CFP Hong Kong flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Emergency fund multiple

Hold 3–6 months of essential expenses; extend to 6–12 months for single-income households, commission-based earners, or self-employed clients with irregular cash flow.

Capital retention method

Life insurance need equals income replacement plus debts, education and final expenses, minus existing liquid assets and existing cover. It preserves capital rather than spending it down.

Human life value

Present value of the insured's future net earnings (gross income less self-maintenance and taxes) discounted to retirement age. It measures economic value lost on premature death.

MPF offsetting rule

Employer mandatory and voluntary MPF contributions may offset severance or long service payment; the employee's own contributions may not be used to offset statutory entitlements.

Utmost good faith

The applicant must disclose all material facts. Non-disclosure or misrepresentation lets the insurer avoid the contract, typically within a contestability period of about two years.

Co-insurance

A fixed proportion of each loss is borne by the insured, while the insurer pays the remainder. It reduces moral hazard and premium but increases retained loss.

Real return formula

Real return ≈ (1 + nominal return) / (1 + inflation) − 1. It converts nominal returns into purchasing-power terms and is essential for long-horizon retirement projections.

Sharpe ratio

Sharpe ratio = (portfolio return − risk-free rate) / standard deviation of portfolio return. It measures excess return per unit of total risk for a fully diversified portfolio.

CAPM expected return

E(Ri) = Rf + beta × (E(Rm) − Rf). Beta captures systematic risk only; unsystematic risk can be diversified away and earns no risk premium.

Modified duration

Modified duration = Macaulay duration / (1 + yield/m). It approximates the percentage price change for a 1% change in yield, with convexity correcting the estimate.

Efficient frontier

The set of portfolios offering the highest expected return for each risk level. Adding assets with low correlation shifts the frontier upward and to the left.

Strategic asset allocation

Long-term policy weights across asset classes based on objectives, risk tolerance and time horizon. It explains most of a portfolio's return variability over time.

Professional investor threshold

Under Hong Kong SFC rules, an individual with a portfolio of at least HK$8 million may be treated as a professional investor, allowing access to unauthorised funds.

MPF contribution caps

Employee and employer each contribute 5% of relevant income. Minimum relevant income is HK$7,100 and maximum is HK$30,000 per month, capping each side at HK$1,500.

MPF preservation

Accrued MPF benefits must be preserved until age 65. Early withdrawal is permitted only on permanent departure, total incapacity, terminal illness, or death.

Voluntary MPF contributions

Tax-deductible voluntary contributions (TVC) to MPF attract a deduction up to HK$60,000 per year, separate from the HK$18,000 mandatory contribution deduction.

Retirement replacement ratio

Retirement income divided by pre-retirement income. A common planning target is 70–80% for middle-income retirees to maintain their standard of living.

Annuity factor

Ordinary annuity factor = [1 − (1 + r)^−n] / r. Multiply by the annual spending gap to estimate the capital needed at retirement.

Longevity risk

The risk of outliving assets. Planning only to average life expectancy leaves roughly a 50% chance of shortfall, so plan to age 90–95 or annuitise the tail.

ORSO scheme vesting

Occupational Retirement Schemes Ordinance benefits vest after 10 years of service. MPF-exempt ORSO schemes must meet minimum benefit standards.

Salaries tax rates

Progressive rates of 2%, 6%, 10%, 14% and 17% apply to net chargeable income, with a standard rate of 15% on net total income; tax is the lower of the two.

Basic allowance

A deduction of HK$132,000 from total income for a single person; the married person's allowance is HK$264,000. These reduce net chargeable income before tax rates apply.

Home loan interest deduction

Deduction of up to HK$100,000 per year for 20 years of assessment on interest for a home occupied as the taxpayer's principal residence.

Two-tiered profits tax

Profits tax is 8.25% on the first HK$2 million of assessable profits and 16.5% thereafter. Only one connected entity may elect the two-tiered rates.

Territorial tax principle

Hong Kong taxes profits, salaries and property arising in or derived from Hong Kong. Offshore profits may be non-taxable but must be substantiated.

Charitable donation deduction

Donations to approved charities are deductible up to 35% of adjusted assessable income, with a minimum aggregate of HK$100 per year of assessment.

Abolition of estate duty

Hong Kong abolished estate duty in 2006. Planning now focuses on probate efficiency, asset protection, and mainland or foreign situs assets.

Will execution requirements

A will must be in writing, signed by the testator, and witnessed by two witnesses present at the same time. A beneficiary cannot act as a witness.

Intestacy distribution

Without a will, statute governs distribution. A surviving spouse with children receives personal chattels plus a statutory legacy, with the residue split between spouse and children.

Discretionary trust

A trust separating legal and beneficial ownership where trustees decide distributions among beneficiaries. It avoids probate and allows flexible wealth transfer.

Enduring power of attorney

A legal document appointing an attorney to manage property and financial affairs if the donor loses mental capacity. It must be registered before use.

Six-step planning process

Establish the relationship, gather client data, analyse the situation, develop recommendations, implement the plan, and monitor and review it periodically.

Fiduciary duty

Act in the client's best interest, disclose all conflicts of interest, and avoid self-dealing. Suitability must be assessed before any recommendation is made.