In an RFP the company use the following sentence:
A guarantee of a minimum 5% investment return and return of principal through a guaranteed structured savings product , underwritten by an investment-grade life insurance company.
How is this not a violation? I thought guaranteeing an investment return was not allowed?
You’re allowed to guarantee returns IF the returns are guaranteed
I’m not sure, is this from a Topic Test?
unless the company truly provides a guarantee to their clients.
Yes, there are such capital protection et al products. They’d take the loss on their books if required, but you’ll get what’s guaranteed. These are regulator approved.
Remember that Vignette, had the same thoughts. What everyone else is saying makes kinda sense, but still, tricky question and imho confusing for exam.
I got that one wrong too. I think they should say something like “guaranteed but still subject to credit risk of insurance company”
There is another one out there where the company gives a guarantee based on arbitrage and that is OK according to the question writer.
I find this concept very tricky…I guess CFAI is just trying to prevent ‘guarantees’ based on ‘skills’ of PM.