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SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) > SEGREGATED FUND AND ANNUITY RECOMMENDATION (Chapter 5) > Flashcards

SEGREGATED FUND AND ANNUITY RECOMMENDATION (Chapter 5) Flashcards

1
Q

CHAPTER 5

Every segregated fund recommendation should include specific elements, what are they? (name at least four)

A
  • Identification of fund and its characteristics;
  • Deposit and funding;
  • Value of guarantees;
  • Contract maturity date;
  • Principal risks of recommendation;
  • Reset;
  • Contract riders;
  • Fund taxation;
  • Fund sales charge;
  • Fund management expense ratio (MER);
  • Fund details;
  • Fund penalties.
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2
Q

TRUE OR FALSE?

The agent ensures that the investor understands he is investing in a pooled investment concentrated as per its type, i.e. stocks, bonds or other, and how returns in the fund are achieved, i.e. capital gains, dividends and/or interest.

A

TRUE

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3
Q

Seg-fund Terminology

Net Asset Value

A

The net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding.

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4
Q

In regards to seg-fund recommendations when is it appropriate to recommend a Lump-sum deposit?

A
  • If the investor has a 10-year time horizon for an investment.
  • If there are no subsequent periodic deposits
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5
Q

FILL IN THE BLANK!

In regards to seg-fund recommendations, the maturity guarantee is automatically provided in all segregated fund contracts as _____% or ____% of deposits at maturity.

A
  • The maturity guarantee is automatically provided in all segregated fund contracts as 75% or 100% of deposits at maturity.

It should be reiterated to the investor that deposits are guaranteed to the percentage selected for maturity

If the market value of the account is greater than the guarantee due to fund performance, the investor receives the market value.

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6
Q

TRUE OR FALSE?

The investor cannot lose any benefit of the maturity guarantee if he surrenders the contract before its maturity date.

A

FALSE

The investor loses the benefit of the maturity guarantee if he surrenders the contract before its maturity date

The percentage of guarantee (i.e., 75%) remains the same after a withdrawal but it is based on the new, lower balance.

[Ref. 5.2.3.1]

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7
Q

FILL IN THE BLANK!

In regards to seg-fund recommendations, the agent will also want to stress to the investor that, while the maturity guarantee protects the investor against poor performance, the upside for growth is__________.

A

Unlimited

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8
Q

FILL IN THE BLANK!

In regards to seg-fund recommendations, the minimum maturity date is _____ years from the deposit date.

A

The minimum maturity date is 10 years from the deposit date.

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9
Q

TRUE OR FALSE?

segregated funds that offer 100% guarantees require a 15-year period to maturity.

A

TRUE

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10
Q

In developing a seg-fund recommendation, the agent should take into consideration 3 things, what are they?

A
  • The risk assessment of each recommended fund;
  • The forms of risk associated with the recommended products, e.g. exposure to equity risk and inflation risk;
  • The risk tolerance of the investor
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11
Q

Seg-fund Terminology

RESET

A

The reset feature allows the investor in a segregated fund to lock in, at specified intervals (e.g., once a year), increases in the market value of the investment.

[Ref. 5.2.6]

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12
Q

FILL IN THE BLANK!

A sales charge or load is paid by __________.

A

A sales charge or load is paid by the investor

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13
Q

Seg-fund Terminology

Fund management expense ratio (MER)

A
  • fee that covers management and operating expenses and taxes.
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14
Q

The __________ or / and _______ provide important details about each fund

A

The information folder and Fund Facts provide important details about each fund.

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15
Q

TRUE OR FALSE?

Providing Fund Facts is not always mandatory during the disclosure process.

A

FALSE

Providing Fund Facts is mandatory as part of the disclosure process that accompanies a sale

[Ref. 5.2.11.1]

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16
Q

FILL IN THE BLANK!

The number of units outstanding and the net asset value per unit are shown in ______.

A

The number of units outstanding and the net asset value per unit are shown in Fund Facts

17
Q

Seg-fund Terminology

Portfolio turnover rate

A

The portfolio turnover rate is expressed as a percentage of the fund’s holdings that have been replaced during the previous year.

The turnover rate is related to the MER because high turnover translates into higher expenses due to buying and selling costs.

[Ref. 5.2.11.8]

18
Q

What are some fund charges and penalties in regards to seg-funds?

A

Some charges or penalties include:

  • Account closing charge;
  • Frequent switching charge;
  • Fees to set up registered accounts;
  • Short-term trading fee;
  • Unscheduled withdrawal or switch fee
19
Q

Who is a likely candidate for an annuity?

A
  • An investor seeking income, in a relatively straightforward product
  • Those looking for a very conservative non-income paying investment without the limitations of segregated funds, such as the 10-year term-to-maturity, sales charges and annual MER
20
Q

What are some questions to ask when ASSESSING an annuity to understand its features? (name at least three)

A
  • Is the annuity being created to pay income or for savings?
  • How many lives will be covered?
  • Will the annuity payments be made for a period of time or life?
  • When will income begin?
  • Will income be a level payment or variable?
  • How will the contract be funded?
  • Which form of taxation will apply?
21
Q

What are some questions to ask when RECOMMENDING an annuity (name at least three)

A
  • Does the client need income or savings?
  • Is it sufficient for the client to be covered or should it be the client and his spouse?
  • Is the income need temporary or lifelong?
  • When does the client need income to begin?
  • Does the client need level income that he can count on or is variable income better?
  • How will the client fund the contract?
  • What will be the tax impact on the client?
22
Q

Every annuity recommendation should include the specific elements, what are they? (name at least three)

A
  • Type of annuity and its characteristics;
  • Timing of payments;
  • Annuity rate;
  • Value of guarantees;
  • Principal risks of annuity recommendation;
  • Annuity penalties.
23
Q

There are two fundamental types of annuities, what are they?

A
  • Payout
  • Accumulation.
24
Q

Seg-fund Terminology

Income bridging

A
  • When the need of an annuity is to create a stop-gap source of income for those who have stopped working and are not yet entitled to full retirement benefits.

The length of the term annuity should be aligned with the period of time between when the individual stops work and starts receiving his pension.

25
Q

Seg-fund Terminology

Deferred Annuity

A

Payments from a payout annuity recommended to begin at a later date, based on the client’s need for income.

26
Q

Seg-fund Terminology

Immediate Annuity

A

An immediate annuity, in which payments begin on the next scheduled payment date.

27
Q

TRUE OR FALSE?

Annuity rates used by insurers are the same for fixed-income annuities and variable income annuities.

A

FALSE

Annuity rates used by insurers are different for fixed-income annuities and variable income annuities.

[Ref. 5.4.3]

28
Q

Fixed-income annuities are best suited for…

A

A fixed-income annuity in which each payment is equal is best suited to an investor without the risk tolerance needed for a variable income.

An investor who wants or needs income security is well served by a fixed rate of payment.

29
Q

Variable income annuities are best suited for…

A

An investor who has risk tolerance for the ups-and-downs of the stock and bond markets may prefer a variable income annuity over one that provides a fixed income.

His payments rise with a rising market or fall with a declining market.

30
Q

TRUE OR FALSE?

The value of guarantees in an annuity provide the policyholder with the assurance that a minimum amount will be paid to the beneficiary in the event the annuitant dies before the end of the guaranteed payment period.

A

TRUE

31
Q

TRUE OR FALSE?

A higher risk tolerance may indicate a longer guarantee period.

A

FALSE

A higher risk tolerance may indicate a shorter guarantee period.

[Ref. 5.4.4.1]

32
Q

TRUE OR FALSE?

The shorter guarantee period rewards the annuitant by making higher payments but puts the beneficiary at risk since he may receive nothing if death of the annuitant occurs after the guarantee period ends.

A

TRUE

33
Q

TRUE OR FALSE?

Recommending a rider is appropriate for those who have a low risk tolerance

A

TRUE

  • When a deferred annuity is recommended
  • When the annuitant is in poor health
  • Wo ensure return of principal invested to the estate.

[Ref. 5.4.4.2]

34
Q

Seg-fund Terminology

The principal risk of an annuity recommendation

A

An annuity rate that improves in the future, due to an increase in interest rates.

The higher rate will be unavailable to annuitants whose contracts are already set and, therefore, they will earn less than they would have received if they had had the higher rate.

35
Q

Seg-fund Terminology

Laddering

A

Annuity rate risk managed by recommending a series of annuity contracts be acquired over a period of several years

To risk laddering and the hope of rising rates, annuity purchases would have to be stretched over a number of years.

[Ref. 5.4.4.2]

36
Q

Annuities are subject to ________ risk

A

Inflation risk

37
Q

In regards to annuities, Inflation risk can be managed by ______ annuity

A

Indexed annuity

38
Q

TRUE OR FALSE?

Annuities have a lot of flexibility.

A

FALSE

Annuity allows little or no flexibility

Investors loses control of capital in exchange for the security of the income stream.

[Ref. 5.4.5]

SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) (20 decks)

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