Wealth Management 1 Practice Flashcards

These flashcards cover the key legislative frameworks, financial planning processes, economic indicators, and retirement fund concepts from the Wealth Management 1 Study Guide.

FAIS

An acronym for the Financial Advisory and Intermediary Services Act ($Act 37 of 2002$), which aims to regulate the giving of advice and rendering of intermediary services to clients.

FSP

Financial Service Provider; any person, other than a representative, who renders financial services to clients by furnishing advice and/or rendering an intermediary service.

Key Individual (KI)

Natural persons responsible for managing or overseeing the rendering of financial services by a Financial Service Provider or its representatives.

Representative

Any person who renders financial services to a client on behalf of a financial services provider in terms of conditions of employment or a mandatory agreement.

Advice

Any recommendation, guidance, or proposal of a financial nature to a client regarding the purchase, investment, amendment, replacement, or termination of a financial product.

Intermediary Service

Any act other than the furnishing of advice that results in a client entering into a transaction, or involves managing, servicing, or processing claims for a financial product.

Continuous Professional Development (CPD)

A process of learning and development enabling FSPs, key individuals, representatives, or compliance officers to maintain competency to comply with the FAIS Act.

Fit and Proper Requirements

A collective term for personal character qualities (honesty and integrity), competence (experience and qualifications), operational ability, financial soundness, and CPD.

Replacement

The process of substituting a financial product wholly or in part with another, or the variation of a product while entering into another.

FICA

The Financial Intelligence Centre Act ($Act 38 of 2001$), established to combat money-laundering activities and financing of terrorist and related activities.

Money Laundering

Any activity of concealing or disguising the nature, source, location, disposition, or movement of the proceeds of criminal activities.

Client Due Diligence (CDD)

A risk-based approach requiring accountable institutions to identify and verify the identities of clients, establish beneficial ownership, and conduct ongoing monitoring.

Common Monetary Area (CMA)

Consists of Lesotho, Namibia, South Africa, and Swaziland; relevant for exchange control and investment limits.

Restriction Period

A period of $5$ years applying to new insurance policies during which loan and surrender values are limited under the Long-term Insurance Act.

20% Rule

A regulation stating that if an insurance premium in any year is more than $20\%$ higher than the largest premium in the preceding $2$ years, a new $5$-year restriction period begins.

Insurable Interest

The financial interest a person has in the property or person insured, which must exist at the time the insurance is affected.

Treating Customers Fairly (TCF)

A regulatory approach ensuring that specific fairness outcomes are delivered to financial services customers throughout the product life cycle.

Consumer Protection Act (CPA)

An act implemented on $31 March 2011$ to promote fair, accessible, and responsible consumer markets and protect against unfair trade practices.

6 Steps of Financial Planning

1. Establishing the relationship; 2. Gathering data/goals; 3. Analysing financial status; 4. Developing recommendations; 5. Implementing recommendations; 6. Monitoring.

King IV Report

A set of voluntary principles and good practices for corporate governance based on an 'Apply AND Explain' approach to achieve outcomes like an ethical culture and effective control.

SMART Goals

Criteria for financial goals: Specific, Measurable, Attainable, Realistic, and Time bound.

Gross Domestic Product (GDP)

The total value of all final goods and services produced within the boundaries of a country in a particular period, used to measure economic growth.

Consumer Price Index (CPI)

An inflation indicator measuring the change in the cost of a basket of products and services; also known as headline inflation.

Repo Rate

The interest rate at which the South African Reserve Bank lends cash to banks, serving as a benchmark for short-term interest rates.

Bull Market

A prolonged period during which investment prices rise faster than their historical average, associated with increasing investor confidence.

Bear Market

A persistent and prolonged decline in investment prices accompanied by widespread pessimism.

Systematic Risk

A risk that influences a large number of assets, such as political events or war, and is virtually impossible to protect against through diversification.

Diversification

The selection of different investment instruments in order to reduce unsystematic or specific portfolio risk.

Defined Benefit Fund

A retirement fund where benefits are determined by a formula ($x\% \times \text{salary} \times \text{years of service}$), and the employer carries the investment risk.

Defined Contribution Fund

A retirement fund where benefits are determined by investment performance and contributions, and the employee carries the investment risk.

Two-Pot Retirement System

A reform implemented on $1 September 2024$ allowing members to access a 'savings pot' before retirement while preserving a 'retirement pot'.

Savings Pot

One-third of total retirement contributions from $01/09/2024$ that can be accessed once per tax year, subject to a minimum withdrawal of $R2,000$.

Retirement Pot

Two-thirds of total retirement contributions from $01/09/2024$ which is subject to compulsory preservation and must be used to purchase an annuity at retirement.

Vested Pot

Contains retirement benefits accumulated before the implementation of the Two-Pot system ($01/09/2024$), governed by old withdrawal and retirement rules.

Investment Linked Life Annuity (ILLA)

A living annuity where income is not guaranteed but depends on the performance of underlying investments, with drawdowns between $2.5\%$ and $17.5\%$.