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Seg Mock Exam 2 Questions and
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Gary is reviewing his portfolio and notices that the value of a segregated fund he recently purchased has dropped significantly. He is worried about the fund. The last time he spoke with his advisor was the day he purchased the fund. He and his advisor have both been busy and not had time to speak.
What did Gary's advisor do incorrectly?
a) Gary's advisor should have followed up to see if he was satisfied with the segregated fund.
b) Gary and his advisor are required to meet at least once every two years to review his portfolio.
c) Gary's advisor should have updated him on the risks in his portfolio so Gary did not lose any money.
d) Gary and his advisor should have made a fund switch before his investment dropped in value. โโ(wrong) Gary and his advisor should have made a fund switch before his investment dropped
in value.
Rationale:
The agent should follow up with the client once the sales process is completed to ensure his satisfaction with the product and to answer any questions. (Refer to section 6.3.3.1)
Danny is with his agent filling in an application for a non-registered segregated fund investment. He is 40 years old and wants to use the funds when he turns 60. Danny wants to choose the reset option on the fund. The insurer only offers scheduled resets and the account is reset every six months.
The agent tells Danny that:
a) He can have the reset option for the first 10 years, after which he can terminate the scheduled resets.
What type of group plan is best suited for Cory's company?
a) Define Contribution Pension Plan (DCPP)
b) Group Registered Retirement Savings Plan (GRRSP)
c) Group Tax-Free Savings Account (TFSA)
d) Deferred Profit Sharing Plan (DPSP) โโ(correct) Define Contribution Pension Plan (DCPP)
Rationale:
A DCPP will ensure that the investments made in the plan are for retirement because of the locked-in provision. Employer contributions will be stable since it is a fixed percentage of employee salaries. Furthermore, the employer contributions will not trigger additional payroll taxes as they would with a GRRSP. The company can request that employees contribute to the plan, which is not possible with a DPSP. (Refer to Section 8.2.2.2)
Ten years ago, Holly invested $100,000 in a segregated fund that has a 100% maturity guarantee as well as a death-benefit guarantee. Due to market conditions, the now-mature fund is worth $90,000. Even though the current value is less than her original investment, Holly expects the value of the fund to go up and she decides to renew her contract for another 10 years.
Is Holly entitled to the maturity guarantee if she renews her policy?
a) No. She has not terminated her contract.
b) No. She did not make a disposition.
c) Yes, but it will be paid only on expiration of the contract.
d) Yes. The insurer will deposit the top-up guarantee amount into her account. โโ(correct) Yes.
The insurer will deposit the top-up guarantee amount into her account.
c) Transfer the balance to a registered life annuity
d) Withdraw the entire sum and purchase a non-registered life annuity โโ(correct) Transfer
$300,000 to a registered life annuity and $100,000 to a RRIF to provide income flexibility
Rationale:
Transferring $300,000 to a registered life annuity will provide Romina with guaranteed income and transferring $100,000 to a RRIF will provide her with the income flexibility that she desires. (Refer to Section 4.7.1)
Gary is a 40-year-old banker who just started saving for his retirement. He has been working at the bank for about seven years and is hoping to get a promotion within the next year. He has two young children with his husband, Eric. Gary's 85-year-old parents live with Gary's family, are very active and help with the children. Gary believes that it is important to save and has put aside about $5,000 in case of an emergency.
Which risk should Gary be concerned about?
a) Gary has longevity in his family; his parents are currently in their 80s and, therefore he may experience longevity risk.
b) Gary works in the banking industry and if the market declines, his job would be at market risk.
c) Since Gary's parents live with him and are dependent, additional expenses leave him at risk for bankruptcy.
d) Gary is saving for retirement which would tie up his money and leave him with liquidity risk.
โโ(wrong) Since Gary's parents live with him and are dependent, additional expenses leave him
at risk for bankruptcy.
Rationale:
Both Gary's parents are not only still alive at 85, but competent and capable based on their ability to care for his young children. This is an indicator that Gary has a history of longevity within his family and increases the likelihood that he will live past the average lifespan for a male. There is a risk that the money Gary saves for his retirement may not be enough to last his entire lifetime. (Refer to Section 4.2.4)
Pat would like to know what a non-registered segregated fund account holder can do compared to the owner of a registered account.
Pat's advisor tells him that only the owner of a non-registered segregated fund account can:
a) name a successor owner.
b) name a beneficiary to the account.
c) withdraw funds from their account.
d) transfer money from another permitted account to the segregated fund account. โโ(wrong)
withdraw funds from their account.
Rationale:
Only a non-registered account holder can transfer the ownership of the account, thereby naming a successor owner. Both non-registered and registered account holders can name beneficiaries to the account, withdraw funds from the account, and transfer funds from another permitted account. (Refer to Section 6.2.1.1)
Alison is a small business owner. Her business fortunes fluctuate and she has managed to save some funds in an equity segregated fund. She deposits additional funds to her segregated fund account whenever she has extra money. Alison's business relies heavily on credit from various financial institutions to help with the working capital requirements. She has personally guaranteed some of the loans. She has named her daughter as the beneficiary of her segregated account, which has a 75% death-benefit guarantee.
Based on Alison's current situation, which of the following is the most important feature of her segregated fund?
a) Creditor protection
b) Maturity guarantee
a) GRRSP
b) DCPP
c) TFSA
d) DPSP โโ(wrong) GRRSP
Rationale:
Group plans enjoy creditor protection except when the account is a TFSA. (Refer to Section 8.2.2)
Sylvia and her husband Mark have just retired at 65. Mark is expected to make more retirement income than Sylvia from his RRIF and DPSP, which they plan to use income splitting for for income tax purposes. They have also heard about assigning their Canada Pension Plan Benefits.
What does their advisor tell them this entails?
a) The total CPP benefits of both spouses, or single contributing spouse is divided equally between both spouses.
b) Assignment is the same as income splitting.
c) Assignment is transferring the entire CPP benefit to one spouse.
d) A couple may choose to split or assign Canada Pension Plan (CPP) payments. โโ(wrong)
Assignment is the same as income splitting.
Rationale:
Income splitting for those 65 and older:
Up to 50% of the annual income received from a lifetime annuity, registered pension plan, RRSP annuity, registered retirement income fund (RRIF) or deferred profit-sharing plan (DPSP) annuity can be allocated to a spouse. The splitting for tax (SPSP) purposes is done via the tax return.
Canada Pension Plan (CPP) benefits are assigned.
c) Old Age Security (OAS) and Registered Retirement Income Fund (RRIF)
d) Registered Retirement Income Fund (RRIF) โโ(wrong) Old Age Security (OAS) and
Registered Retirement Income Fund (RRIF)
Rationale:
Individuals can defer their CPP and OAS benefits but must start receiving them by age 70. They do not need to convert their RRSP to a RRIF before the year they turn 71. (Refer to Sections 4.4.1.3, 4.4.2.0)
Devohn has met with his investment advisor and has decided to invest in segregated funds because he really likes the reset option. The segregated funds have an 80% maturity guarantee and a 90% death benefit guarantee. The insurance company allows him to reset every two years and he can opt out of the reset if he chooses.
In which situation should Devohn not reset his contract?
a) If Devohn's initial investment was $10,000 and its current value is $12,000.
b) If seven years later, Devohn knows that he will need to withdraw his investment in four years.
c) If Devohn's initial investment was $12,000 and its current value is $12,500.
d) If twelve years later, Devohn knows that he will need to withdraw his investment in eight
years. โโ(wrong) If twelve years later, Devohn knows that he will need to withdraw his
investment in eight years.
Rationale:
Devohn needs to be careful when using his reset option because each time he resets the guarantees, he also resets the amount of time left in the contract. This extends the maturity date, so he could lose money if he withdraws before the maturity date. If Devohn resets his contract knowing that he needs to withdraw the money in four years, he will lose the guarantees at withdrawal. If the value of the investment has dropped, he will lose money. (Refer to Section 2.1.2, 1.3.1.1, 2.2)
Jared is a resident of Ontario and a recent widower. He recently invested $200,000 in a non- registered segregated fund. He does not anticipate using this money for his own needs and would
By naming Kristin and Alex as the beneficiaries, Jared's money will be transferred quickly and without any probate fees. If David, the executor, were named as the beneficiary, there would be a delay before Kristin and Alex would receive the money. Naming the estate or not naming a beneficiary will result in the amount of the investment to be subject to probate fees. (Refer to Section 2.1.10)
Sheldon's investment portfolio is comprised of both registered and non-registered accounts. He is aware that his holdings in registered accounts are tax-sheltered, but any investment income in his non-registered account will be taxed. Therefore, Sheldon is looking for the most tax-efficient option for his non-registered investments.
Which of the following segregated funds will be of most interest to him from a tax perspective?
a) Real Estate Fund
b) Canadian Bond Fund
c) Canadian Dividend Fund
d) Balanced Fund โโ(wrong) Balanced Fund
Rationale:
Dividends from Canadian corporations are taxed at a lower rate than interest income and foreign dividends. As such, the Canadian Dividend Fund is the most tax-efficient fund among the listed options. (Refer to Section 2.2.6)
Donald has been a member of the Defined Contribution Pension Plan (DCPP) plan with his current employer for the last 12 years. He recently accepted a job offer with a new employer, who also offers a DCPP. Donald is unsure of his options regarding the $60,000 he has accumulated in his current DCPP.
Which is not an option available to Donald?
a) Leave the money in the current DCPP
