LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
When presenting a segregated fund recommendation, the agent's explanation of fees should make clear that:
- Afees are refunded at the maturity date as part of the guaranteed amount the client receives
- Bfees are charged only in years when the fund produces a positive return for the holder
- fees are deducted from the fund, reduce the return over time and include the guarantee cost
- Dfees are paid by the insurer out of its own profits and never touch the client's holding
Correct answer: C) fees are deducted from the fund, reduce the return over time and include the guarantee cost
The management expense ratio is taken from the fund, so the reported return is already net of it. The client should understand what the insurance component buys and how the cost compounds over a long holding period.
Why the other options are wrong
- AThe guaranteed amount is based on deposits and is not increased by past fees.
- BFees are charged whatever the return, including in years when the fund falls.
- DThe costs are borne by the fund and therefore by the contract holder.
Exam tip
Fee disclosure must cover both the amount and the effect on long-term return.
Common mistake
Mentioning the fee figure without explaining that it compounds against the client.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 3
- A client's spouse must sign for:
- When the insurer requests additional information after the application (for example, source of wealth for a large deposit), the agent should:
- The implementation of a recommendation involving a switch from one seg fund to another within a contract requires:
- A client wishes to designate a charity as beneficiary of a segregated fund. Implementation should:
- For a deferred annuity implemented for a client, the agent should confirm:
- The agent's record of the implementation should be retained:
Practice the whole Segregated Funds & Annuities module
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