Discuss Finra Series-6 Exam Topic 5 Question 14

Your client bought a variable annuity contract that has a 5% contingent deferred sales charge with a 7-year surrender period four years ago. He has been reading about bonus annuities and 1035 exchanges and has asked for your advice. You can tell him:

Athat it's a great idea, and you plan on how you're going to spend the unexpected income.

Bthat although the exchange doesn't have any tax consequences, he'll be looking at a new, longer, surrender period.

Cthat he'll have to pay the 5% deferred sales charge if he executes the exchange.

Dboth B and C.

Suggested Answer: D

If your client bought a variable annuity contract with a 7-year surrender period four years ago, you can tell him that even though there will be no tax consequences associated with the exchange, he'll have to pay the 5% deferred sales charge if he executes the exchange, and he'll be looking at a new, longer, surrender period-one of the less desirable features associated with bonus annuities.

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11 comments · newest first

James 1 year ago

Bonus annuities sound great, but are they too good to be true?

Harris 1 year ago

B and C seem right, but is it really worth it?

Margurite 1 year ago

Wait, I thought 1035 exchanges were tax-free?

Hassie 1 year ago

Totally agree, he needs to consider that longer surrender period.

Hubert 1 year ago

The 5% sales charge is a big hit if he exchanges!

Arminda 1 year ago

I’m pretty sure that if he goes through with the exchange, he’ll definitely face that 5% sales charge, which is a big factor to consider.

Fannie 1 year ago

I feel like option B makes sense since the new annuity would likely have a longer surrender period, but I’m a bit confused about the tax implications.

Salome 1 year ago

I think I came across a practice question about surrender charges, and it mentioned that you still have to pay them when exchanging.

Marvel 1 year ago

I remember studying that 1035 exchanges can be beneficial, but I’m not sure about the implications of the new surrender period.

Rosalyn 1 year ago

Hmm, I'm a bit unsure about this one. The wording is a bit tricky. I'll need to think it through carefully before selecting an answer.

Brandon 1 year ago

I feel pretty confident that the right answer is A. Updating the plans to reflect the new risk information is the logical first step the program manager should take. The other options seem to be missing some important context.

Finra Series-6 Exam - Topic 5 Question 14 Discussion