LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
A client near retirement with all savings in one employer's stock has a profile issue of:
- ANo issue, since a long-serving employee knows the company better than any fund manager
- BToo much diversification, since holding one stock spreads the client's attention too thinly
- Concentration risk with a short horizon, calling for diversification into balanced funds
- DToo much liquidity, since a single stock can be sold at any time and encourages panic selling
Correct answer: C) Concentration risk with a short horizon, calling for diversification into balanced funds
Concentration is a situational risk the agent should identify. Diversification is a core reason to use funds.
Why the other options are wrong
- AConcentration near retirement is a serious risk whatever the client knows about the company.
- BThe problem is too little diversification, not too much.
- DLiquidity is not the issue; concentration is.
Exam tip
Identify concentration; recommend diversification, especially near retirement.
Common mistake
Failing to ask what the client already holds.
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.