CFP UK (CISI) key terms

A snapshot listing a client's assets, liabilities and therefore net worth on a given date. It is the starting point of a financial plan because it shows what resources exist before any recommendations are made.

A record of money coming in and going out over a period, usually a year, separating income from expenditure. Surplus or deficit revealed here determines how much a client can save, invest or use to repay debt.

Readily accessible money set aside to cover unexpected costs or loss of income. Planners typically recommend three to six months of essential expenditure, held in cash or near-cash so it is available without selling investments at a loss.

A client's emotional and psychological response to the possibility of losing money. It is captured through discussion and questionnaires and shapes how volatile an investment strategy the client can tolerate without abandoning it.

The financial ability of a client to absorb losses or shortfalls without damaging their standard of living or goals. It depends on income stability, time horizon, assets and liabilities, and may be lower or higher than the client's attitude to risk.

The period over which money is invested before it is needed. Longer horizons generally allow more exposure to growth assets because there is more time to recover from market falls before withdrawal.

The process of gathering and recording information about a client's circumstances, goals, finances, knowledge, experience and risk preferences before advice is given. It underpins suitability and is a regulatory obligation, not merely good practice.

The requirement that a personal recommendation matches the client's objectives, circumstances, knowledge, experience, financial position and tolerance for loss. Advice that cannot be justified against the recorded client information is unsuitable.

A client whose circumstances, such as poor health, bereavement, low financial capability or economic stress, make them especially susceptible to detriment. Firms must adapt processes and communications so such clients are treated fairly and understood.

A UK regulatory framework requiring firms to deliver good outcomes for retail customers across products, price and value, consumer understanding and consumer support. It sets an outcomes-based standard rather than a checklist of rules.

Situations where a firm's or adviser's own interests, or those of another client, could compromise the advice or service given. They must be identified, avoided where possible, or disclosed and managed so the client is not disadvantaged.

An adviser status where recommendations are based on a comprehensive and unbiased review of relevant products available in the market, free of ties to providers. It contrasts with restricted advice, which covers only certain products or providers.

The explicit fee a client agrees to pay for advice, commonly a percentage of assets, a fixed sum or an hourly rate. Since the retail distribution review, adviser remuneration for retail investment advice must not be funded by product commission.

The way a portfolio is divided among asset classes such as cash, bonds, property and equities. It is the main driver of both long-term return and short-term volatility and should follow from the client's objectives and risk profile.

Spreading money across investments, sectors, issuers and regions so that no single loss dominates the portfolio. It reduces specific risk but cannot remove market-wide systematic risk that affects all assets together.

Risk that affects the whole market or economy, such as interest rate shifts, recession or political events, and cannot be diversified away. Investors are compensated for bearing it through expected return; specific risk can be reduced by holding more holdings.

Risk attached to one company, issuer or sector, such as poor management, fraud or a product failure. Because it can be largely eliminated by diversification, markets generally offer no extra expected return for bearing it.

The degree to which an investment's value fluctuates over time, often measured by the standard deviation of returns. Higher volatility means a wider range of possible outcomes and greater chance of a large short-term loss.

The income an investment produces, expressed as a percentage of its price or nominal value. For bonds it reflects the coupon relative to price; for shares it is dividend per share divided by share price.

The combined result of income received plus capital growth or loss over a period, usually expressed as a percentage. It gives a fuller picture than yield alone because it captures changes in market value.

A measure of a bond's sensitivity to interest rate changes, expressed in years. A longer duration means the price falls more when yields rise, so duration helps planners match fixed-interest holdings to spending needs.

The risk that changes in interest rates reduce the value of an investment or the income it produces. It particularly affects fixed-interest securities and long-dated cash flows, whose present values move inversely with rates.

The danger that returns fail to keep pace with rising prices, eroding purchasing power. It hits cash deposits hardest over long periods and makes real, rather than nominal, returns the meaningful measure of investment success.

Investment return after allowing for inflation, roughly the nominal return minus the inflation rate. It shows whether purchasing power has actually grown and is the figure that matters for long-term goal funding.

The risk that an asset cannot be sold quickly at a fair price when cash is needed. It is high for property, unquoted shares and some funds with exit restrictions, and low for cash and large-company equities.

A documented summary combining a client's attitude to risk, capacity for loss and time horizon into a target risk level. It guides portfolio selection and provides an audit trail showing why a strategy was recommended.

A UK collective investment vehicle whose shares can be created and cancelled, so its price reflects net asset value. It offers diversification and professional management within a regulated structure, often used in ISAs and pensions.

The value of a fund's assets minus its liabilities, divided by the number of units or shares in issue. It is the basis for pricing units in open-ended funds and is usually calculated daily.

A UK tax-advantaged wrapper in which interest, dividends and capital gains are free of UK tax, subject to an annual subscription limit. Cash, stocks and shares, and innovative finance versions exist, and the allowance can be split between them.

A legal structure that changes the tax treatment of the investments held inside it, such as an ISA or a registered pension. Choosing the right wrapper can be as important as choosing the underlying investments.

A workplace pension promising a retirement income based on salary and service, with the employer bearing investment and longevity risk. The member's benefit is largely independent of how markets perform.

A workplace pension where contributions are invested and the eventual fund depends on contributions and investment performance. The member, not the employer, carries investment risk and usually decides how to take benefits.

UK rules allowing most people aged 55 or over to access defined contribution pension savings flexibly, including income drawdown and lump sums. Tax is charged at the individual's marginal rate on withdrawals beyond the tax-free portion.

A retirement option where the pension fund remains invested and the client withdraws income directly from it. It offers flexibility and control but leaves the fund exposed to investment risk and possible depletion in later life.

A contract that converts pension capital into a guaranteed income, often for life, in exchange for a lump sum. It transfers investment and longevity risk to the insurer but is usually irreversible once purchased.

The risk that a person lives longer than expected and so outlives their retirement savings. It argues for guaranteed income, cautious withdrawal rates or products that pool this risk across many people.

The boost given to pension contributions through tax, typically at the contributor's marginal rate, subject to annual and lifetime limits. It makes pensions efficient for retirement saving but relief can be clawed back for high earners.

The maximum pension contribution that can receive tax relief in a tax year, reduced for high earners and subject to carry-forward of unused amounts. Exceeding it triggers a tax charge on the excess.

A reduced annual allowance applying once someone has flexibly accessed defined contribution pension savings. It limits further tax-relieved contributions and is a key trap to check before recommending pension withdrawals.

The UK government pension based on national insurance contribution records, paid from state pension age. It provides a foundation income in retirement and is used to calculate the level of additional savings needed.

The amount a life insurance or protection policy pays if the insured event occurs. It should be set by reference to needs such as debts, lost income and dependants' expenses rather than chosen arbitrarily.

The insurer's assessment of the risk a proposed policyholder presents, using health, lifestyle, occupation and family history. It determines whether cover is offered, on what terms and at what premium.

Failing to reveal material facts when applying for insurance, which can let the insurer reduce a claim or void the policy. Clients must be warned to answer questions fully, accurately and honestly.

A life policy paying a fixed sum if death occurs within a set term, with premiums usually fixed. It is commonly used to protect repayment mortgages and family income needs for a defined period.

A life policy whose payout falls over the term, typically tracking a repayment mortgage balance, while premiums stay level. It is cheaper than level cover for the same starting sum but leaves no fixed payout later.

Insurance replacing part of earned income if illness or injury prevents work, usually paying until recovery, retirement or the policy ends. It typically covers a proportion of income after a deferred period and is taxed as earned income.

Insurance paying a lump sum if the insured is diagnosed with a specified condition meeting the policy definition. It addresses the financial impact of serious illness but does not replace income like income protection does.

The waiting time after a claim before income protection payments begin, often linked to an employer's sick pay. A longer deferred period lowers the premium but requires other funds to bridge the gap.

A legal arrangement where assets are held by trustees for beneficiaries, often used with life policies to keep proceeds outside the estate. It can speed payment to dependants and reduce inheritance tax exposure.

A UK tax charged on the value of an estate above the nil-rate band, with reliefs for spouses and certain business or agricultural assets. Careful gifting, trusts and will planning can reduce the liability.

Remuneration paid by a product provider to a distributor from the charges on a product. For retail investment advice it is no longer permitted, though it still exists in some protection and mortgage markets with disclosure.

A simple measure such as savings as a percentage of income or debt repayments relative to income, used to judge financial health. It highlights whether a client is living within means and building reserves.

The output of assessing attitude to risk, capacity for loss and horizon, used to place a client on a risk scale. It links the client to a suitable asset allocation and evidences the basis of advice.