Overview of financial products

Question 1

Does each asset class have a different risk level?

Answer 1

Yes.

Question 2

Does each asset class have a different expected return?

Answer 2

Yes.

Question 3

What type of risk does cash have?

Answer 3

Low risk.

Question 4

What type of risk does fixed interest investment have?

Answer 4

Low risk.

Question 5

Why is cash a low risk investment?

Answer 5

It is relatively secure.

Question 6

Why is a fixed interest investment a low risk investment?

Answer 6

It is relatively secure.

Question 7

What type of income do cash and fixed interest investments make?

Answer 7

Regular and predictable income.

Question 8

Are returns for cash low?

Answer 8

Yes.

Question 9

Are returns for fixed interest investments low?

Answer 9

Yes.

Question 10

What is the risk of property over the medium term?

Answer 10

Moderate risk.

Question 11

What is medium term for investment?

Answer 11

5 to year year.

Question 12

What is the risk of Australian shares over the medium term?

Answer 12

Moderate risk.

Question 13

What type of income will property and Australian shares make?

Answer 13

Income that rises with inflation, coupled with appreciation in the market price of the investment.

Question 14

What type of investment horizon do international equities have?

Answer 14

Long term investment horizon.

Question 15

What is a long term investment horizon?

Answer 15

More than 10 years.

Question 16

Why are property and shares long term investments?

Answer 16

They can be extremely volatile in the short term.

Question 17

What returns can property and shares make if held for the long term?

Answer 17

Substantial future capital gains.

Question 18

How can you describe income from international shares?

Answer 18

Unpredictable.

Question 19

What is the 90 day bond rate used to determine?

Answer 19

What is known as the ‘risk-free’ rate of return.

Question 20

How can investment products and product structures be categorised?

Answer 20

According to the degree to which they may be subject to the risk of capital loss.

Question 21

What is the general rule for investment risk?

Answer 21

The lower the investment risk, the lower the return, and vice versa.

Question 22

What is market risk?

Answer 22

The risk that a particular market as a whole will not perform to expectations.

Question 23

What is standard deviation?

Answer 23

It measures the spread of an investment’s likely returns based on past performance.

Question 24

What does a high standard deviation indicate?

Answer 24

Indicates that returns are unpredictable and the investment therefore has a higher risk factor

Question 25

How can investors limit risk?

Answer 25

Through diversification.

Question 26

During the portfolio construction process, what needs to be considered?

Answer 26

Client’s financial needs and objectives and their attitude to investment volatility.

Question 27

What is a risk portfolier?

Answer 27

A document that normally poses a series of questions designed to clarify the client’s attitude towards risk.

Question 28

What is asset allocation stategy?

Answer 28

The process of determining a portfolio's mix of investment across the various asset classes.

Question 29

Does an investment portfolio need to be monitored?

Answer 29

Yes. r

Question 30

Does an investment portfolio need to be reviewed regularly?

Answer 30

Yes.

Question 31

What are the three steps of pure risk?

Answer 31

Identification of possible risks, analysis of risks and the implementation of a suitable risk strategy.

Question 32

What are the main categories of risk?

Answer 32

Property, personal and liability.

Question 33

What is the purpose of general insurance?

Answer 33

To place the insured back into the position they | would have been had the insured event not occurred.

Question 34

What does life insurance provide?

Answer 34

A lump sum payment or an income stream to support individuals who are either disabled, unable to work because of injury or illness or who have suffered a critical illness.

Question 35

What are the four main types of personal insurance?

Answer 35

Life, total and permanent disablement (TPD), income protection and trauma.

Question 36

What is superannuation?

Answer 36

Concessionally taxed structure used to accumulate funds to provide income in retirement.

Question 37

What are the two main styles of superannuation funds?

Answer 37

Defined benefit and accumulation,

Question 38

What is the most common type of superannuation?

Answer 38

Accumulation funds the most common.

Question 39

What type of structure is superannuation?

Answer 39

Trust structure managed by trustees. Superannuation funds are regulated through the SIS Act.

Question 40

Who manages superannuation?

Answer 40

Trustees.

Question 41

What does the trust deed for a superannuation account need to say?

Answer 41

The trust deed for the fund must state that the funds sole purpose is to provide income on the retirement of the fund’s members.

Question 42

Who are the two key regulators in the superannuation industry?

Answer 42

APRA and the ATO.

Question 43

What must employees contribute into their employees superannuation?

Answer 43

Minimum of 9.5% of their employee’s ordinary income to superannuation.

Question 44

What are the contributions to superannuation?

Answer 44

Contributions to superannuation include concessional, non-concessional, CGT exempt.

Question 45

What do salary sacrifice contributions allow?

Answer 45

Employees to contribute pre-tax salary amounts to superannuation to improve theirsuperannuation savings.

Question 46

How can superannuation be accessed?

Answer 46

After satisfying a ‘condition of release’,

Question 47

What is the most common condition of release for superannuation?

Answer 47

Retirement and meeting the preservation age.

Question 48

How can superannuation benefits be taken?

Answer 48

Lump sum, as a retirement income | stream such as an account-based pension, or in combination.

Question 49

Why is retirement planning advice an important service?

Answer 49

Complexity of rules and opportunity to charge higher fees.