LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
A client's 'capacity for loss' is best assessed by looking at:
- AHow confident he says he is about riding out a downturn, since attitude is what keeps clients invested
- His financial cushion: income stability, reserves, other assets and time to recover
- CThe fund's past performance, since a fund that has recovered from declines before will do so again
- DHis past investment results, since a client who has made money before can afford to lose some
Correct answer: B) His financial cushion: income stability, reserves, other assets and time to recover
Capacity is objective. A large loss to a client with no cushion and a short horizon is unrecoverable; to a wealthy young client it is a setback.
Why the other options are wrong
- AConfidence is willingness, not capacity.
- CFund history does not describe the client's ability to absorb a loss.
- DPast results say nothing about the cushion available today.
Exam tip
Capacity = cushion + time to recover.
Common mistake
Confusing a confident client with one who can afford losses.
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
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