LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
A client wants to invest an inheritance in segregated funds while carrying a large balance on a credit card charging a very high rate. The agent should:
- raise the debt first, because clearing a high-rate balance is a certain and superior return
- Bdecline to discuss the debt at all, since lending matters fall outside the agent's licence
- Crecommend borrowing further against the inheritance to make an even larger deposit
- Dproceed with the deposit, since investing early always beats repaying borrowed money
Correct answer: A) raise the debt first, because clearing a high-rate balance is a certain and superior return
A guaranteed saving equal to a high borrowing rate is better than an uncertain market return. Debt is part of the client's financial situation, so the agent must raise it and record the discussion, even though the agent does not give credit advice.
Why the other options are wrong
- BDebt is part of the financial situation the agent is required to understand.
- CAdding leverage to a client already carrying expensive debt increases the risk sharply.
- DAn uncertain market return does not reliably beat a high guaranteed interest cost.
Exam tip
High-rate debt outranks a new investment in almost every suitability question.
Common mistake
Treating existing debt as outside the scope of a know your client discussion.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 3
- A client's spouse must sign for:
- When the insurer requests additional information after the application (for example, source of wealth for a large deposit), the agent should:
- The implementation of a recommendation involving a switch from one seg fund to another within a contract requires:
- A client wishes to designate a charity as beneficiary of a segregated fund. Implementation should:
- For a deferred annuity implemented for a client, the agent should confirm:
- The agent's record of the implementation should be retained:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.