Canadian Securities Course (CSC) Level 2 Practice Exam

What is the main advantage of fee-based accounts for advisors?

1. Greater potential profits

2. Lower costs for clients

3. Ability to provide broader services

4. Guaranteed returns

The correct answer is: Ability to provide broader services

The main advantage of fee-based accounts for advisors is the ability to provide broader services. This type of account structure allows advisors to offer a wide range of financial and investment advice without the pressure of commission-based sales, which can limit the scope of services they provide. In a fee-based model, advisors are typically compensated based on the overall amount of client's assets under management, which incentivizes them to take a holistic approach to client financial planning. This includes comprehensive portfolio management, financial planning, and access to various investment products that suit the client’s needs, leading to a more personalized and expansive advisory service. Other options, while presenting some advantages, do not pertain directly to the primary benefit of fee-based accounts for advisors. For instance, while fee-based accounts can potentially lead to greater profits for advisors through asset management fees, this is not the central advantage highlighted in the context of providing services. Lower costs for clients may not always apply, as fee-based models can sometimes be more expensive than commission-based structures, depending on the volume and type of services utilized. Lastly, the notion of guaranteed returns is not applicable; all investments carry some risk, and no account structure can assure investment outcomes.