LLQP Segregated Funds & Annuities · Component 1.1 · 35% of the exam
Why is the client's marginal tax rate relevant to a segregated fund recommendation?
- AIt is not relevant, since a segregated fund's returns are taxed at the same rate for every contract holder
- It affects the after-tax value of allocated income and the choice of plan type
- CIt determines the management expense ratio, since insurers price fund fees by the holder's tax bracket
- DIt sets the guarantee level available, since higher-bracket clients qualify for a higher guarantee
Correct answer: B) It affects the after-tax value of allocated income and the choice of plan type
Tax situation is a listed element of the client's situation. Income allocations from segregated funds are taxed according to their character; registered plans defer tax.
Why the other options are wrong
- ATax drives the after-tax return, which differs by bracket.
- CFees are set by the insurer, not by the client's tax rate.
- DGuarantees are contractual features unrelated to tax.
Exam tip
Know the marginal rate: it shapes registered/non-registered and income-type decisions.
Common mistake
Recommending a non-registered interest-heavy fund to a high-bracket client with RRSP room.
What this tests
CISRO competency component 1.1 — 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:
- A client with little investment knowledge and no experience with market fluctuations should be:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.