LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client's existing segregated fund contract was bought with a deferred sales charge (DSC). The assessment should note:
- AThat DSC funds carry no fees, since the insurer recovers its costs from the fund company
- BThat the DSC option is now illegal, so the contract must be converted to a front-end version
- That redemptions within the DSC schedule incur a charge, subject to any free-redemption amount
- DThat there is no cost to switch, since transfers between insurers are exempt from the schedule
Correct answer: C) That redemptions within the DSC schedule incur a charge, subject to any free-redemption amount
Sales charge structures affect liquidity and replacement decisions. Many insurers have discontinued DSC on new sales, but existing schedules still apply.
Why the other options are wrong
- ADSC funds carry MERs and back-end charges on early redemption.
- BExisting DSC contracts remain valid even where new DSC sales are banned.
- DEarly redemption or transfer has a cost within the schedule.
Exam tip
DSC schedule: declining charge on early redemption; check free units.
Common mistake
Recommending a transfer that triggers DSC without disclosure.
What this tests
CISRO competency component 1.2 — 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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