Free practice questions · Broker Qualifying
Trust Account Administration Practice Questions
Handling deposits, trust reconciliation, and RECO trust account requirements. Below are 5 free sample questions from our 16-question Trust Account Administration bank. Each comes with the correct answer and a full explanation.
Question 1 of 5
Priya is the broker of record at a mid-size brokerage. During a self-audit, she discovers that a salesperson has been collecting deposits directly from clients and holding them personally for two to three days before submitting them to the brokerage trust account. What is Priya's primary compliance concern?
- AThe deposits are not being placed in the brokerage trust account forthwith as required by TRESA
- BThe salesperson is earning interest on the deposits that should go to the brokerage
- CThe salesperson should be collecting deposits by certified cheque only
- DThe brokerage's commission split with the salesperson may be affected
Why A is correct
Under TRESA, all deposits received in connection with a trade must be placed in the brokerage's trust account forthwith. Salespersons must not hold client funds personally under any circumstances. The broker of record must implement clear procedures for deposit handling, train all registrants on these requirements, and take immediate corrective action when violations are discovered. Priya should address this with the salesperson, implement controls to prevent recurrence, and consider whether RECO notification is required.
Question 2 of 5
Under Ontario trust account regulations, which of the following disbursements from a brokerage trust account is permitted?
- APayment of the brokerage's monthly office rent when operating funds are temporarily insufficient
- BThe brokerage's earned commission upon completion and closing of a transaction
- CA loan to a salesperson from excess trust funds pending reconciliation
- DPayment of the brokerage's RECO registration renewal fees
Why B is correct
Trust account disbursements are strictly limited to purposes authorized by the applicable agreements and regulations. Permitted disbursements include releasing deposits to sellers on closing, returning deposits to buyers when agreements are terminated, and paying earned commissions upon closing. The broker of record must ensure every disbursement is properly authorized, documented, and recorded in the trust ledger. Any disbursement for a purpose other than fulfilling obligations under the trade agreements is a violation.
Question 3 of 5
Under TRESA, a brokerage's statutory trust account must be maintained at which type of financial institution?
- AAny financial institution the broker of record prefers, including credit unions and online-only banks outside Canada
- BThe brokerage may hold trust funds in a secure office safe instead of a financial institution
- COnly one of the Big Five chartered banks in Canada
- DA chartered bank, trust corporation, or credit union authorized to accept deposits in Ontario
Why D is correct
The trust account must be maintained at an approved financial institution in Ontario and must be clearly designated as a trust account. This ensures that client funds are protected by deposit insurance and are distinguishable from the brokerage's operating funds. The broker of record must ensure the account is properly opened, maintained, and reconciled.
Question 4 of 5
Okonkwo, the broker of record, is considering opening an interest-bearing trust account for the brokerage. Under Ontario regulations, what must be in place before the brokerage can earn interest on trust funds?
- AInterest-bearing trust accounts are prohibited under TRESA
- BOnly brokerages with more than 100 salespersons are permitted to open interest-bearing trust accounts
- CThe brokerage needs only to notify RECO that it has opened an interest-bearing account
- DThe brokerage must have written authorization from each client whose funds will be deposited in the interest-bearing account
Why D is correct
Brokerages may maintain interest-bearing trust accounts, but must obtain written authorization from each client whose funds will be placed in such an account. The authorization should clearly outline how interest will be allocated (to the client, to the brokerage, or shared) and any administration fees the brokerage will charge. This must be agreed upon before the funds are deposited into the interest-bearing account. The broker of record must ensure proper documentation and compliance with all trust account regulations.
Question 5 of 5
A brokerage's trust account reconciliation reveals a $2,500 shortfall. What is the broker of record's FIRST obligation?
- AWait until the next monthly reconciliation to see if the discrepancy corrects itself
- BImmediately cover the shortfall from the brokerage's operating account and investigate the cause
- CNotify RECO immediately without taking any other action
- DClose the trust account and open a new one at a different bank
Why B is correct
Trust account shortfalls are treated as serious matters. The broker of record must act immediately: (1) cover the shortfall from operating funds to protect client money, (2) investigate the cause thoroughly, (3) notify RECO as required, and (4) implement measures to prevent recurrence. Common causes of shortfalls include bank errors, posting errors, NSF cheques, and in the worst case, misappropriation. The investigation must determine the root cause and appropriate corrective action.
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