LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
A client's existing debts at high interest rates suggest that before investing:
- AThe client should borrow more, since the investment return will exceed the interest cost
- BNothing changes, since debt and investing are separate decisions that the agent should not mix
- Debt reduction should be considered, since it often gives a better guaranteed after-tax return
- DThe client should buy an annuity, since the guaranteed payments can be used to service the debt
Correct answer: C) Debt reduction should be considered, since it often gives a better guaranteed after-tax return
Cash flow and debt are part of the situation. Advice that ignores expensive debt is incomplete.
Why the other options are wrong
- AMore borrowing worsens the position; high-interest debt rarely loses to investment returns.
- BDebt cost competes directly with investment return for the same surplus.
- DAnnuities do not address the debt and lock up the money.
Exam tip
High-interest debt: consider repayment before investing.
Common mistake
Selling an investment to a client carrying credit-card balances.
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.