LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client's plan assumes a constant rate of return every year. The agent should explain that:
- Real returns vary, and the order in which they arrive changes the outcome once withdrawals begin
- BA constant assumption always overstates the outcome, so the plan as drawn is too optimistic
- CConstant returns are guaranteed inside a segregated fund, so the assumption is sound
- DVariability only matters during accumulation and can be ignored once income begins
Correct answer: A) Real returns vary, and the order in which they arrive changes the outcome once withdrawals begin
A straight-line projection hides sequence risk, which is the single most important thing about a portfolio that is being drawn down.
Why the other options are wrong
- BA constant assumption can flatter or understate depending on the actual sequence.
- CSegregated funds guarantee capital at set dates, not an annual return.
- DSequence risk is most damaging precisely during the withdrawal phase.
Exam tip
Straight-line projections hide sequence risk.
Common mistake
Presenting a level-return projection as though it were the likely outcome.
What this tests
CISRO competency component 1.3 — 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.