Canadian Securities Course (CSC) Level 2 Practice Exam

What distinguishes F-class funds in the context of mutual funds?

1. Low-cost professional management

2. Based on assets rather than restrictions

3. Switching fees between funds

4. Trailer fees for sales rep

The correct answer is: Based on assets rather than restrictions

The correct distinction regarding F-class funds is that they are primarily based on assets rather than restrictions. F-class funds are designed for investors who engage in advising and have a fee-based payment structure rather than a commission-based one. Unlike traditional mutual fund classes, F-class funds typically do not charge a trailer fee, enabling advisors to provide services based solely on the assets managed. The fund's fee structure is tailored to be more transparent and cost-effective for those who utilize a fee-based advisory model. This means that investors in F-class funds often pay a lower overall cost, as the management fees are directly tied to the assets under management rather than being influenced by sales commissions or commissions on switching funds. In contrast, options reflecting low-cost management, switching fees, or trailer fees do not align with the distinctive nature of F-class funds. While these funds might offer low management costs, the core concept revolves around a fee structure that is more about asset-based charges than commission-based models associated with other fund classes.