LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
The 'management expense ratio' (MER) of a segregated fund includes:
- AOnly the sales charge paid to the agent, spread over the years the contract is held
- BThe client's personal income tax on the fund's allocations, withheld at source
- Management fees, operating expenses, taxes and the insurance fee, as an annual percentage
- DNothing that affects the client, since it is paid by the insurer from its own general funds each year
Correct answer: C) Management fees, operating expenses, taxes and the insurance fee, as an annual percentage
MERs on seg funds exceed comparable mutual funds because of the insurance component. Reported returns are net of MER.
Why the other options are wrong
- ASales charges are separate from the MER.
- BPersonal tax is outside the fund.
- DMERs are real, ongoing costs deducted from the fund before returns are reported.
Exam tip
MER = management + operating + insurance fee; returns are net of it.
Common mistake
Adding the MER to reported returns as if it were not already deducted.
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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