Financial Planning Skills Certification Grade 1 key terms

A legal obligation to act solely in the client's best interest, placing the client's interests ahead of the adviser's own and disclosing all conflicts of interest.

The requirement that a recommendation be reasonably appropriate for a client's objectives, financial situation, and risk tolerance, a lower bar than acting in the client's best interest.

A client's agreement to a course of action given full disclosure of material facts, costs, and alternatives, made voluntarily by someone with capacity to decide.

A situation where an adviser's personal, financial, or business interest could improperly influence advice given to a client, requiring disclosure and often mitigation.

The obligation to collect and verify information about a client's circumstances, goals, and attitude to risk before giving personal financial advice.

A structured record of a client's personal details, income, assets, liabilities, insurance cover, goals, and preferences that forms the basis of the financial plan.

A client's emotional and financial capacity to accept investment losses or uncertainty, usually assessed through questionnaires and discussion of time horizon and experience.

The objective ability of a household to absorb losses without undermining its goals, driven by income stability, time horizon, liquidity needs, and debt levels.

A financial objective framed to be specific, measurable, achievable, relevant, and time-bound, making progress trackable and the plan testable.

The period over which money is invested before it is needed, which shapes how much short-term volatility an investor can reasonably tolerate.

A snapshot listing total assets minus total liabilities at a point in time, showing the household's current financial position.

A record of income received and expenses paid over a period, used to measure surplus or deficit and to identify spending patterns.

Liquid savings set aside to cover unexpected expenses or income loss, typically three to six months of essential living costs.

The ease and speed with which an asset can be converted to cash at close to its fair value without a significant loss.

Total monthly debt payments divided by gross monthly income, used by lenders and planners to gauge how much borrowing a household can service.

A forward-looking plan that allocates expected income to spending, saving, and debt repayment over a set period, such as a month.

Cover that reimburses the insured for actual losses up to policy limits, rather than paying a fixed sum regardless of loss size.

The maximum amount an insurer will pay under a policy, which should reflect the full replacement or rebuild cost of what is covered.

The amount the insured must pay toward a loss before the insurer contributes, often traded against premium level.

The amount paid, usually periodically, to keep an insurance policy in force, priced according to the risk insured and the cover chosen.

A shortfall where the sum insured is less than the true cost of replacing or rebuilding the insured property, leaving the owner exposed to the gap.

The division of a portfolio among asset classes such as cash, bonds, property, and equities, which largely determines its risk and return profile.

Spreading money across assets, sectors, and regions so that a loss in one holding has a limited effect on the whole portfolio.

A measure from -1 to +1 of how closely two assets' returns move together, used to judge how much diversification a combination provides.

Periodically adjusting holdings back to the target asset allocation after market movements have shifted the portfolio's weights.

A written document setting out a portfolio's objectives, constraints, target allocation, and review rules, guiding decisions and limiting emotional trading.

The process by which investment returns earn further returns over time, so growth accelerates the longer money stays invested.

The shortfall between the income or capital a household is projected to have at retirement and the amount needed to fund its desired lifestyle.

Retirement income expressed as a percentage of pre-retirement income, used to estimate whether a household can maintain its living standard.

A contract or arrangement that converts accumulated capital into a regular income stream, often for life, transferring longevity risk to the provider.

The risk that a person outlives their retirement savings, requiring income planning that accounts for an uncertain lifespan.

The rate of tax applied to the next unit of income, relevant when judging the after-tax value of an extra dollar of earnings or a deduction.

An amount subtracted from taxable income before tax is calculated, reducing tax by the deduction multiplied by the marginal rate.

An amount subtracted directly from the tax payable rather than from taxable income, so it reduces the tax bill by its full value.

A savings or investment vehicle given preferential tax treatment, such as tax-free growth or deductible contributions, in exchange for rules on access.

Tax levied on the profit realized when an asset is sold for more than its cost base, sometimes reduced when the asset has been held long term.

The situation where someone dies without a valid will, so statutory rules rather than the deceased's wishes determine how assets are distributed.

The legal process of validating a will, settling debts and taxes, and authorizing distribution of the estate to beneficiaries.

A legal document stating how a person's assets should be distributed after death and naming guardians or executors where relevant.

A legal authority granting a named person the right to make financial or personal decisions on another's behalf, often triggered by incapacity.

A designation on an account, policy, or pension naming who receives the proceeds on death, which can bypass the will in many jurisdictions.

An integrated written strategy covering cash flow, risk, investment, retirement, tax, and estate matters, with actions, responsibilities, and review dates.