CFP Certification (Australia) key terms

A statutory obligation requiring a financial adviser to act in the client's best interests when providing personal advice to a retail client, prioritising the client's interests over the adviser's own.

Advice given to a client where the adviser has considered, or should reasonably have considered, one or more of the client's personal objectives, financial situation or needs.

Financial product advice that has not considered the client's personal circumstances; a warning must be given that the advice does not take into account the client's objectives, financial situation or needs.

A document an adviser must give a retail client when providing personal advice, disclosing the advice, its basis, fees, associations and conflicts that could influence the advice.

A shorter document permitted instead of a full Statement of Advice when further personal advice is given to an existing client, capturing the additional advice and any changed circumstances.

A document a financial services licensee or representative must give to retail clients, explaining services offered, remuneration, associations, complaints handling and how to access dispute resolution.

A disclosure document for a financial product issued to retail clients, summarising features, benefits, risks, fees and costs so the client can compare and make an informed decision.

Situations where an adviser's or licensee's own interests, or duties to another party, could compromise the objectivity of advice; they must be identified, prioritised and disclosed.

The requirement that advice be fit for the scope agreed with the client, so that a limited or scaled engagement still addresses the specific personal circumstances relevant to that scope.

The agreed boundaries of an engagement, specifying which areas of the client's affairs are covered and which are excluded, and forming the basis for assessing whether advice is appropriate.

A record of a client's income and expenditure over a period, used to identify surplus or deficit, savings capacity and patterns that affect the ability to fund goals.

A snapshot listing a client's assets and liabilities at a point in time, with the difference showing net worth and informing capacity to take risk or borrow.

Readily accessible savings set aside to cover unexpected expenses or income loss, typically several months of essential spending, protecting longer-term investments from forced sale.

A client's financial ability to withstand investment losses without jeopardising goals, determined by factors such as income stability, time horizon, debt and liquidity.

A client's emotional and psychological willingness to accept investment volatility and potential loss, distinct from their financial capacity to bear that risk.

The period over which funds are invested before they are needed, influencing the appropriate level of risk and the mix of growth and defensive assets.

The division of a portfolio among asset classes such as cash, fixed interest, property and equities, which largely drives expected return and volatility.

Spreading investments across assets, sectors and markets so that poor performance in one holding has limited impact on the overall portfolio's value.

A statistical measure from -1 to +1 of how closely two investments move together; lower correlation between holdings improves the risk-reducing benefit of diversification.

A measure of the dispersion of returns around their average, commonly used as a gauge of an investment's volatility and total risk.

Borrowing to invest, which magnifies both gains and losses; the interest cost and the deductibility of that interest depend on the purpose of the borrowing.

A situation where the interest and costs of a borrowed investment exceed the income it produces, creating a deductible loss that may reduce the investor's taxable income.

A demand from a lender for additional cash or collateral when a geared portfolio's loan-to-value ratio breaches an agreed limit, failing which positions may be sold.

The ease and speed with which an asset can be converted to cash without significant loss of value; low liquidity can constrain access to funds when needed.

Tax on the profit realised when a capital asset is sold; for individuals, assets held beyond twelve months may qualify for a discount on the taxable gain.

The amount used to calculate a capital gain or loss, comprising the acquisition cost plus incidental costs and certain adjustments, reduced by amounts recovered.

The rate applying to the next dollar of taxable income, used to assess the after-tax value of deductions, salary sacrifice and investment income.

An arrangement where an employee forgoes part of their salary in return for employer contributions or benefits, often reducing tax where the benefit is taxed concessionally.

Superannuation contributions taxed at a concessional rate within the fund, including employer contributions and salary sacrifice, subject to an annual cap.

Superannuation contributions made from after-tax money, not taxed on entry to the fund, subject to an annual cap and the member's total superannuation balance.

The minimum age at which a member may access preserved superannuation benefits, provided a condition of release such as retirement is also met.

A specified event, such as retirement, permanent incapacity or reaching a certain age, that must be satisfied before preserved superannuation benefits can be accessed.

A lifetime limit on the total amount that can be transferred into the retirement phase of superannuation, where earnings are exempt from tax.

Insurance paying a lump sum where the insured is unlikely ever to work again in a capacity for which they are suited by education, training or experience.

Insurance replacing a proportion of income during a period of incapacity, subject to waiting and benefit periods, and generally tax-deductible for the policyholder.

Insurance paying a lump sum on diagnosis of a specified medical condition such as cancer or stroke, providing funds for treatment and lifestyle adjustment.

The time between an insured event occurring and benefits becoming payable, common in income protection policies and affecting the premium charged.

The insurer's assessment of the risk a person presents, using health, occupation and lifestyle information to set terms, exclusions or premiums.

The insured's obligation to disclose information relevant to the insurer's decision to accept the risk, breach of which may allow the insurer to reduce or refuse a claim.