LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client holds segregated funds inside an RRSP and asks what the guarantees add, given that registered plans already offer some creditor protection. The best answer is that:
- Athe guarantees remove all investment risk, so the plan can be fully invested in equities
- the guarantees protect the deposits at maturity and death, and a beneficiary can be named
- Cthe guarantees add nothing at all and the contract should be moved to a bank immediately
- Dthe guarantees allow withdrawals from the plan to be received entirely free of income tax
Correct answer: B) the guarantees protect the deposits at maturity and death, and a beneficiary can be named
Inside a registered plan the creditor protection argument is weaker, so the case for a segregated fund rests on the maturity and death guarantees, the ability to name a beneficiary and the estate benefits, weighed against the higher fee.
Why the other options are wrong
- AGuarantees apply at maturity and death only, leaving market risk in between.
- CThe guarantees and beneficiary features still have value; the question is whether they justify the fee.
- DWithdrawals from a registered plan remain fully taxable regardless of the guarantees.
Exam tip
Inside a registered plan, sell the guarantees and the estate features, not creditor protection.
Common mistake
Repeating the creditor protection argument for funds held inside a registered plan.
What this tests
CISRO competency component 2.2 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
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