LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
Compared with mutual funds, segregated funds generally have:
- ANo MERs, since the insurer recovers its costs from the guarantee fee rather than from the fund
- Higher MERs because of the insurance fees, so the features must justify the cost
- CThe same MERs, since both are managed by the same portfolio managers using the same mandates
- DLower MERs, since the insurer's scale lets it negotiate better terms than a fund company
Correct answer: B) Higher MERs because of the insurance fees, so the features must justify the cost
Cost disclosure is essential. The premium for insurance features is typically a fraction of a percent to over one percent annually, depending on guarantee level.
Why the other options are wrong
- AEvery managed fund charges an MER.
- CMERs differ materially between segregated and mutual funds.
- DSegregated funds cost more because of the insurance fees.
Exam tip
Seg fund MER > mutual fund MER; justify by features.
Common mistake
Not disclosing the cost difference.
What this tests
CISRO competency component 2.2 — 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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