Wealth Management Essential Practice Questions (WME)

Questions

1. Ernie contributed the following amounts to a spousal RRSP to split income.

2008                $5,000   (Royal Bank)
2009                $6,000   (Royal Bank)
2010                $4,000   (CIBC)
2011                $3,000   (CIBC)

In 2012, his spouse withdrew $11,000 from the Royal Bank. The following consequences will arise in 2012 ?

a)   Ernie will include $11,000 in his income.
b)   Ernie’s spouse will include $11,000 in her income.
c)   Ernie will include $3,000 in his income and his spouse will include $8,000 in her income.
d)   Ernie will include $7,000 in his income and his spouse will include $4,000 in her income.

2. Rose invests $30,000 into a GMWB plan. Assume the minimum death benefit guarantee. She makes the first annual withdrawal of $1,500 in one year’s time, when the market value of the plan is $40,000. What is the new death benefit guarantee?

a)  $21,656
b)  $21,357
c)   $28,500
d)  $28,875

Answers

1. d)     Ernie will include $7,000 in his income and his spouse will include $4,000 in her income.

 Any RRSP contributions made in the year of withdrawal and the two previous calendar years, are taxed in the hands of the contributor (Ernie). The remaining proceeds are included in the other spouse’s income and taxed at the other spouse’s rate. For 2012, 2011 and 2010 amounts contributed to the RRSP were $7,000 [$3,000 + $4,000]. These amounts are attributed back to Ernie and taxed in his hands. The remaining $4,000 is taxed in Ernie’s spouse’s hands. With regards to the funds being withdrawn from the RRSPs, CRA uses the “Last-In-First-Out” assumption; the last funds contributed are deemed to be the first funds withdrawn. The fact that the RRSP money withdrawn was from the Royal Bank RRSPs is irrelevant to CRA. CRA deems that the RRSP money withdrawn is $3,000 from the CIBC (2011), $4,000 from the CIBC (2010) and $4,000 from the Royal Bank (2009).
Ref: Chapter 8

2. a)     $21,656

The proportionate reduction to the death benefit guarantee is calculated as:

Minimum Guarantee: $22,500 [$30,000 × 75%]
Guarantee Reduction = G × W / MV

where

G = Guarantee prior to transaction
W = Withdrawal Amount
MV = Market Value prior to withdrawal

= $22,500 × $1,500/ $40,000
= $22,500 × 0.0375
= $843.75

New Death Benefit Guarantee: $21,656 [$22,500 – $843.75]
Ref: Chapter 10

For more Wealth Management Essentials questions, check out the WME Quiz Book and WME Case Study Workbook. Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

WME Exam Prep Questions

Questions

 

1. Rose invests $30,000 into a GMWB plan. Assume the minimum death benefit guarantee. She makes the first annual withdrawal of $1,500 in one year’s time, when the market value of the plan is $40,000. What is the new death benefit guarantee?

a) $21,656

b) $21,357

c) $28,500

d) $28,875

 

2. Please explain the following schedule for a GMWB with an immediate income feature. George invested $100,000 into the plan when he was 65 years old. There is a reset privilege every three years. For year four what is the guaranteed withdrawal balance and regular withdrawal amount?

Year       Guaranteed Withdrawal               Market Value                    Withdrawal

0                              $ 100,000                             $ 100,000                             $ 5,000

1                              95,000                                   98,000                                   5,000

2                              90,000                                   103,000                                 5,000

3                              85,000                                   105,000,250                        5,000

a) $80,000 ; $5,000

b) $90,000 ; $5,000

c) $105,000 ; $5,000

d) $105,000 ; $5,250

 

Answers

1. a) $21,656

The proportionate reduction to the death benefit guarantee is calculated as:

Minimum Guarantee: $22,500 [$30,000 × 75%]

Guarantee Reduction = G × W / MV

where

G = Guarantee prior to transaction

W = Withdrawal Amount

MV = Market Value prior to withdrawal

= $22,500 × $1,500/ $40,000

= $22,500 × 0.0375

= $843.75

New Death Benefit Guarantee: $21,656 [$22,500 – $843.75]

2. d) $105,000 ; $5,250

The GWB will equal the market value of plan of $105,000 and the withdrawal of $5,250

[$10,500 × 5%]

 

For more Wealth Management Essentials questions, check out the WME Quiz Book and WME Case Study Workbook. Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

Wealth Management Essentials Exam Prep Questions

Chapter 6
1. Larry wants to purchase an $180,000 house. He qualifies for a NHA traditional guaranteed mortgage. What is his minimum downpayment and the maximum mortgage available? Assume a LTV of 95%.

a) $45,000; $135,000
b) $18,000; $162,000
c) $24,000; $156,000
d) $9,000; $171,000

Chapter 7
2. On January 31, 2011, Delia inherited a sculpture from her great aunt. Its fair market value at that time was estimated to be $800. During 2012, Delia sold the sculpture for $1,500. Delia would report a taxable capital gain in 2012 of?

a) zero, as inheritances are exempt from tax.
b) $250
c) $350
d) $700

Answers

1. d) $9,000; $171,000
Downpayment: $9,000 [$400,000 x 20%]
Maximum Mortgage: $171,000 [$180,000 – $9,000]

2. b) $250
A sculpture is listed personal property and the property is deemed to be purchased for $1,000
(minimum)
Capital gain = $500 ($1,500 – $1,000), of which 50% is taxable: $250 ($500 × 0.5).

 

For more Wealth Management Essentials questions, check out the WME Quiz Book and WME Case Study Workbook. Keep up to date on our courses and products by liking us on Facebook and following our Twitter Feed.

WME Exam Questions

Chapter 3: Understanding the Client

1. The process used to collect and document client information for building a wealth plan is often called the ?

a) life cycle process
b) wealth builder process
c) life goal process
d) client discovery process

 

Chapter 7: Family Law

2. Melissa has the following capital gains and capital losses for the 2013 taxation year.

Capital gains:

Shares – public corporation A ………………………………. $500
– private corporation …………………………………… 600
Jewellery………………………………………………………………… 700
Antiques ……………………………………………………………… 9,000

Capital losses:
Shares – public corporation B…………………………….. $1,400
Car………………………………………………………………………. 4,500
Painting …………………………………………………………………. 300
Cottage ……………………………………………………………….. 5,000

Melissa’s minimum net taxable capital gain for 2013 is ?

a) $500
b) $2,050
c) $4,550
d) $4,700

 

Answers

1. d) client discovery process

2. c) $4,550

Capital gains on:

publicly traded shares: $500
private corporation shares: 600
Jewellery 700
Antiques 9,000

Total Capital Gains $10,800

Less       Capital Losses on

Publicly traded shares (1,400)
Painting (300)

Net Capital Gain $9,100
Taxable Capital Gain (1/2) $4,550

The car and the cottage (not included above) are personal use property. Capital losses on personal use property cannot be applied against any capital gains. The painting is listed personal property. The $300 loss can be written off against capital gains from listed personal property. It is assumed that gains or losses on listed personal property have already incorporated the $1,000 rule.

Wealth Management Essentials

Questions

 

Chapter 8: Tax Planning

1. Peter and Karen, both age 60, have been married for 20 years and both have been contributing to the CPP for 30 years. Peter is in a higher tax bracket than Karen. Peter receives $600 a month in CPP pension and Karen receives $300 a month in CPP pension. How much will each receive if they split their CPP/QPP pension?

 

a) Peter gets $600 a month and Karen gets $300 a month in CPP.

b) Peter gets $500 a month and Karen gets $400 a month in CPP.

c) Peter gets $450 a month and Karen gets $450 a month in CPP.

d) Peter gets $300 a month and Karen gets $300 a month in CPP.

 

Chapter 9: Retirement Planning

2. Rocky and Adrienne lived together in Montreal for 10 years before getting married. Adrienne got a job offer in Winnipeg at the time of her marriage to Rocky and they moved to Portage La Prairie. They have lived there for the last 20 years. Rocky is now 65 and has contributed to CPP for 40 years and his CPP benefit is $800 monthly. Adrienne is 60 years old and has decided to go on early retirement. She has contributed to CPP for 35 years and her reduced CPP benefit at age 60 is $400 per month. Rocky and Adrienne decide to income split their CPP benefits. How much will each receive?

 

a) Rocky $600 ; Adrienne $600

b) Rocky $800 ; Adrienne $400

c) Rocky $672 ; Adrienne $528

d) Rocky $528 ; Adrienne $672

 

 

Answers

 

1. b) Peter gets $500 a month and Karen gets $400 a month in CPP.

CPP retirement benefits normally commence at age 65. Benefits can commence early or be delayed at the option of the individual. The earliest age these benefits can be received is 60; and the latest is 70. If an eligible party commences to receive a CPP retirement benefit before the age 65; the regular benefit is reduced by 0.5% per month. This is for each month the individual is under the age 65.

If Peter is 60 and Ellen is 60, their CPP pensions will be reduced by 30% (0.5% × 60 months). The question tells you what their CPP pensions are at age 60, so the above calculation is for your information only.

The two CPP pensions added together equals $900. The portion of their CPP pension that is available to be split between them is based on the years they have been living together divided by their contributory period. They have been contributing for the same period of time, 30 years. They have lived together (been married) for 20 years. The formula for income splitting is years living together / contributory period x combined CPP plans.

 

220 / 30 × 900 = 600 split 50% each.

The portion of Peter’s CPP that is not split is 10/30 × 600 = 200.

The portion of Karen’s CPP that is not split is 10/30 × 300 = 100.

Therefore Peter receives $500 [$300 + $200] and Karen receives 400 [$300 + $100].

 

2. c) Rocky $672 ; Adrienne $528

CPP/QPP benefits are portable. Therefore, all the contributions they separately made to QPP in Montreal would be transferred to CPP when they moved to Manitoba. CPP formula for income splitting is the number of years couples have lived together divided by the number of year’s contributions have been made to QPP/CPP combined.

 

1) Rocky and Adrienne lived together for 30 years when they applied for CPP.

2) Rocky was 65 years old and he had contributed to QPP/CPP for 40 years (30/40 × $800 = $600 of his $800 benefit will be split with Adrienne)

3) Adrienne was 60 years old and had made contributions to QPP/CPP for 35 years: (30/35 × $400 = $342.8571 of her $400 benefit will be split with Rocky)

4) CPP amount eligible to be split between Rocky and Adrienne is $600 + $342.8571 = $942.8571. It is split 50/50 as per CPP rules or $942.8571 / 2 = $471.4286 each.

5) Rocky will receive $672 CPP Monthly Benefit ($471.4286 + $200 CPP benefit not eligible to be split with Adrienne)

6) Adrienne receives $528 ($471.4286 + $57.1429 CPP benefit not eligible to be split with Rocky)

 

WME Exam Questions

This is the final day of our Wealth Management Essentials Seminar.  The next WME class will run May 6-10 in Toronto.

 

Chapter 7: Family Law

1. What are three models that the courts will consider when awarding support payments to a former spouse?

a) Clean break; income security; former lifestyle.

b) Income security; economic self-sufficiency; accustomed lifestyle.

c) Dependents; employment prospects; proportionate contribution to earned assets.

d) Clean break; compensatory; income security

Chapter 10: Annuity Based Financial Products

 

2. When GMWBs were initially launched in Canada, the guarantee was limited to ________ years. The insurer guaranteed that the investor would be repaid ________ of their principal at a minimum, but had the opportunity to participate in the markets and potentially increase the income amount through resets.

a) 25 ; 4%

b) 30 ; 3.33%

c) 10 ; 10%

d) 20 ; 5%

 

Answers

1. d) Clean break; compensatory; income security

2. d) 20 ; 5%

 

For more exam questions, order the CSI/Foran WME Quizbook

WME Exam Questions

Chapter 7: Family Law

1. Three prohibitions of bars to divorce are ?

a)            Collusions; connivance; condonation.

b)            Inadequate support for children; collusion; condonation and connivance.

c)            Reconciliation; insufficient mental capacity; no mutual agreement.

d)            Collusion; condonation and connivance; mutual agreement.

 

Chapter 8

103. Mr. Young does not belong to a registered pension plan. He has $34,000 in earned income in

the year 2011 and $40,000 in earned income for 2012 and he decides to contribute $1,500 to his

own RRSP for 2012. He also wants to contribute to a spousal RRSP. May he make a

contribution to a spousal plan and if so, how much?

a) $6,120

b) $4,620

c) $1,500

d) He cannot contribute to a spousal plan.

 

 

Answers

 

1. b) Inadequate support for children; collusion; condonation and connivance.

 

2. b)$4,620 spousal RRSP contribution

Mr. Young’s eligible contribution room to a spousal RRSP will be reduced by the amount he contributed to his own RRSP. Mr. Young’s contribution room for the year 2012 is based on earned income for the year 2011.

Year 2011 earned income = $34,000 × 18% = $6,120.

Mr. Young has already contributed $1,500 into his own RRSP plan, therefore his contribution room for a spousal RRSP is reduced by $1,500.

$6,120 – $1,500 = $4,620

WME Exam Prep Questions

This will be the last post for our January WME seminar. These questions are a small sample from our WME Materials, which Foran cobrands with CSI. If you are looking for extra support to pass your WME Exam, check out the CSI/Foran WME Quiz Workbook and Case Study Workbook or register for one of our seminars. Our next seminar for the WME runs March 11-15.

Good luck with your studying!

Chapter 8

1.  In 2012, Mr. Good gifted shares to his wife. The shares cost him $10,000. At the point of gifting, these shares had a fair market value of $12,000. Mrs. Good subsequently earned dividend income of $1,200 on these shares. She later sold the shares for $15,000. Which of the following statements is (are) correct?

I. Mr. Good will be taxed on a capital gain of $2,000 on the transfer to his spouse, and Mrs. Good will be taxed on a capital gain of $3,000 when she sells the shares.
II. Mr. Good will report a capital gain of $5,000 when Mrs. Good sells the shares.
III. No capital gain will result until the shares are actually sold by Mrs. Good.
IV. Mr. Good will be subject to tax on the dividend income his spouse receives.

a) I, III
b) II, III
c) I, IV
d) II, III, IV

Chapter 10

2. Investor Dianne purchased $10,000 worth of ABC Life Insurance Company segregated fund units that have the minimum government guarantee. She eventually redeems $4,000 worth of her units when the total market value of the units is $16,000. What is the guarantee reduction and the new guarantee?

a) $2,500 ; $7,500
b) $2,175 ; $4,225
c) $1,875; $5,625
d) $2,500 ; $5,000

Answers

1. d) II, III and IV

For spouses the attribution rules apply as follows:

Unless an election to transfer at fair market value (FMV) is made by the transferor (Mr. Good), and fair market value consideration is received by the transferor from the transferee, property income (dividends, interest, rents, royalties, etc.) and capital gains/losses of the transferee (Mrs. Good) attribute back to the transferor and are included in the transferor’s income. This results while the couple is married and the transferor is resident in Canada. Therefore, in the above example dividends received and capital gains realized by Mrs. Good are included in Mr. Good’s income.

How spousal transfer occurs under the Income Tax Act.

There are two ways a transfer occurs:

• Section 73 – At tax cost. This is automatic unless an election is made by the transferor. This method is explained under i), following.

• Section 69 – At fair market value. This results when an election is made by the transferor (Mr. Good) to opt out of section 73 (the automatic transfer at tax cost). This method is explained under ii), following.

i) At ACB (automatic) (s73)

– There is no capital gain (loss) to the transferor on the transfer. The capital gain/loss is deferred until the transferee disposes of the property. Attribution always applies (e.g., back to Mr. Good) to property income earned by the transferee spouse (Mrs. Good) after the transfer and to subsequent capital gains/losses when the transferee spouse (Mrs. Good) disposes of the capital property.

– ACB of the transferor (Mr. Good) becomes ACB of the transferee (Mrs. Good)

Mr. Good example: Automatic transfer at ACB

Proceeds to Mr. Good                                                                   $10,000

ACB of shares                                                                                $10,000

Capital gain (Mr. Good)                                                                       NIL

– Under Section 73, ITA, Mr. Good defers paying tax until his spouse sells the shares.

ACB to transferee (Mrs. Good)                                                  $10,000

Dividend income (property income) earned by Mrs. Good attributes back to

Mr. Good (included in his income)                                            $1,200

Capital gain on subsequent sale by Mrs. Good (transferee) also attributes back to Mr. Good (transferor)

Proceeds                                                                                           $15,000

ACB                                                                                                     10,000

Capital gain                                                                                       $5,000

ii) Transferor elects to transfer at fair market value (s69)

– The transferor (Mr. Good) recognizes a capital gain on the transfer and the transferor must pay tax if there is a gain.

– There will be no attribution if FMV consideration is received by the transferor (cash paid or debt issued with interest at the prescribed or commercial interest rate charged and paid within 30 days of the year end) – otherwise, attribution applies. If Mrs. Good paid $12,000 for the shares or provided a promissory note to pay $12,000, using at least the prescribed or commercial interest rate, and paid interest as promised within 30 days of the year end, there would be no attribution of property income or subsequent capital gains back to Mr. Good.

2. c) $1,875; $5,625

Original guarantee is 75% of $10,000 or $7,500.
The guarantee reduction is 25% based on the percentage of units redeemed, determined as follows:
= Market value of units redeemed/Total market value of units at redemption
= 25% [$4,000/$16,000 x 100]

Guarantee reduction equals 25% of the original guarantee
= $1,875 [$7,500 × 0.25]
New guarantee = Original guarantee minus reduction
New guarantee is $5,625 [$7,500 – $1,875]

Breaking It Down: Passing the Securities Exams

Securities Courses

The Canadian Securities Institute (CSI) sets the curriculum and exams for all securities courses. Someone wishing to take the exam must register for their course through the CSI either online  or over the phone. With this registration, the student will receive a text book or text books. These books, containing all of the material that the CSI can test students on, constitute the “course” proper, as it is a self-study program.

This registration also includes the students right to pick an exam date and write the exam. This means that there is no fee for a student’s first attempt at writing the exam. For more on specific questions about booking exams, fees, schedules, etc. refer to the CSI webpage.

What Foran Offers

Foran Financial offers are support seminars to complement students’ rigorous self study programs. We offer seminars on a variety of Canadian Securities licensing exams from entry level CSC volume 1 and CSC volume 2, through to Partners, Directors and Senior Officers including: Branch Manager and Options Supervision, Derivatives and  Options Licensing, and Investment Management seminars.

Instructor Ron Foran draws on solid financial industry experience as well as over 25 years teaching experience to help students comprehend the course material.He uses advanced learning and memory techniques to help students quickly learn and retain complex ideas.

Although the course can be completed by reading the material and taking the test on one’s own, many people find the classroom environment extremely beneficial.

Additionally, Foran publishes quiz books in order to test students’ knowledge of the material. Quiz books are included in the price of the course, and can also be purchased separately.