LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
'Risk tolerance' in an investor profile refers to:
- AThe fund's published risk rating, which the agent must match against the client's chosen category
- BThe client's income level, since higher earners can afford to accept greater volatility in their holdings
- The volatility and potential loss the client is willing and able to accept
- DThe insurer's financial-strength rating, which shows how much risk the guarantee itself carries
Correct answer: C) The volatility and potential loss the client is willing and able to accept
Risk tolerance combines willingness (psychology) and ability (financial capacity). A client may be willing to take risk but unable to afford losses, or the reverse.
Why the other options are wrong
- AThe fund's rating is matched to the client's tolerance; it is not the same thing.
- BIncome affects capacity for loss, not tolerance itself.
- DThe insurer's rating concerns solvency, not the client's attitude to risk.
Exam tip
Risk tolerance = willingness + capacity; the lower of the two governs.
Common mistake
Recording willingness alone and ignoring the client's capacity for loss.
What this tests
CISRO competency component 1.1 — 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:
- 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?
- A client with little investment knowledge and no experience with market fluctuations should be:
Practice the whole Segregated Funds & Annuities module
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