FPWMP flashcards
FPWMP · 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.
- Fiduciary duty
- A legal obligation to act solely in the client's best interest, disclosing and mitigating conflicts of interest and obtaining informed consent before proceeding.
- Engagement letter
- A written agreement defining scope of services, deliverables, fees, compensation method, client responsibilities, and the review schedule before work begins.
- Net cash flow
- Gross income minus taxes, fixed expenses, variable expenses, and debt service; a positive result funds savings and goal contributions.
- Emergency reserve
- Liquid funds covering three to six months of essential expenses, sized upward for variable income, single earners, or high fixed obligations.
- Debt avalanche method
- Repaying balances in order of highest interest rate first, which minimizes total interest paid over the life of the debt.
- Debt service ratio
- Monthly debt payments divided by gross monthly income; lenders often prefer a result below thirty-six percent including housing costs.
- Human life value
- An insurance need estimate equal to the present value of the insured's future earnings after subtracting self-maintenance costs.
- Elimination period
- The waiting time after a disability or illness begins before benefits are payable; longer periods reduce premium but raise self-funded risk.
- Umbrella liability policy
- Excess coverage above auto and homeowners liability limits that activates only after underlying policy limits are exhausted.
- Coinsurance clause
- A property policy provision that reduces recovery when the insured limit falls below a required percentage of replacement cost.
- Sharpe ratio
- Portfolio return minus the risk-free rate, divided by portfolio standard deviation; it measures excess return per unit of total risk.
- Beta
- A measure of a security's sensitivity to market movements; a beta of one point two implies roughly twenty percent more volatility than the market.
- Asset allocation
- The division of a portfolio among asset classes, driven by time horizon, risk capacity, risk tolerance, and liquidity needs.
- Rebalancing
- Restoring portfolio weights to targets using calendar intervals or threshold triggers to control drift and risk exposure.
- Duration
- A bond measure approximating price sensitivity to a one percentage point change in interest rates; higher duration means greater price volatility.
- Sequence-of-returns risk
- The risk that poor investment returns early in retirement permanently impair a portfolio despite acceptable average returns later.
- Sustainable withdrawal rate
- The inflation-adjusted percentage of an initial portfolio that survives a planned horizon at a chosen confidence level.
- Delayed retirement credits
- Increases to Social Security benefits for claiming after full retirement age, raising the monthly amount permanently for the recipient.
- Required minimum distributions
- Mandatory annual withdrawals from tax-deferred retirement accounts after the statutory age; Roth IRAs are exempt during the owner's lifetime.
- Marginal tax rate
- The rate applied to the next dollar of income; it differs from the effective rate, which is total tax divided by total income.
- Wash sale rule
- A rule disallowing a capital loss when a substantially identical security is purchased within thirty days before or after the sale.
- Tax-loss harvesting
- Realizing losses to offset gains and a limited amount of ordinary income, with excess losses carried forward to future years.
- Above-the-line deduction
- An adjustment reducing gross income before the standard or itemized deduction is applied, available whether or not the taxpayer itemizes.
- Portability election
- A timely election allowing a surviving spouse to use the deceased spouse's unused estate and gift tax exclusion amount.
- Annual exclusion gift
- A gift per recipient per year below the reporting threshold that removes assets and future appreciation from the donor's estate.
- Step-up in basis
- The reset of an asset's cost basis to fair market value at death, eliminating capital gains on appreciation during the decedent's life.
- Loss aversion
- The tendency for losses to feel roughly twice as painful as equivalent gains, driving panic selling and risk-averse choices after declines.
- Anchoring bias
- Fixating on an initial reference point such as a purchase price or prior portfolio peak when evaluating current decisions.
- Active listening
- A communication technique using paraphrasing, reflecting emotion, and open-ended questions before offering recommendations to the client.
- Custody of client assets
- Holding client funds or securities, which triggers qualified custodian requirements, surprise examinations, and heightened compliance controls.
- Know-your-client rule
- The obligation to collect and document a client's financial situation, objectives, and risk tolerance before making any recommendation.
- Objectivity principle
- An ethical requirement of intellectual honesty and impartiality, ensuring recommendations are not distorted by compensation or personal interest.