LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client's portfolio holds three balanced funds from different insurers. The review is most likely to find:
- Overlapping holdings producing an asset mix the client never deliberately chose
- BThat the three contracts must be consolidated before any further advice can be given
- CA breach of the exempt test, since a client may hold only one balanced fund at a time
- DExcellent diversification, since three managers reduce the risk of any one manager's mistakes
Correct answer: A) Overlapping holdings producing an asset mix the client never deliberately chose
Stacking balanced funds blends three separate asset mixes into one the client did not design, and the result is usually more concentrated and more expensive than it appears.
Why the other options are wrong
- BConsolidation may be sensible but is not a precondition to advice.
- CNo rule limits a client to one balanced fund.
- DThree similar mandates overlap rather than diversify.
Exam tip
Stacked balanced funds produce an accidental asset mix.
Common mistake
Adding another balanced fund to solve a diversification problem.
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.