LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
'Market risk' for an investor is:
- The risk that investment values decline with markets, managed by diversification, horizon and guarantees
- BThe risk that the client cannot access money when needed because the investment cannot be sold quickly
- CThe risk that the insurer fails and cannot honour the contract's guarantees
- DThe risk that the fund manager misappropriates the assets held in the fund
Correct answer: A) The risk that investment values decline with markets, managed by diversification, horizon and guarantees
Market risk is systematic; diversification reduces specific risk but not market risk. Guarantees transfer part of it to the insurer.
Why the other options are wrong
- BLiquidity risk is separate from market risk.
- CInsurer failure is default risk, addressed by Assuris.
- DFraud is operational risk.
Exam tip
Market risk: asset mix, horizon, guarantees.
Common mistake
Confusing market risk with the risk of a specific company's failure.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.