LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client's plan depends on drawing a fixed amount from a portfolio each year. The risk this creates is that:
- AWithdrawals will be taxed at a higher rate than if the amount varied from one year to the next
- Poor returns in the early years, combined with withdrawals, can permanently deplete the capital
- CThe portfolio will grow faster than expected and leave an unnecessarily large estate
- DThe client will run out of contribution room before the withdrawals have been completed
Correct answer: B) Poor returns in the early years, combined with withdrawals, can permanently deplete the capital
Selling a constant amount into a falling market removes units that are never recovered, which is why an identical average return can produce very different outcomes.
Why the other options are wrong
- ATax follows the amount withdrawn, not its constancy.
- CA larger estate is an outcome, not a risk to the plan.
- DContribution room is irrelevant during a withdrawal phase.
Exam tip
Fixed withdrawals plus early losses is the dangerous combination.
Common mistake
Judging a withdrawal plan by average returns alone.
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
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