LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
Segregated fund guarantees are most valuable relative to their cost when:
- The fund is volatile, the horizon matches the maturity term, and the client values capital certainty
- BThe fund is a money market fund, since a low return leaves the least room to absorb any loss
- CThe horizon is one year, since a short holding period is when the client is most exposed to a decline
- DThe client will withdraw steadily, since each withdrawal is then protected by the guarantee
Correct answer: A) The fund is volatile, the horizon matches the maturity term, and the client values capital certainty
Guarantee value rises with volatility and horizon fit; it is wasted on stable funds, short horizons and systematic withdrawals.
Why the other options are wrong
- BA money market fund rarely needs a guarantee.
- CThe guarantee cannot mature in one year.
- DWithdrawals erode the guarantee rather than benefit from it.
Exam tip
Guarantee value: volatile fund + matched horizon + client values certainty.
Common mistake
Paying guarantee fees on low-volatility funds.
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:
- 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:
- An 'excess withdrawal' under a GMWB contract:
Practice the whole Segregated Funds & Annuities module
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