LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client holds GICs at a bank for all her savings. The assessment should note:
- AThat GIC interest is taxed as capital gains, so her after-tax return is better than it looks
- BPerfect diversification, since her money is spread across several terms and issuers
- Safety and deposit insurance, but taxable interest, limited growth, inflation risk and no estate features
- DThat GICs are high-risk, since a bank failure would wipe out savings above the insured limit
Correct answer: C) Safety and deposit insurance, but taxable interest, limited growth, inflation risk and no estate features
Existing holdings are assessed against objectives. GICs suit safety and short horizons but carry inflation and tax inefficiency for long horizons.
Why the other options are wrong
- AGIC interest is fully taxable as interest income.
- BConcentration in one asset class is not diversification.
- DGICs are low-risk in nominal terms; the risk is inflation.
Exam tip
GICs: safe, taxable interest, inflation risk long-term.
Common mistake
Describing GIC-only portfolios as risk-free without mentioning inflation.
What this tests
CISRO competency component 1.2 — 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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