Segregated Funds & Annuities - Chapter 5 Latest Update Graded A+

Segregated Funds & Annuities - Chapter 5 Latest Update Graded A+ Interest rate risk. (Reference: Chapter 5) Peter decides to invest $10,000 in a Canadian bond segregated fund. What type of risk is Peter most exposed to? A payout, life annuity. (Reference: Chapter 5) Robert is retiring and wants an annuitiy that will provide him with a retirement income until he dies. Which annuity product would be the most suitable? An indexed annuity. (Reference: Chapter 5) Megan is a risk-adverse investor looking for an annuity that will provide her with a retirement income that keeps pace with inflation. Which annuity would be the most suitable? The percentage of a fund's holdings that have been replaced during the previous year. (Reference: Chapter 5) What does portfolio turnover rate refer to? A charge made against the value of a segregated fund if a switch occurs within a specified period after purchase. (Reference: Chapter 5) What is a short-term trading fee? Management Expense Ratio. (Reference: Chapter 5) What does MER stand for? What does CCIR stand for? The Canadian Council of Insurance Regulators What does CISRO stand for? Canadian Insurance Services Regulatory Organizations What does the agent do when the needs analysis is completed? The agent will make recommendations based on the client's characteristics and needs. Information provided to the client can be fact-based and/or opinion based. What should the agent do when presenting? The agent should always be clear with the client about which information is factual and which is his opinion. When it comes to the segregated fund recommendation who makes the final decision? The client always makes the final decision When two different types of funds are recommended to the client what must be provided for each type? The rationale of why that type would meet the client's needs and wants. What is a lump-sum deposit? A lump-sum deposit is a one-time deposit that may or may not be accompanied by subsequent periodic deposits. How is a lump-sum deposit received? It is received via a personal cheque from the client or a transfer from another financial institution or pension plan. What details are needed from the client when a transfer of money is used to purchase the segregated fund? The client must provide the name of the organization or company from which the money will be transferred, an account number, and contact details. What happens if the transfer is from a locked-in account? The funds must be transferred to a locked-in account in which the segregated fund investment will be made. When would a periodic deposit be suitable? Periodic deposits can create a series of maturity dates. If investment growth is the reason for the investment the multiple maturity dates may not be significant to the investor. What happens to the number of units acquired through periodic deposits? Since the net asset value per unit rises and falls, each deposit may acquire a different number of units. If a switch is made from a fund with 75% guarantees to another fund with 100% guarantees, which guarantee applies? The guarantee of the fund that is the current investment. In this case 100%. If the market value of the fund is greater than the guarantee at the time of maturity, what does the investor receive? The investor receives the market value because it is the greater amount. What is the minimum maturity date for a segregated fund contract? 10 years What is the relationship between a higher guarantee and an extended maturity date? Some segregated funds that offer 100% guarantees require a 15 year period to maturity. What do the six categories of risk ratings for a segregated fund represent? The rating represents the level of risk based on historic volatility of the fund. The level of risk of a fund depends on its underlying investments. The greater the potential return, the greater the risk. What does a reset do to a fund maturity date? If the reset is used, it extends the maturity date by ten years from the date of reset (not the date calculated from original purchase). What does GMWB stand for? Guaranteed Minimum Withdrawal Benefit What does GLWB stand for? Guaranteed Lifetime Withdrawal Benefit Who pays the sales charge? The investor pays What are the ways the client can acknowledge they have received the information folder? Through writing or conversation with the agent. Why is the total value of fund shown in the Fund Facts relevant? It's relevant because it is the figure on which the MER is based. Funds with a higher total value can potentially offer a lower MER. What happens to unit values if a segregated fund is divided? Unit values will decrease What happens to unit values if a segregated fund is consolidated? In the case of consolidation, unit values will increase. What is the date of inception? This is the date on which the fund began operations. Why would a client with a lower risk tolerance appreciate a fund with a long history? Funds with long track records have experienced various market conditions and have more reliable performance data. What does a high portfolio turnover rate mean? Portfolio turnover rate is expressed as a percentage of the fund's holdings that have been replaced during the previous year. High turnover translates into higher expenses due to buying and selling costs If income is a prioritized need, what may be the best recommendation? An annuity What elements should every annuity recommendation include? - Type of annuity - Timing of payments - Annuity rate - Value of guarantees - Principal risks - Annuity penalties What are the two fundamental types of annuities? Payout and accumulation What would indicate that a fixed income annuity would be good for an investor? An investor who wants or needs income security and who does not have the risk tolerance for a variable income.