NZDX Adviser flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Equity total return
- Total return combines capital gain and dividends received, expressed as (P1 - P0 + dividends) divided by the initial price P0, showing the full return to the shareholder.
- Modified duration
- Modified duration measures the approximate percentage change in a bond's price for a one percent change in yield; higher duration means greater interest rate sensitivity.
- Forward versus futures
- A forward is a bespoke over-the-counter contract between two parties; a futures contract is standardised and traded on an exchange with clearing house backing.
- Option premium
- The premium is the price a buyer pays for an option; it compensates the seller for accepting the obligation or risk of the contract.
- Net asset value
- Net asset value equals total fund assets minus liabilities, divided by units on issue; it sets the price at which managed fund units are issued or redeemed.
- Currency pair convention
- In a currency pair quoted as base/quote, the rate states how many units of the quote currency buy one unit of the base currency; a rising rate means base appreciation.
- FMC Act 2013
- The Financial Markets Conduct Act 2013 is New Zealand's core securities law, governing offers of financial products, disclosure, licensing and fair dealing obligations.
- Financial advice provider licence
- Under the 2021 advice regime, financial advice providers must hold or operate under an FMA licence and meet the Code of Professional Conduct standards.
- Code of Professional Conduct
- The Code sets standards for financial advice services in New Zealand, covering client care, competence, ethical behaviour and the management of conflicts of interest.
- AML customer due diligence
- Customer due diligence under the AML/CFT Act 2009 requires verifying client identity and understanding the nature and purpose of the business relationship before transacting.
- Politically exposed person
- A PEP holds a prominent public function; enhanced due diligence, senior management approval and source-of-wealth verification are required before establishing the relationship.
- Suspicious activity report
- A suspicious activity report is filed with the Financial Intelligence Unit when an institution suspects money laundering, terrorist financing or another financial crime.
- Seven-year record retention
- Advice providers must retain client records, advice files and transaction documentation for at least seven years to demonstrate compliance and support audits.
- Risk tolerance versus capacity
- Risk tolerance is the client's willingness to accept investment risk; risk capacity is the financial ability to absorb loss without harm to goals.
- Know-your-client data
- KYC data includes identity, financial situation, goals, time horizon, existing holdings and risk profile; it underpins every suitability assessment and recommendation.
- Suitability assessment
- A suitability assessment matches a recommended product's risk, liquidity and cost to the client's profile, objectives and constraints before advice is given.
- Product disclosure statement
- A product disclosure statement summarises key features, risks, fees and terms of a financial product and must be given to retail clients before they invest.
- Periodic review trigger
- A review is triggered by a material change in client circumstances, a product change, a scheduled review date or a client request to reassess the plan.
- T+2 settlement
- New Zealand equity trades settle two business days after trade date, meaning cash and securities exchange on the second business day following execution.
- Delivery versus payment
- Delivery versus payment links the transfer of securities to the transfer of cash so that one leg cannot settle without the other, reducing settlement risk.
- Limit order
- A limit order specifies the maximum purchase price or minimum sale price; it caps price but does not guarantee that the order will be executed.
- Best execution obligation
- Best execution requires an adviser or broker to take reasonable steps to obtain the best available outcome for the client, considering price, cost and speed.
- Segregated client assets
- Client assets held in custody must be segregated from the firm's own assets and reconciled regularly, protecting clients if the firm fails.
- Herstatt risk
- Herstatt risk is FX settlement risk arising when one currency leg is paid before the other, leaving the payer exposed if the counterparty fails.
- Value at Risk
- Value at Risk estimates the maximum expected loss over a defined horizon at a given confidence level, but it does not capture losses beyond that threshold.
- Systematic versus idiosyncratic risk
- Systematic risk affects the whole market and cannot be diversified away; idiosyncratic risk is specific to a security and can be reduced by diversification.
- Conduct risk
- Conduct risk is the risk of harm from inappropriate behaviour, mis-selling or unmanaged conflicts of interest, damaging clients and the firm's reputation.
- Stress testing
- Stress testing models the impact of severe but plausible adverse scenarios on portfolios or capital, revealing vulnerabilities that normal conditions may hide.
- Liquidity risk
- Liquidity risk is the risk of being unable to sell a position quickly at or near fair value, reflected in wide bid-ask spreads and thin market depth.
- Fiduciary duty
- A fiduciary duty requires an adviser to act in the client's best interests ahead of their own, prioritising client welfare over personal gain.
- Conflicts of interest
- Conflicts arise when an adviser's interests could compromise client outcomes; they must be identified, avoided where possible, disclosed and managed.
- Client confidentiality
- Client confidentiality requires protecting personal and financial information and disclosing it only with client consent or where legally required.