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2 Dealing Representative is a registration category with the Securities Commissions for those who they approve to sell or advise in scholarship plans. We will be using this title to describe our sales titles (i.e., Managing Agency Director, Agency Director, Sales Manager etc.) going forward. INTERNAL USE ONLY - 2

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4 Our primary objective for this module is to describe know your client and suitability obligations, including know your product and other aspects of suitability. By the end of this module, you should be familiar with: 1. Our know your client and suitability policies and procedures 2. Our new account documentation 3. How to complete our the CIS Form 4. When you are required to update the CIS form 5. KYC requirements 6. Suitability Assessment and Affordability calculations (matching the subscriber with a suitable RESP product) 7. Case Studies to apply the requirements INTERNAL USE ONLY - 4

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6 DRs have a fiduciary responsibility to act always in the best interest of the client. The know-your-client (KYC), know-your-product (KYP) and suitability obligations are extensions of each Dealing Representative s (DR s) general duty to deal fairly, honestly and in good faith with its clients. We expect DRs to comply not only with the letter of Heritage policies and securities law requirements, but also with the spirit of the policies and related requirements. Adequate documentation of the suitability process (including KYC) is critical to ensuring that a DR is meeting his/her Heritage and securities law obligations. Failure to complete this process diligently with all subscribers may lead to a breach of our responsibilities to all subscribers and expose you and/or Heritage to financial, regulatory and reputational harm. INTERNAL USE ONLY 6

7 In order to ensure suitability, before any Education Savings Plans may be promoted or sold, dealing representatives must know their clients. This means you need to have a sufficient understanding of a subscriber s investment needs, financial resources, personal circumstances and objectives to decide if enrollment in a Plan is the right thing for this individual. INTERNAL USE ONLY - 7

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9 Before anyone is authorized to sell a Heritage RESP, they must first undergo the RESPDAC proficiency course and product knowledge training and hold valid registration with the securities regulator in your local jurisdiction. Promptly after registration (within the first 30 days), Dealing Representatives must also undergo training with their Branch Managers in all aspects of their responsibilities. This training includes the following important aspects: Dealing Representatives roles and responsibilities; Overview of the Heritage Plans and the Impression Plan; Government grants and tax incentives; Risks associated with the Plans including: loss of sales charges and grants upon early termination; forfeiture of income on early termination; and forfeiture of the funds upon failure to claim the EAP within a certain period of time after maturity; and Fees and penalties associated with the administration of the Plans. INTERNAL USE ONLY - 9

10 As a registered individual, you must understand the structure, features, and risks of each product they recommend as part of your ongoing proficiency obligations. In fact, you must not perform an activity that requires registration unless you have the education, training and experience, which includes understanding the structure, features and risks of each Heritage product you recommend to clients. The know-your-product (KYP) obligation is also a necessary element of the KYC and suitability determination. Section 13.3 of NI requires registrants to take reasonable steps to ensure that a proposed trade is suitable for a client before making a recommendation or accepting instructions from a client. To meet this obligation, registrants should have an in-depth knowledge of all securities that they buy and sell for, or recommend to, their clients. Dealing Representatives are reminded that if they perceive they require further training or information to better Know Your Product, they are encouraged to contact their Branch Manager to arrange appropriate one-on-one or firm-guided training. When you Know Your Client and Know Your Product, you will be able to make appropriate recommendations and provide the best possible solution for your client s education savings needs. INTERNAL USE ONLY - 10

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12 Section 13.3 of NI requires a registrant to take reasonable steps to ensure that, before it makes a recommendation to, or accepts an instruction from, a client to buy or sell a security, or makes a purchase or sale of a security, the purchase or sale is suitable for the client. DRs must understand that they must put their subscriber s interests first; it is a breach of their obligations under securities regulations to prefer the dealer, foundation or their own interests over a subscriber s interests. Suitability obligations cannot be: delegated to a third party, satisfied simply by disclosing the risks of the trade, or waived. Guidance to correctly satisfy the suitability obligation Consider all relevant KYC information (including, investment objectives, time horizon and other personal circumstances) when assessing the suitability of an investment. For example, a client may be drawing from government sources to afford monthly contributions, but if the nature of these government programs are not verified and documented then we are unable to determine suitability for that client. Review each trade independently to ensure it is suitable. A DR should not submit a trade to Home Office unless it is reviewed and approved by their branch supervisor (an ABM/BM/MAD). INTERNAL USE ONLY 12

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14 You have an important job in assisting your client with determining the Plan and contribution method that is appropriate for them. Securities regulations and Heritage compliance policies require you to gather enough information about a client to make a recommendation of a suitable product and investment strategy. We use the CIS form as a means to gather all the essential facts of the subscriber and the beneficiary to match the circumstances of these individuals to the most appropriate Plan and payment schedule that we can offer. These essential facts are listed on the slide and provided on the CIS form. INTERNAL USE ONLY - 14

15 The Know Your Client and Suitability requirements come from the National Instrument we are required to adhere to. The Canadian Securities Administrators includes all 10 provinces and 3 territories in Canada responsible for securities regulation. KYC information forms the basis for determining whether trades in securities are suitable for investors. This helps to protect the client, the dealing representative and the integrity of the firm and the RESP industry. The KYC obligation requires us to take reasonable steps to update information about clients as well; periodically and when their circumstances change. Dealing Representative and/or Branch Manager, Agency Director must take reasonable steps to ensure that a proposed trade is suitable for a client before making a recommendation or accepting instructions from the client. To meet this suitability obligation, DRs should have in-depth knowledge of the products offered by Heritage. This is often referred to as the Know Your Product obligation which we reviewed earlier in this module. Dealing Representatives should know each product well enough to understand and explain to their clients the security s risks, key features, and initial and ongoing costs and fees. Having the registered firm s approval for representatives to sell a product does not mean that the product will be suitable for all clients. Representatives must still determine the suitability of each transaction for every client. INTERNAL USE ONLY - 15

16 The Enrollment Application and Client Information & Suitability Form ( CIS Form ) will help guide you through the topics you need to discuss with a client before you determine whether this investment is the right thing for them. The CIS Form collects Know Your Client information that is not collected on Heritage's Enrollment Application and allows you to perform calculations using this information with Heritage s affordability guideline. For all the fields on both the Enrollment Application and CIS Form, enter the data that reflects the client s current circumstances do not leave blank fields! Best practices include: Engage in meaningful KYC discussions with clients and consider the use of a questionnaire to facilitate the collection and documentation of KYC information. Collect and document sufficient minimum KYC information including name, age, investment objectives, annual income, net financial assets, net assets, liquidity needs, time horizon, risk tolerance, and portfolio composition. This should include DRs notes of discussions with clients. Collect relevant information from each client so as to establish their identity (for unregistered plans only). INTERNAL USE ONLY - 16

17 Unacceptable practices include: Collect KYC information solely by asking clients to tick a box that best describes their investment objectives or risk tolerance. This mechanical tick box approach is not sufficient to fulfill a DR s suitability obligation. Rely only on a KYC form or other document to know the client. This form based approach is not sufficient to fulfill a DR s suitability obligation. Process a trade (other than a liquidating transaction upon a client s request) if there is any missing or conflicting KYC information that may affect their ability to assess the availability of the prospectus exemption or the suitability of the investment. Delegate the KYC or suitability obligation to an unregistered individual (for example, an administrative assistant or a referrer) to collect KYC information, complete the KYC form for the client, or explain products to a client. If an unregistered individual or firm purports to collect KYC information or explain products to clients, these activities may be considered to be registerable dealing or advising activities (since these activities may themselves constitute acts in furtherance of a trade). Use outdated KYC information or an outdated KYC form to assess the suitability of a client s investment. INTERNAL USE ONLY - 17

18 The CIS Form must be completed for each new Subscriber account opened with Heritage, including those accounts opened as a result of a split-off or transfer-in to Heritage. Each Subscriber account where Heritage becomes aware there is a material change in circumstances or a Plan adjustment that involves: A change in units (adding, cancelling or reducing units) Increase in standard contribution Reinstatement Substitution of the Beneficiary Addition or Removal of a Subscriber A move out of Province or Country (may result in other changes such as the DR s registration, subscriber s employment, income, grant qualifications) Any other Plan adjustment that is solely administrative in nature and will not involve a material change to the Subscriber(s) Plan will not warrant an update to KYC information. Note that the KYC data on the CIS form is duplicated on the plan adjustment form. If you update the subscriber s KYC using the plan adjustment, you will not require the CIS form. INTERNAL USE ONLY - 18

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21 The Canadian Securities Commissions also require that Dealing Representatives establish the identity of a subscriber. Collect supporting documentation to verify the bank account used to determine that the bank account used is in the name of the Subscriber. Document the details of the banking information on the enrollment application. INTERNAL USE ONLY - 21

22 The Canadian Securities Commissions also require that Dealing Representatives establish the identity of a subscriber. Heritage has determined that the collection of a Subscriber s Social Insurance Number and banking information, and the vetting of the enrollment and grant eligibility by various levels of government constitute adequate identification to satisfy the requirements of NI This means verifying the identity of the person in front of you with the SIN they provide Document the details of the SIN on the enrollment application. Otherwise, for unregistered plans, the acceptable forms of government-issued identification for the subscriber(s) include, but are not limited to: Driver s license Permanent Residency Card Government issued passport Canadian Citizenship Card Photo Identification Card (issued by the province or territory) INTERNAL USE ONLY - 22

23 The Canadian Securities Commissions also require that Dealing Representatives establish the identity of a subscriber. Heritage has determined that the collection of a Subscriber s Social Insurance Number and banking information, and the vetting of the enrollment and grant eligibility by various levels of government constitute adequate identification to satisfy the requirements of NI This means verifying the identity of the person in front of you with the SIN they provide Document the details of the SIN on the enrollment application. Otherwise, for unregistered plans, the acceptable forms of government-issued identification for the subscriber(s) include, but are not limited to: Driver s license Permanent Residency Card Government issued passport Canadian Citizenship Card Photo Identification Card (issued by the province or territory) INTERNAL USE ONLY - 23

24 The number and age of dependent children (children under 18 years old) OR has an impairment in physical or mental functions may affect the amount of money available for investing. Keep this in mind when collecting and review this detail in comparison to their overall expenses. DRs must inquire whether the Subscriber has ever had Plans with Heritage (or other Group Plans) and if so, must inquire into the payment history on those Plans and any current contribution obligations. A history of defaults, terminations, or NSFs, without an improvement in the Subscriber s circumstances, would call into question the suitability of a new Plan for the Subscriber that is not being funded with a single contribution. However, a positive history may reflect an ability and/or determination to make proposed contributions. General inconsistency issues with KYC or financial information must be avoided such as specific information in the notes not consistent with the KYC information noted on the CIS form without reasonable explanation, or disproportionately high income for the Subscriber s stated occupation. INTERNAL USE ONLY - 24

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27 In every case, the investment objective to be confirmed with the Subscriber is that the investment is to save for the Beneficiary s post-secondary education. In this section of the form you will: Confirm the client s investment objective. Detail the time horizon for each proposed plan. Document what the client(s) feel is their investment knowledge and risk tolerance. There is a definition of risk tolerance on the last page of the CIS Form for reference. Determine the Source of Funds this is represented by a percentage Ask whether the subscriber will be using borrowed money ( leverage ) to finance this obligation. We generally prohibit the use of leverage to purchase our plans. Any exceptions must be well justified and would require the approval by Compliance and accompanied by enhanced leverage disclosure The following slides discuss these particulars in more detail. INTERNAL USE ONLY - 27

28 In regards to Investment Objective, one of the potential Subscriber s objectives would have to include saving money for a Beneficiary s post- secondary education; otherwise, the proposed Education Savings Plan would be unsuitable. INTERNAL USE ONLY - 28

29 In almost all cases, the age of the Beneficiary (captured on the Enrollment Application) will determine the time horizon for the investment (i.e. the Plan matures the year the beneficiary turns 18). For example, if the Beneficiary of the Plan is a five year old child, resident in Ontario, the child will likely start a post-secondary program and begin drawing on the Plan in 13 years, when they turn 18. The time horizon (length of the financial commitment) is documented in order that we consider the financial suitability of the ongoing commitment. Dealing Representatives must discuss with Subscribers the fact that this is a long term investment and that if the Subscriber wishes to access the funds before maturity, there will be negative financial consequences, which must be explained in full, including: loss of the grant portion of the moneys; forfeiture of the sales charges paid if cancellation is after 60 days from subscription; forfeiture of any growth or interest on the money invested; loss of the opportunity to seek further grants from government programs for a designated period, depending on the grant program in question. Cases that would present a different Time Horizon (i.e. when a beneficiary expects to attend school at a different age), sufficient explanation must be provided in the supporting notes section of the CIS Form. INTERNAL USE ONLY - 29

30 Heritage s Plans are largely invested in relatively simple, uncomplicated products that carry lower levels of risk and produce returns in line with that investment approach. The contributions and grants are invested in more conservative fixed income securities such as GIC s, federal, provincial and municipal bonds, term deposits, T-bills and mortgage-backed securities; while the income portion of the Heritage plan may be invested in a mix of Canadian equities, US and Canadian Exchange Traded Funds ( ETFs ) and corporate bonds. As a result, it is fair to offer this investment to subscribers who describe themselves as having limited, moderate or extensive investment knowledge. However, it is important that prospective subscribers have sufficient investment knowledge to understand: the product structure; the main risks; and the cost and fee structure of each subscription type. So again, Dealing Representatives must be careful to explain all of the above and be satisfied that the prospective Subscriber has a good understanding before an application is completed. INTERNAL USE ONLY - 30

31 The investments held in the fund itself are generally regarded as lower risk investments and are mandated as such by National Policy 15 of the Canadian Securities Administrators and spelled out in the prospectus. The income portion of the Heritage plan may be invested in a mix of Canadian equities, US and Canadian Exchange Traded Funds ( ETFs ) and corporate bonds. As a result, it is fair to offer this investment to subscribers who describe themselves as low risk, medium or high and to reflect their risk tolerance on the CIS Form as low risk (or higher, depending on the client s profile). However, the other risks associated with this type of investment must be disclosed in writing and explained to the subscriber including: loss of sales charges and grants upon early termination; forfeiture of income on early termination; and forfeiture of the funds upon failure to claim the EAP within a certain period of time after maturity. You may find a detailed description of these risks in the Heritage Plans prospectus as well as Relationship Disclosure Document. INTERNAL USE ONLY - 31

32 The source of funds is indicated as a percentage of where the monies are coming from whether it be from their savings account, line of credit, real estate income etc. These factors help us to identify: a) Whether they are using borrowed funds (line of credit is also a source of borrowed funds), and b) any potential and attempted money laundering activity where they may be converting the proceeds of crime. INTERNAL USE ONLY - 32

33 The wording within this document is mandated by the Securities Commissions. As previously stated, we generally prohibit the use of leverage to purchase our plans. Any exceptions must be well justified and would require the approval of Corporate Compliance and an enhanced leverage disclosure. INTERNAL USE ONLY - 33

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35 If the income figures seem very high for the profession, industry and region, you are required to make additional inquiries and document reasonable explanations; perhaps they are in a management role or have many years experience. Question expense figures that seem very low for the family size and regional demographic. INTERNAL USE ONLY 35

36 Employer information is obtained as an alternate measure to reach the client in the possible event that the home address changes without notification to us. Business sector is a means of determining the type of employment for clients who work for companies that are not generally known for example, ABC Limited. The business sector is the industry that the subscriber(s) work in. For example, we are in the investment industry. It is obtained to help to determine the reasonability of the income provided. Employer and Occupation information is also required in order to determine the reasonability of the income provided and the client s credit worthiness. If the subscriber is unemployed (i.e. Retired, Home maker etc.), ensure this is properly documented as such. General inconsistency issues with KYC or financial information must be avoided such as specific information in the notes not consistent with the KYC information noted on the CIS form without reasonable explanation, or disproportionately high income for the Subscriber s stated occupation INTERNAL USE ONLY - 36

37 Whenever a contribution schedule is being proposed or an existing schedule is being changed in frequency or amount, the monthly net income of the Subscriber(s) must be recorded and all relevant expenses deducted to determine how much, if any, disposable income the Subscriber(s) has. In asking for monthly income, remember that it is net income (not gross). In most cases, the Net Income from employment is easily determined by asking the subscriber what their take home pay is each pay period. INTERNAL USE ONLY - 37

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39 When income from government sources is included on the CIS Form, it is advisable to document what the amounts represents. For example: $120 UCCB A value for any additional provincial Child Care benefits (i.e. Quebec) A value for any EI benefits This will help Compliance determine the reasonableness of the amount provided when it may otherwise seem too high. INTERNAL USE ONLY - 39

40 Collect enough information regarding the family situation in order to properly determine: a) if the source of the support income can be relied upon, and b) Whether the subscriber will be in a position to afford a long-term commitment INTERNAL USE ONLY - 40

41 Investment Income could include: Capital Gains Stock Dividends Mutual Fund distributions Interest bearing bank accounts, Bonds and GICs Other profit made through other investment vehicles Income from such investments should be reflected in the clients Liquid Assets and Net Worth calculations. INTERNAL USE ONLY - 41

42 The source of rental income should be reflected in the clients assets and net worth especially if the rental property is a separate dwelling. INTERNAL USE ONLY - 42

43 If a subscriber has income from another source, indicate what that amount is and document what makes up the other income. As part of our requirement to determine suitability we need to understand the source of this income and document that source accordingly. It s important to note that DRs should provide as much information as possible in the supporting notes section in order for proper suitability and affordability assessments to be conducted. If this section does not apply to your client, insert zero (0) do not leave the field blank. INTERNAL USE ONLY - 43

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45 All zero values typically require supporting notes. For example, a beneficiary who is 12 years old may not require child care and therefore the value of expenses would typically indicate zero. This information should be fully document by the Subscriber on the CIS form. Subscribers who open a single contribution Plan are not required to provide a list of expenses as there is no ongoing financial obligation. Confirm the reasonability of the expenses provided. INTERNAL USE ONLY - 45

46 Important Notes: If some of the expenses do not apply in your client s particular circumstances, insert 0 (zero) and do not leave this field blank. It is commonly expected that subscribers set aside funds for certain family expenses, for example mortgage/rent, groceries, clothing, child care and transportation. If such expenses do not apply, you must make enquiries and document the circumstances in the supporting notes. You are not required to fill out sections Estimated Monthly Expenses and Contractual Obligations and Estimated Monthly Disposable Income and Affordability Guideline Assessment if the proposed plan is: Funded by a one time contribution under $ An Impression Plan Canada Learning Bond application INTERNAL USE ONLY - 46

47 Use the data provided by Statistics Canada to determine whether the subscriber s expenses are in line with regional averages. Question expense figures that seem very low for the family size and regional demographic. This chart is available to you on Heritagerep.com which you have access to as a registered DR. We will explain each of the Expense Fields in the following slides. INTERNAL USE ONLY 47

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49 Representatives are required to inquire into the subscriber s financial situation in order to proper determine suitability and affordability. If this situation does not apply to the subscriber, then the details are acceptable provide a zero $0.00 value and supporting notes would be expected. DRs should question anything that seems to be understated in comparison to the averages provided by statistics Canada. INTERNAL USE ONLY - 49

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55 If the amount seems unreasonable, DRs are expected to ask for clarity and document in the Supporting Notes section of the CIS form. You are required to provide details if the subscriber indicates zero ($0.00) in this field. INTERNAL USE ONLY - 55

56 If the amount seems unreasonable, DRs are expected to ask for clarity and document in the Supporting Notes section of the CIS form. You are required to provide details if the subscriber indicates zero ($0.00) in this field. INTERNAL USE ONLY - 56

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58 Liquid Assets include: Bank Accounts Investments (mutual funds, stocks, bonds, and redeemable GICs), including Tax Free Savings Accounts ( TFSA ) and registered retirement plans Fixed Assets include: Real Estate Market Value of Vehicles Liabilities include: Mortgage balances Personal and car loans Leveraged loans on investments Lines of Credit Credit Card Debt not paid off monthly When liabilities are subtracted from total assets the resulting number represents the net worth of the Subscriber(s). INTERNAL USE ONLY - 58

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60 We collect clients information on the Enrollment Application, the CIS Form and plan adjustment form. While completing these forms, it is equally important to avoid duplication of information and not to miss any information. For assistance with the daily challenges of completing Enrollment Application and Know Your Client documentation, refer to the Reference Guide for KYC/Suitability available in your Field Compliance Manual subscriber 6.5. INTERNAL USE ONLY - 60

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62 After having first completed the Product Knowledge Training, DRs should be able to understand the options available to clients and the appropriate Plan to suggest to clients after having discussed and collected the essential facts and KYC information about them. However, before a recommendation can be made (or client trade instructions can be accepted), the DR must assess suitability in order to recommend the appropriate Plan in light of the client s current circumstances. INTERNAL USE ONLY 62

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64 The suitability assessment should be more than a mechanical fact-finding or tick the box exercise; uncovering information about your client s financial situation means more than asking how much they earn each year and how much money is in the bank. It requires a meaningful dialogue with the client to obtain a solid understanding of the client s investment needs and objectives, and to explain how a proposed Plan is suitable for the client in light of the clients investment needs and objectives. A determination is made based on an assessment of the data points on the slide, to result in a range of possible investment outcomes. Make sure you also understand your client s lifestyle, recent or upcoming life events (e.g. divorce, marriage, college tuition, retirement and planned medical expenses), financial experience, income needs, time horizon and liquid assets. This information will assist you in completing this critical task. Important: take extra care in complying with your KYC, KYP, and suitability obligations when dealing with clients who are seniors, on a fixed or limited income, or who otherwise may be in a position of vulnerability. A loss from a registrant s failure to comply with these obligations may have particularly devastating consequences for these clients. It is important that our Representatives and supervisors apply sound judgment and objectivity in considering the suitability of every proposed transaction. Is it in the best interests of the client? Does the client understand the essential elements of the transaction, its potential benefits and its limitations? Is it affordable for the client? INTERNAL USE ONLY - 64

65 If it is not clear that the DR had conducted an appropriate KYC, KYP, or suitability determination due to inadequate, incomplete, or (in some cases) completely missing documentation, then you are not able to evidence a proper suitability determination. These instances may constitute a breach of securities regulations and your fiduciary duties to your subscribers. Therefore, it is critical that DRs maintain adequate documentation, which sometimes means collecting information in excess of those required on the CIS form, to support their suitability analysis. Unacceptable practices include: Assuming that all approved Heritage products are suitable for every client; and Relying on out-of-date KYC or KYP information. There are some general guidelines to help unearth sufficient justification to support a transaction and may aid in the review of a client s investment before a problem arises. You are responsible for documenting a reasonable basis for accepting a trade or making a recommendation. You must take into account the following matrix. INTERNAL USE ONLY 65

66 DRs are specifically reminded to take extra care in complying with the KYC, KYP, and suitability obligations when dealing with clients who are seniors, on a low or fixed income, or who otherwise may be in a position of vulnerability. A loss from a DR s failure to comply with these obligations may have particularly devastating consequences for these clients. Heritage s Enrollment Application captures the Subscriber s age. There are risks associated with age that DRs and supervisors should be aware of, they are: that the time commitment of the contribution schedule for the Plan does not extend past the Subscriber s 80th birthday, unless: the Subscriber has adequate net worth ($100,000 and/or more combined with an acceptable retirement income) to continue contributions after their 80th birthday; or the Subscriber acknowledges in writing that they currently have made or plan to make either a lump sum gift while living or provisions in their will to cover the contribution period after their 80th birthday. that insurance coverage on Heritage Plan contributions cut off at age 70; and impact on the time commitment of the contribution schedule for the plan for early retirement. Recording the age of the Subscriber and Beneficiary is a requirement of both Canada Revenue Agency ( CRA ) and Canadian Securities Administrators ( CSA ). CRA requires us to collect this information on the Enrollment Application. INTERNAL USE ONLY 66

67 There are inherent suitability issues for temporary residents seeking to invest into an RESP with a long-term contribution schedule that exceeds their term of residency in Canada INTERNAL USE ONLY - 67

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69 When discussing a contribution schedule with a Subscriber, your recommendation should be no more than the amount available for investment (refer to fields E or F on the CIS Form). The proposed amount could be for significantly less, depending on the Subscriber s situation. If the calculation produces a zero (0) or negative balance then the Dealing Representative must propose any one of the following as an alternative to the group Plan with no ongoing Contribution Schedule: Heritage Plan (single contribution) Impression Plan (no schedule) No Plan at all at this time CLB Canada Learning Bond (if applicable) INTERNAL USE ONLY - 69

70 Important: Other factors, such as the intended contribution amount taking up most of the calculated estimated disposable income, in the absence of a significant net worth (and liquid assets), should incline you to propose a lower contribution amount (or other contribution schedule). The intended contribution amount taking up most of the estimated net worth as well. INTERNAL USE ONLY - 70

71 If the prospective Subscriber, after being advised in the manner set out above, directs you to proceed with the enrollment nonetheless, you must complete the enrollment application and CIS form in the usual way, indicating in the supporting notes section the DR s cautionary advice and the instructions/directions of the Subscriber(s), and indicate to the Subscriber(s) that the business will be considered by the Chief Compliance Officer. A letter will follow from the CCO to confirm that the DR did not recommend the purchase but was instructed to proceed nonetheless (Non-suitability Letter) and to: Confirm the client s instructions and intention; and Whether or not the business will be accept. This avenue should be relied upon only in the rarest of circumstances and Heritage Home Office may contact the Subscriber directly to gain an understanding of their situation and/or to decline the enrollment application. The client-directed trade instruction is not meant to be an alternative to assessing client suitability in circumstances where the trades likely would not be suitable for them. A DR cannot actively promote a security (and thereby recommend the plan) and then rely on template or generic language to claim that the trade was a client-directed trade and is not recommended by the DR. However, in cases where the subscriber has insufficient income to support ongoing contribution but does have a high net work with ample liquid assets, a Single Contribution or Impression Plan should be recommended. If the potential subscriber is unwilling to open a single contribution plan and is insistent upon a Plan with ongoing contributions, approval from Compliance may be requested if the following information is documented in the Supporting Notes section of the CIS form: The subscriber acknowledges that they do not wish to subscribe to a Single Contribution Plan or Impression Plan and it is their intention to reserve a specific portion of the available funds to adequately support the ongoing contribution requirements. INTERNAL USE ONLY - 71

72 For example: An Enrollment Application is a contract between Heritage and Subscriber(s). A contract is a legally binding agreement between 2 or more persons for a particular purpose; in this case it is an instrument for the economic exchange of goods and services. By signing the contract (if approved by Heritage, which is to put it into effect), the subscriber and Heritage are bound by its terms and obligations. The subscriber(s) sign the enrollment application when they believe they have all relevant information required and consent to the investment. The DR signs the enrollment application and attests to the full discharge of their responsibilities to disclose the material facts of the investment, of completing a suitability assessment and completing a plan that is suitable for the client in light of the client s investment needs and objectives. INTERNAL USE ONLY - 72

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74 Termination of the contract by the client or by Heritage (for default) is a last resort. Heritage requires DRs to understand the available options to help clients avoid the consequences of termination to the greatest extent possible. Clients can change the terms of their RESP, by requesting a change to the deposit schedule or a reduction or acquisition of more units (for certain RESPs), or transferring their investment into another RESP managed by the firm. Clients have access to you to discuss any desired amendments to their contract (such as reduction in payments or transfer to another RESP managed by the firm) that may be advisable having regard to any changed circumstances of the client (such as job loss or other changed financial circumstances). INTERNAL USE ONLY 74

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77 This concludes the Know Your Client and Suitability training module. 77