LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A client is considering a fund-of-funds segregated contract. The agent must point out that:
- Athe guarantees do not apply to a fund-of-funds contract issued by a Canadian life insurer
- fees may be charged at both the top fund level and the underlying fund level
- Ca fund-of-funds structure removes all management fees because the funds cancel each other out
- Dthe client must personally approve every trade made in each of the underlying funds held
Correct answer: B) fees may be charged at both the top fund level and the underlying fund level
A fund-of-funds holds other funds, and costs can arise at each level. The client should look at the total management expense ratio disclosed for the contract rather than the headline fee of the top fund alone.
Why the other options are wrong
- AGuarantees attach to the insurance contract and apply to fund-of-funds options as well.
- CLayering funds adds a level at which costs can arise; it does not eliminate fees.
- DThe portfolio manager makes trading decisions; the client does not approve them.
Exam tip
With any layered product, ask what the total management expense ratio actually is.
Common mistake
Comparing only the top-level fee and missing the cost of the underlying funds.
What this tests
CISRO competency component 2.1 — 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
Timed sets weighted like the exam, and review of every question you miss. Free to start.