NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A client is looking for an investment that offers tax-deferred growth, professional management, and the ability to choose from a variety of sub-accounts. They are also interested in a death benefit that can pass to beneficiaries without probate. Which of the following investment vehicles would best suit their needs?
- AMutual Fund
- BVariable Annuity
- CCertificate of Deposit (CD)
- DExchange-Traded Fund (ETF)
Show answer & explanationAnswer & explanation
Correct answer: B. Variable Annuity
A Variable Annuity offers tax-deferred growth, professional management through sub-accounts, and a death benefit that bypasses probate, aligning perfectly with the client's stated needs.
Why the other options are wrong
- A. Mutual funds offer professional management and diversification but generally do not offer tax-deferred growth or a death benefit.
- C. CDs are low-risk savings instruments with fixed interest, offering none of the client's desired features beyond possibly being tax-deferred if held in an IRA.
- D. ETFs offer diversification and professional management but generally do not provide tax-deferred growth or a death benefit.
Variable Annuity
A contract that offers tax-deferred growth potential, professional management through investment sub-accounts, and a death benefit payout.
- Tax-deferred growth
- Investment sub-accounts (similar to mutual funds)
- Death benefit option
- Subject to market risk
Memory trick: Tax-deferred growth, managed investments, and a death benefit: think VA!