CISI PCIAM flashcards
CISI PCIAM · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Capacity for loss
- The client's financial ability to absorb a fall in portfolio value without derailing their goals, distinct from their attitudinal willingness to take risk.
- Risk tolerance
- A client's psychological willingness to accept investment volatility and potential loss, usually stable over time and assessed through structured discussion and questionnaires.
- Diversification
- Spreading capital across assets with imperfect correlation so that unsystematic risk is reduced without proportionally reducing expected return.
- Systematic risk
- Market-wide risk that cannot be diversified away, affecting all securities, and which investors expect to be compensated for through the equity risk premium.
- Correlation coefficient
- A measure from minus one to plus one of how two assets move together; lower or negative values increase the diversification benefit in a portfolio.
- Rebalancing
- Periodically buying and selling to restore target asset weights, controlling drift in the portfolio's risk profile and enforcing disciplined trading.
- Investment policy statement
- A written document recording the client's objectives, constraints, permitted asset classes, benchmark, rebalancing bands, and review frequency.
- Concentration risk
- The danger of holding too much capital in one security or sector, so a single adverse event can materially damage the client's overall financial position.
- Vulnerable client
- A client whose circumstances, such as bereavement, cognitive decline, or third-party coercion, increase the risk of detriment and require enhanced care and documentation.
- Personal recommendation
- Advice to a specific client recommending a specific transaction or course of action, which triggers suitability obligations under regulation.
- Sharpe ratio
- A risk-adjusted return measure calculated as portfolio return minus the risk-free rate, divided by the portfolio's standard deviation of returns.
- Modified duration
- A bond sensitivity measure estimating the percentage change in price for a one percentage point change in yield, derived from Macaulay duration.
- Running yield
- The annual coupon income divided by the bond's current market price, expressing income return at today's price rather than at par.
- Gross redemption yield
- The total annual return from a bond held to maturity, combining coupon income and the gain or loss from price moving to par.
- Dividend cover
- Earnings per share divided by dividend per share, showing how many times profit covers the dividend; low cover signals cut risk.
- Price/earnings ratio
- Share price divided by earnings per share, indicating how much investors pay per unit of earnings and reflecting expected growth.
- Active management
- Managing a portfolio to beat a benchmark through security selection and allocation, which must add value net of fees to benefit the client.
- Dollar-cost averaging
- Investing a fixed sum at regular intervals so more units are bought when prices are low; it spreads timing risk but does not remove market risk.
- Strategic asset allocation
- The long-term target mix of asset classes set to meet the client's objectives and risk profile, forming the portfolio's core structure.
- Tactical asset allocation
- Short-term deviations from strategic weights to exploit market views, permitted only within limits set out in the investment mandate.
- Time-weighted return
- A performance measure that removes the effect of client cash-flow timing, allowing fair comparison of manager skill against a benchmark.
- Money-weighted return
- An internal rate of return reflecting the actual timing and size of client contributions and withdrawals, showing the client's real experience.
- Performance attribution
- Analysis splitting portfolio return versus benchmark into an allocation effect from asset-class weights and a selection effect from security choices.
- Tracking error
- The standard deviation of the difference between portfolio and benchmark returns, measuring how closely a fund follows its index.
- Currency risk
- The risk that exchange-rate movements alter the value of overseas holdings; hedging reduces it but introduces cost and basis risk.
- Liquidity risk
- The risk of being unable to sell an asset quickly at a fair price, forcing sales at a discount or preventing timely withdrawals.
- Tax-loss harvesting
- Realising losses on investments to offset taxable gains elsewhere, within the rules and time limits set by the tax authority.
- Suitability
- The regulatory requirement that a recommendation matches the client's knowledge, experience, financial situation, objectives, and risk tolerance, with records evidencing it.
- Know your customer
- The process of collecting and keeping current a client's identity, financial circumstances, objectives, risk tolerance, and capacity for loss before advising.
- Consumer Duty
- A regulatory standard requiring firms to deliver good outcomes for retail customers across products, price and value, understanding, and support.
- Annual allowance
- The cap on tax-relieved pension contributions in a tax year, reduced for high earners through tapering and restricted after flexible access.
- Nil-rate band
- The threshold of an estate chargeable to inheritance tax at zero per cent, with any excess generally taxed at the standard rate.