LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
A client's assets are almost entirely in the home he owns. For the investor profile this means:
- His net worth is illiquid and concentrated, which limits capacity for risk in his other savings
- BHe should sell the home immediately and invest the proceeds in a diversified portfolio
- CHe has a high capacity for risk, since real property has historically outperformed other assets
- DHe needs no investment advice, since his net worth is already sufficient for retirement
Correct answer: A) His net worth is illiquid and concentrated, which limits capacity for risk in his other savings
Wealth locked in a residence cannot be drawn on in a downturn, so the small liquid portion has to carry the household's flexibility and should be invested accordingly.
Why the other options are wrong
- BRecommending the sale of a client's home is far outside an agent's role.
- CPast returns on property do not create capacity to absorb a portfolio loss.
- DA high net worth on paper does not fund retirement spending.
Exam tip
Illiquid wealth lowers the capacity of the liquid part.
Common mistake
Treating home equity as though it were an investment reserve.
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.