LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client's statement shows a management expense ratio materially higher than a comparable mutual fund. The review should explain that the difference reflects:
- AA temporary loading that is removed once the contract has been held for ten years
- The insurance fee for the maturity and death guarantees, which the client should value or not
- CThe insurer's higher administration costs, since insurance contracts require considerably more paperwork
- DA sales charge the client pays on every deposit made to the contract
Correct answer: B) The insurance fee for the maturity and death guarantees, which the client should value or not
The gap between a segregated fund and a comparable mutual fund is the price of the guarantees and the estate features, which is only worth paying if the client needs them.
Why the other options are wrong
- AThe insurance fee continues for the life of the contract.
- CAdministration is a small part of the difference; the guarantees are the bulk.
- DSales charges are separate from the management expense ratio.
Exam tip
The extra cost is the guarantee; check the client needs it.
Common mistake
Comparing fund costs without explaining what the extra buys.
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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