Financial Adviser Exam cheat sheet

Best interests duty (where enacted) requires the adviser to act in the client's best interests, prioritise the client's interests over the adviser's own, and take reasonable steps to gather client information; it is a process obligation, not an outcome guarantee.

Disclosure of conflicts must be specific and meaningful: naming the conflict, its nature, and how it could influence the advice; generic boilerplate disclosure does not satisfy the obligation.

The advice document must state the client's relevant personal circumstances, objectives, and needs, the basis of the advice, and why the recommended product or strategy is appropriate; where a product is replaced, the costs and benefits of replacement must be compared.

Consent and authority: an adviser may only act within the scope of the engagement and any client-granted authority; exceeding that scope can constitute unauthorised dealing and a breach of duty.

Record-keeping obligations generally require retaining client files, advice documents, and transaction records for a statutory period (commonly five to seven years depending on jurisdiction); records must be retrievable and legible.

Privacy and data handling: personal financial information may be collected only for disclosed purposes, must be kept secure, and may not be used for unrelated marketing without consent.

Complaints and dispute resolution: internal complaint handling must occur within defined timeframes; unresolved complaints may escalate to an external ombudsman or dispute-resolution scheme whose decisions can bind the licensee.

Licensing perimeter: only authorised persons may provide personal financial advice; general information that does not consider personal circumstances is not personal advice and carries different obligations.

Fee disclosure: all fees, commissions, and third-party benefits must be disclosed in dollar amounts where practicable before the client commits, and ongoing fees must be disclosed at least annually.

The advice process follows a sequence: establish engagement and scope, gather client data, analyse needs and objectives, develop and compare strategies, present and document advice, implement, then review.

Risk profiling must use a validated tool and consider capacity for loss, tolerance, and required return; a client's risk profile is not the same as the risk of a specific product.

Asset allocation drives most of the variability of portfolio returns over time; product selection is a secondary decision that should follow the strategic allocation.

Diversification reduces unsystematic risk but not systematic risk; correlation between assets determines how much diversification benefit is achieved.

Product replacement analysis must compare exit costs, entry costs, lost benefits, tax consequences, and the client's objectives before recommending a switch.

Scenario and stress testing: model outcomes under adverse conditions (e.g., lower returns, higher inflation, longevity) and show the client the range of possible results rather than a single projection.

Implementation must be documented with instructions, timing, and confirmation that the client understood and consented to the recommended actions.

Review triggers include a change in client circumstances, a market or legislative change, or the passage of a scheduled review period; reviews should reconfirm objectives and risk profile.

Ethical decision framework: identify the stakeholders and duties, gather facts, consider alternatives and consequences, consult codes and colleagues, decide, act, and document the reasoning.

Conflicts of interest are managed by avoidance, disclosure, or independent oversight; disclosure alone does not neutralise a conflict that materially biases the advice.

Fiduciary duties include loyalty, care, and candour; the duty of care requires the adviser to exercise the skill and diligence of a reasonably competent professional.

Behavioural biases relevant to clients include overconfidence, loss aversion, anchoring, recency bias, herd behaviour, and mental accounting; advisers should identify them and adjust communication accordingly.

Loss aversion means losses are felt roughly twice as strongly as equivalent gains; this can cause clients to hold losing positions too long or avoid appropriate risk.

Framing effects: presenting the same outcome as a gain or a loss changes client choices; neutral, balanced framing improves decision quality.

Adviser biases also matter: confirmation bias, hindsight bias, and overconfidence can lead to inadequate questioning and premature recommendations.

Suitability under uncertainty: when information is incomplete, the adviser should document assumptions, disclose limitations, and avoid recommending complex products that the client cannot understand.

Risk management process: identify risks, measure frequency and severity, select a treatment (avoid, reduce, retain, transfer), implement, monitor, and review.

Insurable interest requires the policyholder to suffer a financial loss if the insured event occurs; it must exist at inception and, for some classes, at the time of loss.

Indemnity principle: insurance restores the insured to the pre-loss financial position, not better; valued policies and agreed-value clauses are exceptions.

Utmost good faith requires disclosure of all material facts known to the applicant; non-disclosure or misrepresentation can allow the insurer to avoid the contract.

Subrogation allows the insurer, after paying a claim, to pursue recovery from the party responsible; the insured cannot recover twice for the same loss.

Contribution applies when multiple policies cover the same loss; each insurer pays a proportionate share so total recovery does not exceed the loss.

Life insurance differs from general insurance: it is not a contract of indemnity, and the sum insured is paid on the insured event regardless of actual financial loss.

Premium rating depends on expected claims, expenses, profit margin, and risk factors; underwriting classifies applicants by risk to set terms and exclusions.

Compounding: future value = present value × (1 + r)^n; the Rule of 72 estimates doubling time as 72 divided by the annual percentage return.

Real return approximates nominal return minus inflation; use real returns when projecting long-term purchasing power and goal funding.

Taxable income equals assessable income minus allowable deductions; marginal tax rates apply to each bracket, not the whole income at the top rate.

Capital gains: gain = proceeds minus cost base; the cost base includes acquisition costs and incidental costs; holding-period concessions may reduce the taxable gain where the law provides.

Tax-advantaged savings vehicles (e.g., retirement accounts) defer or exempt tax on contributions and earnings subject to caps and access rules; compare after-tax outcomes across vehicles.

Estate planning tools include wills, trusts, beneficiary nominations, and powers of attorney; nominations must comply with the scheme rules to be effective.

Inflation erodes fixed-income purchasing power; index-linked or growth assets may be appropriate for long horizons, subject to the client's risk capacity.

Cash-flow planning: surplus = income minus expenses minus debt servicing; surplus should be allocated to emergency reserves, insurance, debt reduction, and goal funding in a documented priority order.