SEGREGATED FUNDS ANNUITIES CORRECT FINALS
ANSWERS AND QUESTIONS SET A+
✔✔You are investing the total of $100,00 and there is a 4% front-end load.
How much of it will make into the fund?
LLQP - SFA VL 04 - ✔✔$96,000 (96%) into the Fund.
$4,000 (4%) commission/Load
Commission could be substantial especially on large investment so it's very important
that commissions/loads must be adequately disclosed and considered by, the client.
✔✔Bank-end Load (Deferred Sales Charge)
LLQP - SFA VL 04 - ✔✔The commission(load) is deducted from the NAVPU, so the
investor will actually receive less than the NAVPU.
With an NAVPU of $20 and back-end load of 4%, the investor would receive $19.20
upon redemption.
✔✔Assume you are withdrawing $100,000 and you are paying 4% back-end load.
How much are you going to receive?
LLQP - SFA VL 04 - ✔✔$96,000 (96%) to the investor
$4,000 (4%) Back-and Load
Commissions/Loads must be disclosed to and be considered carefully by, the client.
✔✔Assume an NAVPU of $20,
1. front-end sales charge(load)?
2. back-end sales charge (load)?
,LLQP - SFA VL 04 - ✔✔- A front-end sales charge (load) is added to the purchase
price, so each unit will actually cost more than the NAVPU. E.g. NAVPU of $20, each
unit will cost the investor more than $20.
- A back-end sales charge (load) is deducted from the NAVPU, so the investor will
actually receive less than the NAVPU. E.g. NAVPU of $20, the investor will receive less
than %20.
- A back-end sales charge (load) is deducted from the NAVPU, so the investor will
actually receive less than the NAVPU. E.g. NAVPU of $20, the investor will receive less
than $20.
✔✔LLQP - SFA VL 05 - ✔✔There are many different mutual funds (and segregated
funds) available in Canada.
Most fall into one of several broad categories. For example, Equity Fund can be broken
down into Small Cap Stock which are small company, large Cap company, etc.
✔✔For a Segregated Fund to be creditor proof, the beneficiary must be?
LLQP - SFA VL 08 - ✔✔- Part of the Protected Class:
- Spouse
- Parents
- Children
- Grandchiildren
OR
- Named as Irrevocable Beneficiary
Once you've named someone an irrevocable beneficiary, you cannot change the
beneficiary without permission!
Note:
You cannot take away from the policy (surrender it for cash, borrow against it) without
the permission of the irrevocable beneficiary.
✔✔Riskiness of Funds
LLQP - SFA VL 05 - ✔✔Highest Risk
Specialty
Real Estate
Equity
Dividend
Balanced
Bond
Mortgage
,Money Market
Lowest Risk
Memory Aid: My Mortgage Broker Brought Down Every Rate Substantially.
Note:
Mutual fund(and seg fund) risk categories are generalization!
Example,
A balanced fund has a mixture of different investments it could a portion of bond and
equity and mixture will impact its risk
✔✔What are three Main Features that Segregated Funds offer mutual funds don't
LLQP - SFA VL 06 - ✔✔- Maturity and Death Benefit Guarantees
- Ability to By-Pass Probate
- Opportunity for Creditors Proofing
✔✔Guarantees that Segregated Funds provide
LLQP - SFA VL 06 - ✔✔Segregated Funds are required by law to provide two
guarantees:
1. A minimum of 75% of the amount invested upon a 10 year maturity date
2. A minimum of 75% of the amount invested upon death.
Some Segregated Funds will guarantee up to 100% of the amount invested upon
death/or the 10 year mark!
✔✔Nellie is saving for retirement is extremely risk averse (she is not comfortable with
investment risk). Her RRSP was invested in GICs earning 2%.
Her financial advisor says " With that kind of return, it is unlikely that you will meet your
retirement goals, so you may have to accept some more risk."
What does he suggest her?
LLQP - SFA VL 06 - ✔✔Segregated Fund with a 100% guarantee.
, " I understand that you are not comfortable with risk...But would you be comfortable with
an investment where you should earn a higher return (than GICs) but worst case
scenario, in 10 years I can guarantee that your principle will be protected?"
Natalie was comfortable with that level of risk
✔✔Segregated Funds are required by law to provide A minimum of 75% of the amount
invested upon a 10 year maturity date
LLQP - SFA VL 06 - ✔✔The 10 year maturity date does not imply the investment
matures in 30 years and you can't redeem your units earlier.
The maturity date applies purely to the guarantee
✔✔Julie invested $50,000 into a Segregated Fund that offered a 100% guarantee upon
a 10 year maturity date. One year into the investment, she would like to redeem her
units.
Can she?
LLQP - SFA VL 06 - ✔✔- Yes! She can redeem her units today at the current market
value, but
- She will not get the benefit of the guarantee
- If her investment was worth less than $50,000 today, she can redeem her units but
she would not receive $50,000
- To get the guarantee, she would have to wait until the maturity date,
- If her units are with less than the guaranteed amount, only then would the guarantee
apply
✔✔Reset of Guarantee
LLQP - SFA VL 06 - ✔✔Most Segregated Funds offer the ability to reset the guarantee.
- When somebody invests in a Segregated Fund, they hope for a positive return (an
increase in the value of the investment)
- As the value increases, the attractiveness of the original guarantee declines
- When you reset the guarantee, the 10-year maturity date starts over.
- The guarantee only applies 10 years from the date of reset.
✔✔For example, Michael invested $100,000 segregated fund that offered the 100%
guarantee. Few years later, the contract had performed wonderfully, and its now worth
160,000$.
ANSWERS AND QUESTIONS SET A+
✔✔You are investing the total of $100,00 and there is a 4% front-end load.
How much of it will make into the fund?
LLQP - SFA VL 04 - ✔✔$96,000 (96%) into the Fund.
$4,000 (4%) commission/Load
Commission could be substantial especially on large investment so it's very important
that commissions/loads must be adequately disclosed and considered by, the client.
✔✔Bank-end Load (Deferred Sales Charge)
LLQP - SFA VL 04 - ✔✔The commission(load) is deducted from the NAVPU, so the
investor will actually receive less than the NAVPU.
With an NAVPU of $20 and back-end load of 4%, the investor would receive $19.20
upon redemption.
✔✔Assume you are withdrawing $100,000 and you are paying 4% back-end load.
How much are you going to receive?
LLQP - SFA VL 04 - ✔✔$96,000 (96%) to the investor
$4,000 (4%) Back-and Load
Commissions/Loads must be disclosed to and be considered carefully by, the client.
✔✔Assume an NAVPU of $20,
1. front-end sales charge(load)?
2. back-end sales charge (load)?
,LLQP - SFA VL 04 - ✔✔- A front-end sales charge (load) is added to the purchase
price, so each unit will actually cost more than the NAVPU. E.g. NAVPU of $20, each
unit will cost the investor more than $20.
- A back-end sales charge (load) is deducted from the NAVPU, so the investor will
actually receive less than the NAVPU. E.g. NAVPU of $20, the investor will receive less
than %20.
- A back-end sales charge (load) is deducted from the NAVPU, so the investor will
actually receive less than the NAVPU. E.g. NAVPU of $20, the investor will receive less
than $20.
✔✔LLQP - SFA VL 05 - ✔✔There are many different mutual funds (and segregated
funds) available in Canada.
Most fall into one of several broad categories. For example, Equity Fund can be broken
down into Small Cap Stock which are small company, large Cap company, etc.
✔✔For a Segregated Fund to be creditor proof, the beneficiary must be?
LLQP - SFA VL 08 - ✔✔- Part of the Protected Class:
- Spouse
- Parents
- Children
- Grandchiildren
OR
- Named as Irrevocable Beneficiary
Once you've named someone an irrevocable beneficiary, you cannot change the
beneficiary without permission!
Note:
You cannot take away from the policy (surrender it for cash, borrow against it) without
the permission of the irrevocable beneficiary.
✔✔Riskiness of Funds
LLQP - SFA VL 05 - ✔✔Highest Risk
Specialty
Real Estate
Equity
Dividend
Balanced
Bond
Mortgage
,Money Market
Lowest Risk
Memory Aid: My Mortgage Broker Brought Down Every Rate Substantially.
Note:
Mutual fund(and seg fund) risk categories are generalization!
Example,
A balanced fund has a mixture of different investments it could a portion of bond and
equity and mixture will impact its risk
✔✔What are three Main Features that Segregated Funds offer mutual funds don't
LLQP - SFA VL 06 - ✔✔- Maturity and Death Benefit Guarantees
- Ability to By-Pass Probate
- Opportunity for Creditors Proofing
✔✔Guarantees that Segregated Funds provide
LLQP - SFA VL 06 - ✔✔Segregated Funds are required by law to provide two
guarantees:
1. A minimum of 75% of the amount invested upon a 10 year maturity date
2. A minimum of 75% of the amount invested upon death.
Some Segregated Funds will guarantee up to 100% of the amount invested upon
death/or the 10 year mark!
✔✔Nellie is saving for retirement is extremely risk averse (she is not comfortable with
investment risk). Her RRSP was invested in GICs earning 2%.
Her financial advisor says " With that kind of return, it is unlikely that you will meet your
retirement goals, so you may have to accept some more risk."
What does he suggest her?
LLQP - SFA VL 06 - ✔✔Segregated Fund with a 100% guarantee.
, " I understand that you are not comfortable with risk...But would you be comfortable with
an investment where you should earn a higher return (than GICs) but worst case
scenario, in 10 years I can guarantee that your principle will be protected?"
Natalie was comfortable with that level of risk
✔✔Segregated Funds are required by law to provide A minimum of 75% of the amount
invested upon a 10 year maturity date
LLQP - SFA VL 06 - ✔✔The 10 year maturity date does not imply the investment
matures in 30 years and you can't redeem your units earlier.
The maturity date applies purely to the guarantee
✔✔Julie invested $50,000 into a Segregated Fund that offered a 100% guarantee upon
a 10 year maturity date. One year into the investment, she would like to redeem her
units.
Can she?
LLQP - SFA VL 06 - ✔✔- Yes! She can redeem her units today at the current market
value, but
- She will not get the benefit of the guarantee
- If her investment was worth less than $50,000 today, she can redeem her units but
she would not receive $50,000
- To get the guarantee, she would have to wait until the maturity date,
- If her units are with less than the guaranteed amount, only then would the guarantee
apply
✔✔Reset of Guarantee
LLQP - SFA VL 06 - ✔✔Most Segregated Funds offer the ability to reset the guarantee.
- When somebody invests in a Segregated Fund, they hope for a positive return (an
increase in the value of the investment)
- As the value increases, the attractiveness of the original guarantee declines
- When you reset the guarantee, the 10-year maturity date starts over.
- The guarantee only applies 10 years from the date of reset.
✔✔For example, Michael invested $100,000 segregated fund that offered the 100%
guarantee. Few years later, the contract had performed wonderfully, and its now worth
160,000$.
