LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client asks whether he should pay down his mortgage or contribute to a registered plan. The analysis compares:
- ANothing, since the two are separate decisions that should be made independently of each other
- BThe fund's past performance, since that is the best available estimate of the future return
- The guaranteed after-tax saving from repayment against the expected after-tax return and the deduction
- DThe mortgage rate alone, since a guaranteed saving always beats an uncertain investment return
Correct answer: C) The guaranteed after-tax saving from repayment against the expected after-tax return and the deduction
Repayment is a certain return at the mortgage rate, while the contribution combines an uncertain return with a deduction whose value depends on the client's bracket.
Why the other options are wrong
- ABoth compete for the same surplus and must be compared.
- BPast returns are not expected returns.
- DThe deduction and the tax-sheltered growth belong on the other side of the comparison.
Exam tip
Certain saving against expected return plus deduction.
Common mistake
Comparing a mortgage rate with a fund's past performance.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
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