LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client's income fund is invested entirely in an equity fund and he takes the minimum each year. The review should flag:
- That the minimum must be withdrawn whatever the market has done, which can force selling at a loss
- BNothing, since the minimum withdrawal is small enough to be funded by dividends alone
- CThat equity funds cannot be held inside an income fund under the registered plan rules
- DThat the minimum withdrawal can be suspended in any year in which the fund has fallen in value
Correct answer: A) That the minimum must be withdrawn whatever the market has done, which can force selling at a loss
The required withdrawal is a percentage of the January value and must be taken regardless of conditions, so an all-equity holding can be sold into a decline year after year.
Why the other options are wrong
- BThe minimum rises with age and quickly exceeds any dividend yield.
- CEquity funds are permitted holdings in a registered income fund.
- DThe minimum is mandatory and cannot be suspended.
Exam tip
A mandatory withdrawal plus an all-equity fund equals forced selling.
Common mistake
Leaving a retiree's whole income fund in equities.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.