LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
Diversification within a fund reduces:
- Specific risk from individual securities, but not market-wide risk
- BAll risk, since losses on one holding are always offset by gains on another
- CNothing meaningful, since every security in the fund moves with the market
- DFees, since a larger fund spreads its fixed costs over more assets
Correct answer: A) Specific risk from individual securities, but not market-wide risk
Holding many securities dilutes single-company risk. Market-wide declines still affect diversified funds; guarantees are the insurance response to that.
Why the other options are wrong
- BDiversification cannot remove market-wide risk.
- CIt meaningfully reduces specific risk.
- DDiversification does not lower fees.
Exam tip
Diversification removes specific risk, not market risk.
Common mistake
Telling a client a diversified fund cannot fall.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.