LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client is nervous about committing a lump sum to the market in one transaction. The analysis should consider:
- AInvesting the whole amount at once and instructing her not to look at the statements
- BWaiting in cash until markets have fallen, so the entry point is more favourable
- Phasing the deposit over a period, which reduces timing risk and helps her stay invested
- DA guaranteed interest option for the whole amount, since any market exposure will worry her
Correct answer: C) Phasing the deposit over a period, which reduces timing risk and helps her stay invested
Averaging the entry point trades a little expected return for a large behavioural gain, which matters most for a client who might otherwise abandon the plan after a bad start.
Why the other options are wrong
- AIgnoring statements does not address the underlying concern.
- BWaiting for a decline is market timing and often costs more than it saves.
- DAvoiding markets entirely sacrifices the growth the client's goals require.
Exam tip
Phasing in buys behavioural staying power.
Common mistake
Dismissing a client's anxiety as irrelevant to the recommendation.
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.