporations, and deposit products such as GICs and PPNs. Mutual fund dealers must become members of the MFDA (except in Quebec).
144
Mutual Fund Dealers Association of Canada (MFDA)
The MFDA is the self-regulatory organization (SRO) for the distribution side of the mutual fund industry (except in Quebec).
145
National Instrument 31-103
Covers registration requirements (and exemptions) for anyone doing securities-related business in Canada.
146
National Instrument 81-101
Covers mutual fund disclosure documents to ensure investors have the information to make informed decisions about an investment.
147
National Instrument 81-102
Covers the operation and administration of mutual funds including the kinds of investments a mutual fund can make, how units are redeemed, how changes to the mutual fund can be made, and how the mutual fund can advertise.
148
National Instrument 81-105
Sets out acceptable sales practices for the sale of mutual funds including co-op marketing, incentives, and commission rebating.
149
National Registration Database (NRD)
An electronic, web-based system containing registration information for dealers, advisors, and individuals registered under securities legislation in the provinces and territories. NRD is also a system that allows electronic filing of applications, notices, and other regulatory information.
150
Net asset value per unit (NAVPU)
A measure of the value of units in either a closed-end or open-end investment trust, calculated as the fair market value of the investments held by the investment trust divided by the number of units issued by that trust. This represents the base value of a unit of a fund.
151
Net capital gain
The excess of all taxable capital gains over all allowable capital losses for the year.
152
Net capital loss
The excess of all allowable capital losses over all taxable capital gains for the year.
153
New account application form (NAAF)
A form filled out by the client and the dealing representative at the time of opening of an account. The NAAF must be completed and approved before any trades are put through on an account.
154
No-load fund
A mutual fund that does not charge a fee for buying or selling its units or shares.
155
Non-refundable tax credit
Can only be used to reduce federal tax payable to zero dollars. It cannot create a negative amount to be refunded.
156
Office of the Superintendent of Financial Institutions (OSFI)
A federal institution whose mandate is to assist in the development and interpretation of legislation relating to financial institutions. Responsible for assessing the solvency of insurance companies and for using its authority to protect policyowner interests.
157
Old Age Security (OAS)
A federally sponsored benefit that Canadians may be entitled to receive at age 65 and older. High income earners may have some or all of their OAS benefits clawed back. The clawback is 15% of income that exceeds the threshold amount.
158
Ombudsman for Banking Services and Investments (OBSI)
OBSI resolves disputes between participating firms and their customers. Participating firms include investment fund managers, investment dealers and mutual fund dealers. If OBSI decides in favour of the customer, it has the authority to recommend that the firm compensate the customer up to a limit of $350,000.
159
Open-end fund
An open-end mutual fund continuously issues new units and redeems its own units, so the number of units outstanding varies from day to day. Most mutual funds are open-end funds.
160
Outside business activities
Activities with or without compensation, which involve either employment or a business relationship with an entity outside the dealer, that have the potential of resulting in a conflict of interest.
161
Over-the-counter market (OTC)
A computerized network of brokers and securities firms that specialize in trading stocks that are not listed on an exchange. Bonds, money market securities and many stocks trade on the over-the-counter market.
162
Par value
The principal amount or value at maturity, of a debt obligation. It is also known as face value. Preferred shares may also have par value, which indicates the value of assets each share would be entitled to if a company were liquidated.
163
Passive management
An investment style where the portfolio manager chooses the securities in a mutual fund according to a chosen benchmark. The goal is to replicate, or track, the return of that benchmark as closely as possible.
164
Passport system
A system of registration where the applicant need only apply to one regulator known as the principal regulator. When the principal regulator approves the application, it is automatically accepted in all other jurisdictions (except in Ontario) where the applicant wishes to be registered.
165
Pension adjustment (PA)
The value of benefits that have accrued during the year under a registered pension plan or deferred profit sharing plan. It reduces a member’s RRSP contribution room.
166
Pension income splitting
Pensioner jointly electing with his or her spouse or common-law partner to split the eligible pension income of the higher income earner with the lower income earner with a view to saving overall tax payable by the couple.
167
Pension plan
A formal arrangement through which the employer, and in most cases the employee, contribute to a fund that provides the employee with a lifetime income after retirement.
168
Personal Information Protection and Electronic Documents Act (PIPEDA)
This Act is the federal privacy law applicable to organizations in the private sector. It establishes rules on how private sector organizations may collect, use or disclose personal information in the course of commercial activities.
169
Politically exposed foreign person (PEP)
An individual who holds or has ever held a position in a foreign country such as a head of state, military general, judge, diplomat, ambassador, political party leader, or head of a state-owned company or bank. Family members of the individual are also considered politically exposed persons.
170
Portfolio manager
Individual or company responsible for the investment decisions in a mutual fund including purchasing and selling securities and determining the asset mix. Decisions are guided by the objectives of the particular mutual fund and his or her related expertise.
171
Power of attorney (POA)
A legal document that allows a person (attorney) to act on behalf of another person. The person giving the power to the attorney is bound by actions taken by the attorney.
172
Pre-authorized chequing (PAC) plan
An arrangement to have money deducted directly from a bank account on a regular basis to invest in mutual funds.
173
Preferred shares
A hybrid security possessing some characteristics of common shares and some of bonds. Preferred shares usually have a specified dividend rate, such that the corporation will pay dividends at that rate as long as it is able to and must in fact pay these dividends before any dividends can be paid to common shareholders. However, preferred shareholders usually forfeit the entitlement to equity growth in the company.
174
Primary market
The market in which new securities such as stocks and bonds are issued to investors for the first time. In the primary market, issuers of securities raise capital from suppliers of investment capital.
175
Principal protected notes (PPNs)
A debt instrument issued by a creditworthy issuer. Return on a PPN is linked to the performance of another investment known as the underlying asset. It provides a guarantee of the initial investment at maturity while gaining exposure to the returns of the underlying asset.
176
Principal regulator
When an application for registration is made using the passport system, in the case of a firm, it is generally the regulator in the jurisdiction where the firm has its head office. In the case of an individual, it is generally the regulator in the jurisdiction where the individual has his or her working office.
177
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
Federal legislation enacted to implement specific measures to detect and deter money laundering and the financing of terrorist activities and to facilitate the investigation or prosecution of money laundering and terrorist financing offences.
178
Progressive tax system
Canadian tax system whereby the rate of income tax increases as the taxable income of the taxpayer increases.
179
Prospectus
A disclosure document by which a corporation or other legal entity offers a new issue of securities to the public. The prospectus contains detailed information about the securities being offered, activities of the issuer, financial condition and the management of the issuer.
180
Provincial securities commission
The provincial securities commissions are the regulatory bodies for each province or territory. They are responsible for regulating the underwriting, distribution and sale of securities, as well as registration and enforcement.
181
Put option
A type of derivative that gives an investor the right to sell a set amount of the underlying security at a predetermined price for a specific period of time.
182
Qualified investments
Investments permitted by the Income Tax Act to be held in registered plans.
183
Québec Pension Plan (QPP)
Sponsored by the Québec Provincial government. The QPP provides similar benefits as the Canada Pension Plan, but only for those who work in the province of Québec.
184
Rate of return
The annual percentage return realized on an investment.
185
Re-activation
Application to be made to the securities commission by the sponsoring firm for a registered dealing representative who is forming a working relationship with the sponsoring firm after a gap of more than 90 days from leaving the previous sponsoring firm.
186
Real property fund
A mutual fund that invests primarily in residential and/or commercial property to produce income and capital gains for unitholders.
187
Real rate of return
The increase in value of an investment, expressed as a percentage per year, adjusted for changes in inflation.
188
Redeemable
Securities like preferred shares or bonds that give the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities.
189
Referral arrangement
Any arrangement in which a registrant agrees to pay or receive a referral fee. The definition is not limited to referrals for providing financial services or services requiring registration. It also includes receiving a referral fee for providing a client name and contact information to a person or company.
190
Referral fee
Any form of compensation, direct or indirect, paid for the referral of a client to or from a registrant. It includes sharing or splitting any commission resulting from the purchase or sale of a security.
191
Refundable tax credits
Certain tax credits, such as the GST/HST tax credit and certain provincial tax credits that are available regardless of whether the taxpayer has any taxable income.
192
Registered annuity
An annuity purchased with registered funds.
193
Registered disability savings plan (RDSP)
A registered savings plan to help parents and others save for the long-term security of a disabled person. The beneficiary of an RDSP must be eligible for the Disability Tax Credit and be under the age of 60. To be eligible for the Disability Tax Credit, a qualified practitioner must certify that the individual has a prolonged impairment.
194
Registered education savings plans (RESPs)
An education savings plan that permits savings to grow tax-free until the beneficiary is ready to go full-time to college, university or any other eligible post secondary institution.
195
Registered pension plan (RPP)
An employer-sponsored pension plan registered under the Income Tax Act and regulated by provincial or federal legislation. There are two types: defined-benefit plans and defined-contribution plans.
196
Registered retirement income fund (RRIF)
A maturity option available for RRSP assets permitting a tax-free rollover. RRIF accounts provide a stream of income at retirement.
197
Registered retirement savings plan (RRSP)
A tax-deferred retirement plan that allows individuals who have not reached age 71 to set aside sums of money, within limits. These sums are deductible from taxable income and can compound on a tax-free basis.
198
Registrant
A person or company registered or required to be registered under the Securities Act.
199
Retractable
Bonds or preferred shares that allow the holder to require the issuer to redeem the security before the maturity date.
200
Risk tolerance
The amount of loss that an investor is prepared to take and can tolerate in the event that his or her investments depreciate in value.
201
RRSP attribution rule
Tax rules that apply to spousal RRSPs. An annuitant making withdrawals from a spousal RRSP plan in a year in which a contributor makes a contribution to that spousal plan, or in the following two calendar years, will cause the withdrawal to be taxed in the contributor’s hands. After that time period, any withdrawals are taxed in the annuitant’s hands.
202
RRSP contribution room
An individual’s total RRSP contribution room is calculated as current RRSP contribution room plus any carry-forward of contribution room from the previous year less any pension adjustments.
203
Sales charge
Commissions charged to holders of fund units, usually based on the purchase or redemption price. Sales charges are also known as loads.
204
Sales communication
Any communication relating to a mutual fund that induces the public to invest in that fund.
205
Secondary market
The market for trading previously issued securities including stock exchanges and the over-the-counter market.
206
Securities Act
Provincial legislation regulating the underwriting, distribution and sale of securities. Each of the provinces and territories has its own Securities Act.
207
Self-directed RRSP
An RRSP, set up by the taxpayer, established to hold a range of investments eligible for an RRSP. The investor generally makes all the investment decisions.
208
Self-regulatory organizations (SROs)
Organizations that have been given the authority and the responsibility to regulate the operations and standards of practice and business conduct of its members and their representatives.
209
Simplified prospectus
Simplified and shortened form of prospectus issued by the mutual fund to purchasers of units or shares. See prospectus.
210
Specialty fund
A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.
211
Spousal RRSP
Any RRSP established for the benefit of a taxpayer’s spouse or common-law partner and where the contributions are made and deducted by the taxpayer.
212
Standard deviation
The measure of how much a mutual fund's performance fluctuates from its historical average return.
213
Standard of conduct
A set of guidelines a firm and its employees follow to ensure ethical behaviour throughout all aspects of the registered dealers’ business activities.
214
Strategic investment planning process
The process by which dealing representatives can use to develop and implement investment plans for their clients.
215
Strip bond
A bond in which the holder purchases it for a discount and receives the par value at maturity. The holder does not receive interest payments. Also known as zero-coupon bonds.
216
Subscriber
A person who makes contributions to an RESP and names one or more beneficiaries for whom he or she will make contributions. Also known as the contributor.
217
Suitability assessment
A process in which the features of an investment or investment strategy are compared to a client’s profile especially risk tolerance, investment objectives and time horizon to determine whether the investment is suitable for that client.
218
Supply
Total amount of specific goods or services that is available to consumers at the asking price of the supplier.
219
Supply curve
A graphical representation of the relationship between variations in quantities supplied in relation to a range of different prices. There is a direct relationship between quantities offered and prices. Quantities offered will increase at higher prices.
220
Suspension
A dealing representative’s registration is suspended if he or she ceases to have a working relationship with a mutual fund dealer.
221
Suspicious transaction
Involves reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence or a terrorist activity financing offence.
222
System for Electronic Document Analysis and Retrieval (SEDAR).
An electronic system where public companies and investment funds are required to file their public documents and information with the Canadian Securities Administrators (CSA). Investors are able to view this information on the SEDAR website.
223
Systematic risks
Risks that affect the returns on all comparable investments, meaning that there is a systematic relationship between the return on a specific investment and the return on all other comparable investments in the same class. Inflation, exchange rates and interest rates are examples of systematic risk.
224
Systematic withdrawal plan (SWP)
Plans offered by mutual fund companies that allow investors to receive payment from their investment at regular intervals.
225
Systemic risk
Risk that a single event can trigger a domino effect and harm other interconnected institutions. Eventually, a systemic risk can harm the whole economy.
226
Target date funds
Type of asset allocation fund that focuses on a long-term specific future date and changes the asset mix throughout the life of the fund. Also known as life cycle funds.
227
Tax credit
An amount that a taxpayer can claim on his or her tax return to offset the amount of tax payable.
228
Tax deduction
An amount that a taxpayer can deduct on his or her tax return to reduce the amount of income that is subject to tax.
229
Taxable capital gain
The portion of a capital gain that must be included in taxable income, currently based on an inclusion rate of 50% for dispositions after October 17, 2000.
230
Taxable income
Total income less various tax deductions.
231
Tax-free savings account (TFSA)
A registered account whose contributions are made with after-tax funds. No tax deduction is given on contributions. Investments grow tax-free within the account and are not taxed when withdrawn. Yearly contribution limits apply.
232
Technical analysis
Analysis aimed at forecasting future price movements based on studies of past price movements and chart patterns using statistical analysis, charting and trading volumes. Actively used for short-term trading for security picking and timing purchases and sales.
233
Term to maturity
Duration between the current date and the maturity date on financial securities.
234
Time horizon
The period from the initial investment to when an investor may need access to a significant portion of the funds invested.
235
Trading expense ratio (TER)
Commissions and other portfolio costs divided by total assets of the fund.
236
Trailing commission
Recurring payments based on the market value of the client`s holdings of mutual funds made periodically by mutual fund companies to dealers and dealing representatives as an incentive to continue offering service to the holders of the mutual funds of that mutual fund company.
237
Treasury bills (T-Bills)
Short-term government debt. Treasury bills bear no interest, but are sold at a discount. The difference between the discount price and the par value is the return to be received by the investor.
238
Trust
An individual or institution holding property in trust for the benefit of another.
239
Ultimate Designated Person (UDP)
NI 31-103 requires all registered firms, including mutual fund dealers, to have an Ultimate Designated Person (UDP) who is registered with the securities commissions. The UDP must be the CEO, sole proprietor or an officer of the firm. The UDP is responsible for promoting a culture of compliance with securities legislation and supervising the firm’s compliance activities.
240
Unemployment rate
The percentage of the total labour force that is unemployed but are available and are actively seeking work.
241
Unit trust
An unincorporated mutual fund, usually set up under a trust deed, whose organizational structure permits realized profits of the fund to be passed on to investors.
242
Unsuitable
An investment product that is not in alignment with a client’s KYC information, especially with regard to risk tolerance, time horizon or investment objectives.
243
Voluntary accumulation plan
See pre-authorized chequing plans.
244
Withholding tax
Tax that is withheld at source and required to be remitted to the government. Withholding tax is applied on incomes like employment. It is also applied in situations like withdrawing funds from RRSP accounts.
245
Year’s basic exemption (YBE)
A portion of earnings on which no Canada Pension Plan contributions are required.
246
Yearly maximum pensionable earnings (YMPE)
The upper ceiling on pensionable earnings, beyond which no additional Canada Pension Plan premiums are required. This amount is indexed annually to changes in the CPI.
247
Yield
Annual rate of return received on investments, usually expressed as a percentage of the market price of a security.
248
Yield curve
A graphic representation of the relationship among yields of similar bonds of differing maturities.
249
Yield-to-maturity (YTM)
The annual rate of return an investor would receive if a bond were held until maturity.
