Financial Adviser Exam key terms

A legal obligation requiring an adviser to act in the client's interest ahead of their own when giving personal advice, and to prioritise the client's objectives, situation and needs over conflicts of interest.

A written document given to a retail client that records the personal advice provided, the basis for it, the adviser's fees and any conflicts of interest, in enough detail for the client to make an informed decision.

A required warning that advice has been prepared without considering the client's personal objectives, financial situation or needs, so the client should assess suitability before acting on it.

Advice given to a client where the adviser has considered, or should reasonably have considered, one or more of the client's objectives, financial situation and needs, triggering higher disclosure and conduct duties.

The requirement to gather and record accurate information about a client's goals, financial position, risk tolerance and constraints before recommending any financial product or strategy.

The obligation to identify and clearly tell clients about any commission, incentive, ownership link or other interest that could reasonably be expected to influence the advice given.

A document given to retail clients at an early stage that explains the services the licensee offers, how the adviser is paid, and how complaints and compensation are handled.

A regulated document summarising a financial product's key features, risks, fees and benefits, intended to help a retail client compare and decide whether to acquire the product.

An internal and external dispute resolution pathway that lets clients raise grievances about advice or products and receive a decision within defined timeframes, with access to an independent ombudsman.

The mandatory ongoing training hours an adviser must complete each year to maintain competence, keep technical knowledge current and retain registration or licence status.

A set of enforceable conduct principles, such as trustworthiness, competence, fairness and professionalism, that binds licensed advisers and can be breached independently of technical rules.

A legal and ethical obligation to act solely in another party's interest, avoiding self-dealing and disclosing anything that could compromise undivided loyalty to the client.

A structured evaluation of how much investment volatility a client can emotionally and financially withstand, used to match recommendations to the client's capacity and willingness to bear risk.

The objective ability of a client to absorb financial loss, based on income stability, time horizon, liquidity needs and net worth, as distinct from their emotional willingness to take risk.

The length of time an investment or plan must run before the money is needed, which strongly shapes how much short-term volatility can prudently be accepted.

The division of a portfolio among asset classes such as cash, bonds, property and equities, which is the primary driver of a portfolio's long-term return and volatility.

Spreading investments across assets, issuers, sectors and regions so that any single loss has a limited effect on the total portfolio's value.

The danger of holding too much wealth in one asset, employer, property or sector, so that a single adverse event could seriously damage the client's overall financial position.

Periodically buying and selling within a portfolio to restore the intended asset allocation after market movements have shifted the weights away from target.

The process by which investment returns are reinvested and themselves generate further returns, causing wealth to grow at an accelerating rate over long periods.

The current worth of a future sum or stream of payments after discounting at an assumed rate of return, used to compare options that pay out at different times.

The value of the best alternative forgone when a choice is made, such as the returns lost by holding cash instead of investing or by repaying debt early.

A systematic, predictable pattern of thinking that leads investors away from rational decisions, such as overconfidence, anchoring or loss aversion, and which advice should account for.

The tendency for people to feel the pain of a loss roughly twice as strongly as the pleasure of an equivalent gain, causing them to hold losing positions too long or avoid sensible risk.

The tendency to seek, notice and remember information that supports existing beliefs while discounting contrary evidence, which can distort a client's view of a product's merits.

Relying too heavily on an initial reference figure, such as a purchase price or past market high, when judging subsequent values or making decisions.

An inflated belief in one's own judgement or forecasting skill, often leading to excessive trading, inadequate diversification or underestimated risk.

The inclination to sell winning investments too early while clinging to losers, typically driven by a desire to realise gains and avoid acknowledging losses.

The process by which an insurer assesses the risk a proposed insured presents, using health, occupation and history information to decide whether to accept, exclude or price the cover.

The insured's obligation to reveal all facts a prudent insurer would consider relevant to accepting or pricing the risk, with failure potentially allowing the insurer to reduce or refuse a claim.

The mutual duty on insurer and insured to deal honestly and openly, disclosing material facts and avoiding misleading conduct throughout the formation and life of the contract.

The principle that insurance restores the insured to approximately the financial position held before a loss, without allowing profit from the event, subject to policy limits and excesses.

The maximum amount an insurer will pay under a policy for a covered event, which should reflect replacement or liability exposure and be reviewed as values change.

The first portion of any covered loss that the insured must bear personally before the insurer pays, often traded off against a lower or higher premium.

The increased likelihood of loss or claim because insurance reduces the insured's incentive to take care, which insurers counter through excesses, exclusions and claims scrutiny.

The tendency for higher-risk individuals to seek or retain insurance more readily than lower-risk ones, which can push premiums up and destabilise a risk pool.

An additional charge added to a standard insurance premium to reflect above-average risk, such as a health condition, hazardous occupation or claims history.

The rate of tax applied to the next unit of income earned, which determines the true after-tax value of a deduction, salary sacrifice or additional investment return.

Tax levied on the profit realised when a capital asset is sold, usually calculated as proceeds less cost base, with concessions available where assets are held beyond a minimum period.

Borrowing to buy an income-producing asset whose net income is less than the interest cost, so the shortfall may be offset against other taxable income.

A legal arrangement such as a trust, company or superannuation fund chosen to hold assets so that income and gains are taxed at lower rates or in better hands.

Arranging how a person's wealth will be transferred on death or incapacity, using wills, beneficiary nominations, trusts and powers of attorney to match their intentions efficiently.

Readily accessible cash set aside to cover several months of essential expenses, protecting long-term investments from forced sale during job loss or unexpected costs.

The ease and speed with which an asset can be converted to cash without a significant loss of value, a key constraint when matching investments to short-term needs.