NZ CFS L5 Investment flashcards

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

FMCA 2013

The Financial Markets Conduct Act 2013 is the primary NZ statute governing financial advice, managed investment schemes, and disclosure obligations for financial products.

Code of Professional Conduct

FMA-issued mandatory standards for financial advice services, covering ethical behaviour and client care, including suitability and disclosure requirements.

Financial Advice Provider

An entity licensed by the FMA to provide regulated financial advice; individuals give advice as nominated representatives or financial advisers of the FAP.

Conflicts of interest disclosure

Advisers must identify and disclose commissions, soft dollar benefits, and other conflicts before giving advice, and manage them in the client's interest.

AML/CFT obligations

Financial advisers are reporting entities under the AML/CFT Act 2009 and must conduct customer due diligence, including enhanced checks for politically exposed persons.

Risk capacity vs attitude

Capacity is the client's financial ability to bear loss; attitude is their willingness to accept risk. Both must be assessed separately.

Time horizon constraint

Funds needed within one to three years generally should not be exposed to equity volatility regardless of the client's stated risk attitude.

SMART goals

Specific, measurable, achievable, relevant, and time-bound goals allow meaningful monitoring and review of investment advice outcomes.

Risk profiling questionnaire

A tool to help assess risk tolerance; results must be validated against the client's circumstances and any override documented.

Vulnerable client care

Clients affected by age, health, bereavement, or cognitive decline require heightened care and documented consideration of decision-making capacity.

Managed investment scheme

A pooled investment vehicle regulated under the FMCA; retail investors must receive a Product Disclosure Statement before investing.

KiwiSaver default fund

A scheme default option with prescribed settings; default funds must meet FMA default fund requirements, including a conservative transition near retirement.

ETF considerations

Exchange-traded funds require assessment of tracking error, bid-ask spread, liquidity, and PIE tax status before recommending to clients.

Duration

A fixed interest measure of sensitivity to interest-rate changes; higher duration means greater price volatility when rates move.

Systematic risk

Market-wide risk that cannot be diversified away through holding more securities; it remains in any portfolio.

Strategic asset allocation

Long-term target weights by asset class that drive most of a portfolio's return variability; tactical tilts are shorter-term deviations.

Diversification benefit

Reduction in unsystematic risk achieved by combining assets with low or negative correlation; correlation determines the size of the benefit.

Rebalancing bands

Pre-set tolerance ranges (for example plus or minus five percent) that trigger rebalancing to target weights to control portfolio drift.

Currency hedging

Hedging offshore fixed interest reduces FX volatility; unhedged growth assets can add diversification but increase volatility.

Fee drag

The compounding effect of fees on long-term returns; a one percent annual fee difference materially reduces outcomes over decades.

Prescribed investor rate

The PIE tax rate elected by an investor, based on the last two income years; options are 10.5%, 17.5%, or 28%.

PIE maximum tax rate

Portfolio Investment Entities are taxed at a maximum of 28%, which can benefit investors on higher marginal rates.

Imputation credits

Tax credits attached to NZ dividends representing company tax already paid; they reduce the investor's tax liability on the dividend.

FIF de minimis

Individuals with offshore FIF interests costing NZD 50,000 or less are generally outside the foreign investment fund rules.

Fair dividend rate method

A FIF calculation taxing five percent of the opening value of offshore investments annually, with the comparative value method as an alternative.

Bright-line test

A NZ land rule that can make gains on residential property taxable if sold within the prescribed period, despite no general capital gains tax.

Advice process steps

Gather information, analyse, develop recommendations, present, implement, document, and review; each step should be evidenced in the client file.

Suitability documentation

The record of advice must show client circumstances, recommendations, rationale, fees, conflicts, and the client's decisions.

Product replacement advice

Switching advice must compare costs, benefits, and lost features of the existing product; it must not be driven by commission alone.

Record retention period

Advice records, client instructions, and communications must be retained for at least seven years to evidence suitability and service.

Review frequency

Reviews are commonly annual but should be more frequent for complex or volatile situations, and documented in the advice record.

External dispute resolution

Unresolved complaints must be referred to an approved scheme such as Financial Services Complaints Ltd or the Insurance & Financial Services Ombudsman.