HKIB ECF-RWM Core flashcards

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

Suitability assessment

The documented comparison of a recommended product's risk, horizon and features against the client's profile, ensuring the recommendation fits objectives, financial situation and tolerance.

Risk tolerance vs risk capacity

Tolerance is the client's willingness to accept volatility; capacity is the financial ability to absorb loss. The binding constraint is the lower of the two.

Know-your-client (KYC)

The process of collecting and verifying a client's identity, financial situation, investment experience, objectives and risk attitude as the basis for any recommendation.

Investment policy statement

A written document setting the client's objectives, target asset allocation, risk limits, liquidity needs and review schedule, used to govern and evaluate portfolio decisions.

Asset allocation

The division of a portfolio among asset classes such as cash, bonds, equities and alternatives; it is the primary driver of portfolio risk and return variability.

Diversification

Spreading exposure across assets, issuers, sectors and geographies so that no single adverse event dominates portfolio outcomes; it reduces unsystematic but not market risk.

Concentration risk

The risk of excessive exposure to a single product, issuer, sector or currency; it is typically flagged against a documented percentage of investable assets.

Rebalancing

Periodically returning a portfolio to its target weights after market moves; it can be calendar-based or threshold-based and enforces a disciplined buy-low, sell-high behaviour.

Emergency fund

Liquid cash reserves covering a defined number of months of expenses, held outside invested assets so that long-term holdings need not be sold at a loss.

Investment horizon

The expected time before the client needs to access the invested capital; it constrains how much short-term volatility the portfolio can reasonably absorb.

Complex product

A product whose terms, risks or payoff structure are difficult for a retail client to understand, typically triggering enhanced suitability, knowledge testing and disclosure requirements.

Derivative product

A contract whose value derives from an underlying asset, rate or index; leverage means losses can exceed the amount intuitively expected from the underlying's move.

Accumulator structure

A derivative that buys the underlying at a discount while the price stays in range but obliges the client to buy more at a higher strike if the price falls below the knock-in.

Structured deposit

A deposit whose return is linked to an underlying market variable; principal protection depends on the issuer, and the client forgoes ordinary interest for a contingent payout.

Bond credit spread

The yield premium a bond offers over a comparable risk-free rate, compensating investors for default risk, liquidity and other issuer-specific factors.

Interest rate risk

The sensitivity of a bond or fixed-income portfolio's price to changes in market yields; longer duration and lower coupons mean greater price sensitivity.

Duration

A measure of a bond's price sensitivity to yield changes; a duration of 5 implies roughly a 5% price move for a 1% parallel shift in yields.

Credit rating

An agency's opinion of an issuer's ability to meet obligations; downgrades can force sales by mandate-constrained funds and widen spreads.

Liquidity risk

The risk of being unable to sell an asset quickly at a fair price, or of facing lock-up and notice periods that conflict with the client's cash needs.

Currency risk

The risk that exchange-rate moves reduce the home-currency value of foreign-currency assets; unhedged foreign holdings add a return source unrelated to the asset itself.

Fund fact sheet

A summary disclosing a fund's objective, holdings, performance, fees and risk metrics; it supports product due diligence but is not a substitute for the full offering document.

Ongoing charge figure

An annual percentage showing the fund's recurring costs, including management fee and operating expenses, deducted from fund assets rather than billed separately.

Sales charge

A front-end or back-end fee charged when units are bought or redeemed; it reduces the effective return and must be disclosed before the transaction.

Conflict of interest

A situation where firm or adviser remuneration, incentives or affiliations could bias a recommendation; it must be identified, disclosed and managed.

Transaction record

Documentation of the client's instructions, the suitability rationale and disclosures made, forming the audit trail used to resolve later complaints or disputes.

Periodic review

A scheduled reassessment of the client's profile and portfolio; trigger events such as job change, inheritance or retirement require an earlier review.

Capital preservation objective

An objective prioritising low volatility and return of principal over growth, typically implemented with short-duration bonds, deposits and limited equity exposure.

Growth objective

An objective prioritising long-term capital appreciation, accepting higher volatility and a larger equity or alternative allocation in exchange for higher expected return.

Income objective

An objective prioritising regular cash flow, typically served by dividend equities, coupon bonds and income funds rather than low-yielding growth assets.

Monte Carlo projection

A simulation generating many random market paths to estimate the probability that a plan meets its goal, expressed as a success rate rather than a single forecast.

Dollar-cost averaging

Investing a fixed amount at regular intervals so that more units are bought when prices are low; it smooths entry price but does not remove market risk.

Behavioural bias in advice

Systematic client tendencies such as loss aversion or recency bias that distort decisions; identifying them lets the adviser structure guidance and communication to counter them.

Vulnerable client

A client whose age, health, capacity or circumstances raise the risk of harm from a transaction, requiring enhanced care, documentation and sometimes escalation.