QIA key terms

A regulatory requirement that an adviser gather and document each client's financial situation, goals, time horizon, and risk tolerance before recommending any investment.

The duty to ensure a recommended investment fits the client's objectives, financial circumstances, and risk profile, and is not excessive in cost or trading frequency.

A legal obligation to act solely in another party's best interest, placing the client's welfare above the adviser's own compensation or firm incentives.

A situation where an adviser's personal, financial, or firm interest could bias advice given to a client, requiring avoidance, mitigation, or clear disclosure.

The practice of informing clients, in clear and timely terms, about arrangements that could compromise objectivity, such as commissions, referral fees, or proprietary product preferences.

An internal information barrier separating departments, such as research and investment banking, to prevent material non-public information from improperly influencing advice or trading.

Significant information about a security that has not been disclosed to the public and that a reasonable investor would consider important to a trading decision.

Trading or tipping others to trade on material non-public information in breach of a duty of trust, which is prohibited under securities law.

The process of measuring a client's willingness and financial ability to accept investment losses, combining psychological attitude with capacity to bear risk.

A client's objective financial ability to absorb losses without derailing essential goals, driven by income, assets, liabilities, and time horizon.

A written document setting out a portfolio's objectives, constraints, risk limits, and permitted asset classes, guiding consistent decisions and evaluation of results.

The division of a portfolio among asset classes such as equities, bonds, and cash, which largely determines its long-run return and volatility profile.

A long-term target mix of asset classes based on the investor's goals and risk profile, maintained through periodic rebalancing rather than short-term market views.

Short-term deviations from the strategic mix intended to exploit perceived market opportunities or reduce risk, typically within limits set by policy.

The periodic adjustment of holdings back to target weights, restoring the intended risk level after market movements have shifted the portfolio's mix.

Spreading investments across assets, sectors, and issuers so that any single loss has limited impact on the overall portfolio's outcome.

Risk affecting the whole market, such as recessions or interest-rate shifts, which cannot be eliminated through diversification and is compensated with higher expected returns.

Risk specific to a company or industry, such as a product recall or management failure, which can be largely reduced by holding a diversified portfolio.

A measure of how much a security's price tends to move relative to the overall market, where a value above one indicates greater sensitivity.

A framework stating that expected return equals the risk-free rate plus a premium for systematic risk, calculated as beta times the market risk premium.

The portion of a portfolio's return not explained by market exposure, often used as a gauge of the value added by active management.

A risk-adjusted performance measure dividing excess return above the risk-free rate by the portfolio's standard deviation of returns.

A statistical measure of how widely returns vary around their average, commonly used to describe the volatility and uncertainty of an investment.

The degree to which an investment's value fluctuates over time; higher volatility implies a wider range of possible outcomes and greater short-term uncertainty.

An estimate of the largest loss a portfolio could suffer over a defined period at a given confidence level, such as a one-day 95% loss estimate.

Evaluating how a portfolio would perform under severe but plausible scenarios, such as sharp rate rises or market crashes, to reveal hidden vulnerabilities.

The risk that an asset cannot be sold quickly at a fair price, or that cash needs cannot be met without accepting a significant discount.

A measure of a bond's price sensitivity to interest-rate changes, expressed in years and used to estimate the percentage price move for a rate shift.

The total annualized return an investor would earn by holding a bond to maturity, assuming all coupons are reinvested at that same rate.

The possibility that a bond issuer or borrower fails to make scheduled interest or principal payments, or that its credit quality deteriorates.

The per-share value of a fund, calculated by subtracting liabilities from total assets and dividing by the number of shares outstanding.

The annual cost of running a fund, expressed as a percentage of average assets and deducted from returns before they reach investors.

A pooled investment that tracks an index or basket and trades on an exchange throughout the day, combining diversification with intraday liquidity.

The gap between the highest price buyers will pay and the lowest price sellers will accept, representing a transaction cost for traders.

The expected length of time before invested money is needed, which shapes how much short-term volatility an investor can reasonably tolerate.

The process by which investment earnings generate their own subsequent earnings, producing growth that accelerates over longer holding periods.

A savings vehicle in which investment growth is not taxed each year but becomes taxable when funds are withdrawn, usually in retirement.

A levy on the profit realized when an appreciated asset is sold, often at different rates depending on how long the asset was held.

Selling investments at a loss to offset taxable gains elsewhere, then reinvesting in a similar asset to maintain the intended market exposure.

A standard index or reference portfolio against which an investment's performance and risk characteristics are compared and judged.