CFP Certification (Australia) flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Best interests duty
- An obligation on financial advisers to act in the client's best interests and provide advice appropriate to the client's objectives, financial situation, and needs.
- Statement of Advice
- A document given to a retail client that sets out the advice, the basis for it, and any conflicts or remuneration that could influence the advice.
- Financial Services Guide
- A document that explains the services offered by a financial services licensee, how they are paid, and how complaints are handled.
- Transfer balance cap
- A lifetime limit on the amount that can be transferred into the tax-free retirement phase of superannuation; indexation is based on CPI.
- Concessional contributions
- Superannuation contributions made from before-tax income, such as employer contributions and salary sacrifice, taxed at 15% in the fund.
- Non-concessional contributions
- Superannuation contributions made from after-tax money; they are subject to annual caps and the bring-forward rule.
- Division 293 tax
- An additional 15% tax on concessional superannuation contributions for individuals whose income exceeds the relevant threshold.
- Binding death benefit nomination
- A direction to the superannuation trustee about who receives the death benefit; it may be lapsing or non-lapsing depending on fund rules.
- Testamentary trust
- A trust established in a will that can provide asset protection and income-splitting benefits for beneficiaries, including minors.
- Intestacy
- The distribution of a deceased estate according to statutory rules when there is no valid will, which may not match the client's wishes.
- Enduring guardian
- A person appointed to make personal, health, and lifestyle decisions for someone who loses decision-making capacity.
- Power of attorney
- A legal document authorising a person to make financial decisions on behalf of another, often enduring through loss of capacity.
- Income protection insurance
- Cover that replaces part of a person's income during disability, typically up to 70–75% of pre-disability income, with waiting and benefit periods.
- Total and permanent disability
- Insurance that pays a lump sum when the insured meets the policy definition of permanent disability; own-occupation definitions are stricter.
- Trauma insurance
- Cover that pays a lump sum on diagnosis of a defined critical illness, separate from TPD and income protection cover.
- Duty of disclosure
- The obligation on an insurance applicant to disclose all relevant information to the insurer; non-disclosure can void the policy.
- Stepped premiums
- Insurance premiums that increase with age, starting lower but rising over time, compared with level premiums that are higher initially.
- Negative gearing
- A situation where investment interest and costs exceed investment income; the loss may be offset against other assessable income.
- Capital gains tax discount
- A 50% discount on capital gains for individuals and trusts on assets held over 12 months, reducing the taxable gain.
- Franking credits
- Credits attached to company dividends representing tax already paid, which can reduce personal tax and may be refundable.
- Division 7A
- Tax rules that can treat certain payments, loans, or forgiven debts from a private company to shareholders as dividends.
- Asset allocation
- The mix of asset classes in a portfolio, which is a primary driver of long-term return and risk.
- Diversification
- Spreading investments across assets and asset classes to reduce unsystematic risk; systematic market risk cannot be eliminated.
- Risk capacity
- A client's financial ability to withstand investment losses, distinct from risk tolerance, which is their attitude to risk.
- Efficient frontier
- A set of portfolios that offer the maximum expected return for each level of risk under modern portfolio theory.
- Dollar-cost averaging
- Investing a fixed amount at regular intervals, which smooths the entry price but does not guarantee a better outcome than lump-sum investing.
- Loan-to-value ratio
- The ratio of a loan to the value of the asset securing it; higher LVRs can increase interest rates and require lender's mortgage insurance.
- Debt recycling
- Using surplus cash flow to pay down non-deductible debt while borrowing to invest, converting non-deductible debt into deductible debt over time.
- Offset account
- A transaction account linked to a loan that reduces the interest payable by offsetting the balance against the loan principal.
- Deeming
- A Centrelink method of assessing income from financial assets at set lower and higher rates, regardless of actual returns.
- Age pension assets test
- A test of assessable assets, including the family home above the exempt threshold, which can reduce or eliminate pension entitlement.
- Loss aversion
- A behavioural bias where losses are felt more strongly than equivalent gains, leading to risk-averse or risk-seeking behaviour depending on framing.