LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
A retiree who will spend entirely in Canadian dollars is choosing between a hedged and an unhedged foreign equity segregated fund. The agent should explain that:
- the hedged version removes currency swings, which suits someone spending at home
- Bthe two versions produce identical results, so the choice is purely a matter of preference
- Cthe unhedged version is always better because currency movements add extra return over time
- Donly the hedged version carries a maturity guarantee under the insurer's contract terms
Correct answer: A) the hedged version removes currency swings, which suits someone spending at home
A retiree drawing income in Canadian dollars may not want currency movements adding to the variability of her holdings. Hedging removes that source of swing in both directions, at the cost of the hedging itself.
Why the other options are wrong
- BThe two versions can differ substantially in any period where the currency moves.
- CCurrency moves in both directions and is not a reliable source of extra return.
- DGuarantees attach to the contract and apply to either version of the fund.
Exam tip
Match currency exposure to the currency the client will actually spend in.
Common mistake
Treating currency exposure as free diversification for a client spending at home.
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.