A mutual fund representative is advising a client on their Registered Retirement Savings Plan (RRSP). The client states a strong preference for actively managed funds despite their higher fees, believing they will outperform index funds. The representative, knowing the client's moderate risk tolerance and long-term financial goals, is aware that a particular low-cost index fund would likely be more suitable given the client's overall profile. Under the Client-Focused Reforms, what is the representative's primary obligation here?

Question: A mutual fund representative is advising a client on their Registered Retirement Savings Plan (RRSP). The client states a strong preference for actively managed funds despite their higher fees, believing they will outperform index funds. The representative, knowing the client's moderate risk tolerance and long-term financial goals, is aware that a particular low-cost index fund would likely be more suitable given the client's overall profile. Under the Client-Focused Reforms, what is the representative's primary obligation here?

Answer options:

• To simply follow the client's explicit instruction for actively managed funds as per client choice. ✅ To educate the client on the benefits and drawbacks of both actively managed and index funds, explain why the index fund might be more suitable given their overall profile and investment objectives, and document the discussion, making sure the client's decision is informed.
• To refuse to sell any actively managed funds to the client due to potential unsuitability.
• To recommend only the actively managed funds that pay the highest commission to the representative, as the client prefers them.

Correct answer: To educate the client on the benefits and drawbacks of both actively managed and index funds, explain why the index fund might be more suitable given their overall profile and investment objectives, and document the discussion, making sure the client's decision is informed.

Explanation: The CFRs require representatives to 'put clients' interests first.' This involves not just following explicit instructions blindly but also providing sufficient information and explanation for the client to make an informed decision, especially when the client's stated preference might not align with their overall best interest based on suitability factors.