LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
A client has just received a substantial inheritance and is unsure what to do with it. The agent should first:
- AInvest it immediately in a balanced portfolio, since holding cash guarantees a loss to inflation
- BPlace it in a deferred annuity, since a lump sum is best converted into guaranteed income
- Establish the purpose, horizon and constraints for the money before recommending anything
- DRecommend the largest guarantee available, since inherited money should never be put at risk
Correct answer: C) Establish the purpose, horizon and constraints for the money before recommending anything
A lump sum without a purpose cannot be matched to a horizon or a guarantee level, and a client in the weeks after a bereavement is rarely ready to commit to a long contract.
Why the other options are wrong
- AInvesting before the purpose is known is the definition of an unsuitable recommendation.
- BAn annuity is irreversible and may not fit the purpose at all.
- DA guarantee that does not match the horizon protects nothing.
Exam tip
Purpose and horizon before product, every time.
Common mistake
Placing an inheritance before asking what it is for.
What this tests
CISRO competency component 1.1 — 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.