knowledge topics
Segregated Funds
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define a segregated fund.
- Identify that segregated funds require an insurance license in order for an individual to act in furtherance of a trade.
- Identify that segregated funds must be approved by the insurance administrator of the province/territory in which they are traded.
- Identify that segregated funds are classified as individual variable insurance contracts.
- Explain how each of the factors may impact the suitability of a segregated fund, such as:
- Time horizon
- Volatility
- Risk tolerance
- Investment objective
- Financial situation
- Personal situation
- Income
- Liquidity
- Control
- Tax impact
- Investment management process
- Economic cycle
- Cost
- Historical performance
- Performance expectations
- Evaluate how each of the factors may impact the suitability of a segregated fund.
- Explain for whom a segregated fund may be suitable.
- Explain parties to a segregated fund, such as:
- Contract holder
- Annuitant
- Beneficiary
- Explain that a segregated fund is a contract between the issuer and the holder of the contract.
- Explain that segregated funds are offered via an information folder by insurance companies and fraternal organizations.
- Explain types of sales charges that may be charged on a segregated fund, such as:
- No load
- Low load
- Front-end
- Back-end or deferred sales charge
- Explain fees associated with segregated funds, such as:
- Trailer fee
- Management fee
- Management expense ratio
- Trading expense ratio
- Early redemption fee
- Switching fees
- Operating expenses
- Insurance premium
- Explain how a segregated fund assigns notional units to the contract holder.
- Explain the minimum regulatory duration and value guarantees for segregated fund holders.
- Death benefit
- Maturity benefit
- Explain how resets may affect the guarantees of a segregated fund.
- Explain how contributions/withdrawals may affect the guarantees of a segregated fund.
- Explain potential protections of a segregated fund, such as:
- Creditor protection
- Probate avoidance
- Explain the circumstances required for credit protection to be active for a segregated fund.
- Explain how income earned by a segregated fund is handled when distributed to unitholders of the segregated fund.
- For capital gains and losses
- Time weighted
- Explain the impact of an allocation of income from a segregated fund on the net asset value per unit (NAVPU).
- Interpret the return for a segregated fund.
- Explain the tax impact (based on asset location) of a segregated fund.
- When an allocation of income is added to the contract
- Upon disposition of the segregated fund
- Upon death of the annuitant
- Estimate the tax impact (based on asset location) of a segregated fund.
- When an allocation of income is added to the contract
- Upon disposition of the segregated fund
- Upon death of the annuitant
- Explain that the return of a segregated fund may be presented before the fund expenses have been deducted from the gross return of the fund.
- Define a guaranteed minimum withdrawal benefit plan.
- Identify that a guaranteed minimum withdrawal benefit plan allows for potential capital growth through participation in the market, while guaranteeing a minimum withdrawal each year.
- Identify that minimum and maximum ages exist to invest in a guaranteed minimum withdrawal plan.
- Identify that resets to the guaranteed withdrawal may occur every three years, based on growth in the plan.
- Identify that bonuses that increase the guaranteed withdrawal may be available for each year that a withdrawal does not occur.
- Identify that resets and bonuses may increase the guaranteed withdrawal amount, but do not add to the market value of the plan.
- Identify that guaranteed minimum withdrawal benefit plans may have death guarantees.
- Explain fees associated with guaranteed minimum withdrawal benefit plans, such as:
- Trading expenses
- Management expenses
- Administration expenses
- Insurance premiums
- Guarantee premiums
- Withdrawal fees
- Sales charges
Glossary of Verbs (mouse over to see definition)
-
Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
-
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
-
Compare
To note the similarities and differences between two or more things
-
Estimate
To determine an approximate value for
-
Calculate
To find the value using mathematics
-
Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
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