LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
'Sequence of returns risk' refers to:
- AThe order in which funds are sold to fund withdrawals, which affects the capital gains realized
- BThe order in which beneficiaries receive the proceeds when the contract holder dies
- CThe order in which fees are deducted from a fund, which determines the reported return
- Poor returns early in retirement, combined with withdrawals, permanently depleting capital
Correct answer: D) Poor returns early in retirement, combined with withdrawals, permanently depleting capital
Withdrawals during a downturn lock in losses. Guaranteed minimum withdrawal benefits and cash reserves are common responses.
Why the other options are wrong
- AThe order of redemptions is a tax matter, not sequence-of-returns risk.
- BBeneficiary order is unrelated to investment returns.
- CFee sequencing is not a recognized risk.
Exam tip
Sequence risk: early losses + withdrawals = lasting damage; GMWB or cash buffer.
Common mistake
Assuming a good average return protects a retiree drawing income.
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.