LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A segregated fund whose sole holding is units of a corresponding mutual fund is commonly described as:
- Aa guaranteed interest account paying a fixed rate for a chosen term selected by the client
- Ban exchange-traded fund that trades on a recognized stock exchange during the day
- a mirror fund, which wraps an existing mutual fund inside an insurance contract
- Da closed fund that no longer accepts deposits from any new or existing contract holder
Correct answer: C) a mirror fund, which wraps an existing mutual fund inside an insurance contract
A mirror fund invests in a single underlying mutual fund, so the investment performance tracks that fund while the insurance features of the segregated contract apply. The client gets the familiar portfolio plus guarantees, at a higher total cost.
Why the other options are wrong
- AA guaranteed interest account pays a set rate and does not hold fund units at all.
- BAn exchange-traded fund trades on an exchange and is not a segregated fund contract.
- DA closed fund is one shut to deposits, which has nothing to do with mirroring.
Exam tip
A mirror fund equals the mutual fund's return plus insurance features and a higher fee.
Common mistake
Expecting a mirror fund's return to match the mutual fund exactly despite the extra fee.
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
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