NZ CFS L5 Core key terms

New Zealand's main statute governing offers of financial products, market conduct, disclosure, and fair dealing. It sets licensing, governance, and conduct duties for providers and advisers, replacing older securities and superannuation legislation.

A licence issued under the FMCA allowing a business to provide regulated financial advice through advisers. The provider must meet standards for governance, capability, client care, and record keeping, and is responsible for the advice its advisers give.

A recommendation, opinion, or guidance about acquiring, holding, or disposing of a financial product, or switching between products, made to a client. It is defined in the FMCA and triggers duties around suitability and disclosure.

A legislated code made under the FMCA that sets minimum standards of ethical behaviour, client care, competence, and record keeping for financial advice providers and their advisers. Compliance is a condition of holding a licence.

The FMCA requirement that persons in trade act honestly, not make misleading statements, and not use unfair pressure or tactics when dealing with clients. Breach can attract both civil liability and regulatory action.

A situation where an adviser's or provider's own interests, related-party relationships, or incentive payments could influence the advice given to a client. Conflicts must be identified, disclosed, and managed so client interests come first.

The conduct standard requiring an adviser, when a conflict exists, to place the client's interests ahead of their own or the provider's. It underpins recommendations and must be evidenced in advice records.

Telling a client, before or when advice is given, about any commission, remuneration, or incentive an adviser or provider receives from a product provider because of the advice. The amount or basis must be clear and not misleading.

Any reward such as soft commissions, sales bonuses, or volume-based payments that could motivate an adviser to recommend a particular product or provider. These must be managed and disclosed under the provider's conflicts policy.

The process of collecting and verifying a client's identity, financial situation, goals, and risk tolerance before giving advice. It supports suitability and also meets anti-money-laundering identity verification duties.

The structured conversation and information-gathering stage where the adviser explores the client's objectives, circumstances, time horizon, existing products, and attitudes. It forms the evidence base for every later recommendation.

The process of matching a client's identified goals and gaps, such as insufficient insurance cover or retirement shortfall, to potential solutions. It links discovery information to the products later recommended.

Comparing what a client currently has, such as savings or cover, with what they need to meet a stated goal, to identify shortfalls. The result justifies whether a product recommendation is required.

A client's emotional and financial willingness to accept fluctuations in the value of their investments in pursuit of their goals. It is distinct from risk capacity and must be assessed with a documented method.

The objective ability of a client to absorb investment losses without jeopardising their lifestyle or essential goals, based on income, assets, debts, and time horizon. It can differ from their willingness to take risk.

A documented summary of a client's risk tolerance, capacity, time horizon, and knowledge, used to match them to an appropriate investment strategy or product risk level. It should be reviewed when circumstances change.

The judgement that a recommended financial product meets the client's objectives, circumstances, and risk profile, and that no cheaper or simpler alternative would better serve them. It must be evidenced in the advice record.

The length of time a client expects to hold an investment before needing the money. It strongly influences suitable asset allocation and product choice, since short horizons generally suit lower-volatility products.

Advice that recommends a client cancel, surrender, or switch an existing financial product for a new one. It requires particular care to compare costs, benefits, and loss of existing features before recommending change.

The split of a portfolio across asset classes such as cash, bonds, property, and shares. It is a primary driver of both expected return and volatility and should reflect the client's risk profile and horizon.

Spreading investments across different assets, sectors, and markets so that a single loss has limited impact on the whole portfolio. It reduces specific risk but does not remove general market risk.

The degree to which an investment's value or return fluctuates over time, often measured by standard deviation. Higher volatility means a wider range of possible outcomes and greater short-term uncertainty.

The interest rate set by the Reserve Bank of New Zealand that anchors short-term wholesale funding costs. Changes to it flow through to mortgage, deposit, and business lending rates and influence the New Zealand dollar.

Actions by a central bank, such as setting the Official Cash Rate, to influence inflation, employment, and economic activity. In New Zealand the Reserve Bank operates under a remit targeting price stability.

The rate at which the general level of prices for goods and services rises, reducing the purchasing power of money over time. It affects real returns and should be factored into long-term goal projections.

An investment return after adjusting for inflation, showing the actual increase in purchasing power. It is the figure that matters for long-term goals such as retirement funding.

The duty to give clients specified information, such as the nature and scope of advice, fees, conflicts, and any limitations, in a clear and timely way. It enables informed decisions and must be recorded.

The stated boundaries of what an adviser is engaged to cover, for example product types, whether it is limited or comprehensive, and any exclusions. Clients must understand it so they do not assume wider coverage.

The documented evidence of the client information gathered, the advice given, the rationale, and any disclosures or client instructions. It supports suitability, enables review, and demonstrates compliance.

Maintaining accurate, complete, and retrievable records of client interactions, advice, disclosures, and transactions for the period required by the provider's obligations. Good records allow reconstruction of decisions and support complaints responses.

The continuing duty to ensure advice and products remain appropriate as a client's circumstances, markets, or products change. It is supported by agreed review processes rather than a one-off recommendation.

A scheduled or triggered reassessment of a client's situation, goals, and products, resulting in confirmation or revised advice. Triggers include life events, market shifts, or product changes, and outcomes should be recorded.

The documented process for receiving, investigating, and responding to client complaints within required timeframes. It includes informing clients about external dispute resolution options if the complaint is not resolved.

An independent external body that considers unresolved complaints about financial service providers. Providers must belong to an approved scheme and tell clients how to access it when internal resolution fails.

The requirement that advisers hold sufficient knowledge, skills, and experience for the advice they give, and keep these current. It includes meeting minimum standards and maintaining evidence of ongoing learning.

Structured ongoing learning that maintains and updates an adviser's technical knowledge, skills, and ethical awareness. Providers must set and monitor CPD requirements and keep records of completion.

The oversight of an adviser's work by a more experienced or qualified person, including review of advice and coaching. It is used to build competence and to manage risk where an adviser is new or developing.

An individual nominated by a licensed financial advice provider to give regulated financial advice on its behalf. They must meet competence requirements and act within the provider's licence and internal controls.