LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
'Standard deviation' as a risk measure tells the client:
- AHow long the manager has run the fund, since experienced managers produce steadier returns
- BThe return the insurer guarantees at maturity, expressed as a percentage of deposits
- How widely returns have varied around their average; higher means larger swings
- DThe fund's fee as a percentage of assets, which reduces the return the client receives
Correct answer: C) How widely returns have varied around their average; higher means larger swings
Volatility is the conventional proxy for risk. Explaining it in plain terms (range of outcomes) supports informed choice.
Why the other options are wrong
- ATenure is a qualitative factor, not a volatility measure.
- BNo return is guaranteed.
- DStandard deviation measures volatility, not the fund's fee.
Exam tip
Standard deviation = size of swings around the average.
Common mistake
Confusing volatility with the probability of permanent loss.
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
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