LLQP Segregated Funds & Annuities · Component 2.4 · 30% of the exam
A member notices the funds in her group plan carry lower management expense ratios than the retail versions of the same funds. The reason is that:
- Agroup plans invest in a different and simpler set of securities than retail funds do
- the plan's pooled assets attract institutional pricing that individual investors cannot obtain
- Cthe insurer waives the guarantee on group holdings, which removes the insurance fee entirely
- Demployers are legally required to reimburse members for the whole cost of the fund each year
Correct answer: B) the plan's pooled assets attract institutional pricing that individual investors cannot obtain
A group plan negotiates on behalf of all members, so the assets are priced as one large account. This is one of the strongest reasons for a member to keep money in the plan rather than moving it to a personal account.
Why the other options are wrong
- AThe investment mandates are usually identical; only the pricing of them differs.
- CGroup fund pricing reflects scale, not the removal of a contract guarantee.
- DNo law requires an employer to reimburse the investment costs of the plan.
Exam tip
Scale pricing is the main financial argument for leaving money in a group plan.
Common mistake
Recommending a transfer to a personal plan without comparing the fee levels.
What this tests
CISRO competency component 2.4 — 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
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