LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client asks whether she should pay off her mortgage or invest. The need analysis compares:
- AOnly the mortgage rate, since any investment earning more than the rate is the better choice for the surplus
- BOnly the fund's past return, since that shows what the money would have earned
- The guaranteed after-tax return of repayment against the expected return and risk of investing
- DNothing, since the two decisions are separate and should be made independently
Correct answer: C) The guaranteed after-tax return of repayment against the expected return and risk of investing
The classic trade-off requires comparing certain versus uncertain after-tax returns and the client's preferences.
Why the other options are wrong
- AThe investment side, including risk and tax, matters too.
- BPast returns are not expected returns.
- DIt is a real decision with a real trade-off.
Exam tip
Debt vs invest: compare after-tax certain return with expected risky return; consider registered room.
Common mistake
Ignoring the psychological value of being debt-free.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.