RFP Module 3 key terms

A professional designation for practitioners who advise clients on personal financial planning, awarded after completing a structured curriculum and examination covering financial planning principles, insurance, investments, tax, retirement, and estate topics.

A systematic sequence of steps in which the planner establishes the client relationship, gathers data, analyzes the client's position, develops and presents recommendations, implements the plan, and monitors progress over time.

The legal and ethical obligation to act in the client's best interest ahead of the planner's own, requiring loyalty, disclosure of conflicts, and prudent, informed decision-making on the client's behalf.

The standard requiring that a recommendation fit the client's objectives, time horizon, risk tolerance, and financial circumstances, judged from the client's perspective rather than the planner's preference.

A written agreement that defines the scope of advice, the services to be delivered, fees and payment terms, responsibilities of each party, and the limits of the planner's engagement.

Situations where a planner's personal interest, compensation arrangement, or outside relationship could bias advice, requiring disclosure and management so the client's interest remains paramount.

A structured assessment of a client's willingness and ability to bear investment risk, combining psychological tolerance with financial capacity, time horizon, and liquidity needs.

The expected period over which funds are invested before they are needed, which governs the acceptable level of volatility and the mix of growth versus defensive assets.

The division of a portfolio among asset classes such as equities, bonds, property, and cash, which is the primary driver of long-term return and portfolio volatility.

Spreading investments across assets, sectors, and regions so that no single loss dominates portfolio outcomes, reducing unsystematic risk without necessarily sacrificing expected return.

Market-wide risk that affects all securities and cannot be eliminated through diversification, such as changes in interest rates, inflation, or broad economic conditions.

A measure of how sensitive a security or portfolio is to movements in the overall market, where a value above one indicates greater volatility than the market and below one indicates less.

A statistical measure of the dispersion of returns around their average, commonly used as a simple gauge of an investment's total volatility and risk.

The principle that higher expected returns generally require accepting greater uncertainty, so investors must be compensated for bearing additional risk over the long run.

The ease and speed with which an asset can be converted to cash at a fair price, and the capacity of a household to meet obligations without forced sales.

A reserve of readily accessible cash, typically several months of living expenses, held to cover unexpected events without disrupting long-term investments or incurring debt.

A personal financial statement that records income and expenditure over a period, revealing surplus or deficit and the capacity to save, invest, or service debt.

A snapshot listing a client's assets and liabilities at a point in time, with the difference showing net worth and indicating progress toward financial goals.

Pure protection cover that pays a benefit if the insured dies within a specified period, with no cash value, offering the highest death benefit for a given premium.

Permanent cover with a level premium, guaranteed death benefit, and accumulating cash value, often used for lifelong protection and estate liquidity needs.

An estimate of the present value of a person's future earnings and services, used to size the amount of life insurance needed to protect dependants.

A method of calculating insurance cover by totalling obligations such as debts, education costs, and income replacement, then deducting existing resources and cover.

The amount the insured must pay toward a loss before the insurer responds, trading a lower premium for greater retained risk on each claim.

The insurance principle that a claimant should be restored to the financial position held before a loss, without profiting from it, which limits payouts to actual loss.

A financial relationship in which the policyholder would suffer genuine loss from the subject's damage or death, required for a valid insurance contract.

The rate applied to the next unit of income, which determines the true value of a deduction or the true cost of additional taxable income.

An amount subtracted from gross income before tax is calculated, so its benefit equals the deduction multiplied by the taxpayer's marginal rate.

An amount subtracted directly from tax payable rather than from income, so its value is generally the same regardless of the taxpayer's bracket.

Tax levied on the profit realized when an asset is sold for more than its cost base, often with reliefs or exemptions depending on the holding period and asset type.

Arranging income or gains to be taxed later rather than now, preserving compounding on the untaxed amount and potentially lowering the eventual rate.

Growth earned on both the original principal and previously accumulated interest, causing balances to accelerate over time and making an early start highly valuable.

The current worth of a future sum or stream of payments discounted at an assumed rate, used to compare goals and funding requirements on a common basis.

The sustained rise in the general price level that erodes purchasing power, requiring return assumptions and savings targets to be stated in real terms.

The return on an investment after removing the effect of inflation, representing the actual growth in purchasing power achieved by the investor.

The shortfall between the capital required to sustain a desired retirement income and the projected value of existing savings and entitlements.

A tax-advantaged vehicle designed to accumulate savings for retirement, often with limits on contributions, restrictions on access, and specific withdrawal rules.

The process of arranging assets and instructions so they are transferred to intended beneficiaries efficiently, with minimal tax, cost, and delay.

A legal document directing how a person's assets are distributed on death and appointing guardians or executors, subject to probate and statutory formalities.

A legal arrangement in which a trustee holds and manages assets for the benefit of named beneficiaries according to the terms of a trust deed.

The court-supervised process of validating a will, settling debts, and distributing the estate, which can involve time, cost, and public disclosure.

The situation where a person dies without a valid will, so fixed statutory rules rather than personal wishes determine how the estate is distributed.

A substantial written assignment in which the candidate applies the planning process to a realistic client scenario, demonstrating analysis, recommendations, and justification.

A detailed client scenario supplied for analysis, requiring the candidate to identify issues, quantify needs, and produce coherent recommendations supported by calculations.

The part of a written plan that states the inflation, return, mortality, and tax assumptions used, so that calculations can be followed and challenged.