LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A client wants a segregated fund investing in emerging markets. Beyond ordinary equity risk, the agent must disclose:
- political, currency and liquidity risks that can be far greater than in developed markets
- Bthat emerging market shares are priced once a year, so redemptions take twelve months
- Cthat emerging market funds are ineligible for registered plans under the Income Tax Act
- Dthat the insurer applies its maturity guarantee only to the Canadian portion of the fund
Correct answer: A) political, currency and liquidity risks that can be far greater than in developed markets
Emerging markets add layers of risk: governments may change the rules, currencies can move sharply, disclosure standards vary and markets can become hard to trade. These risks can produce losses unrelated to the companies themselves.
Why the other options are wrong
- BSegregated funds are valued regularly and redemptions are processed on a valuation date.
- CForeign content restrictions were removed, and such funds may be held in registered plans.
- DThe guarantee applies to the contract value regardless of where the fund invests.
Exam tip
Emerging market disclosure must name political, currency and liquidity risk, not just volatility.
Common mistake
Presenting emerging markets purely as a higher return opportunity.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.