Diversification, gearing and margin lending, CGT basics, and life, TPD, trauma and income protection cover inside and outside super.
Financial advice construction·1 min read·3 sections
✓Checked against: Corporations Act 2001 ss964D, 985E-985M (compilation 19 Sep 2026); Income Tax Assessment Act 1997 Div 115; ATO guidance on insurance premiums; ASIC Moneysmart; ASIC Financial adviser exam: Exam preparation guidance v6.0 (Sept 2026), Financial advice construction curriculum and reading list.. Independent prep, not endorsed by ASIC.
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Must-know for the exam
✓Diversification reduces company-specific risk but not market risk.
✓Gearing magnifies gains and losses; a margin lending facility must be assessed for unsuitability before it is issued or its limit increased (ss985E-985H).
✓Asset-based fees must not be charged on borrowed amounts (s964D).
✓Individuals get a 50% CGT discount on assets held at least 12 months (ITAA 1997 Div 115).
✓Income protection premiums paid personally outside super are generally deductible; life, TPD and trauma premiums held personally generally are not.
✓Disability cover issued inside super since 1 July 2014 must align with the permanent incapacity condition of release, so 'own occupation' TPD is generally not available inside super.
✓Exchange-traded funds trade on market; unlisted funds can have redemption delays or freezes.
▸On this page · 3 sections
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Traps that cost marks
→The statutory test is the client's ability to meet a margin call, not past returns or inexperience alone.
→The percentage loss on equity is larger than the market fall when money is borrowed.
→Familiarity with an employer feels safe, but it doubles up the risk.
→Super funds get a one-third discount; individuals get 50%.
→Rules of thumb are a cross-check, not a substitute for the needs analysis.
→Super can make cover affordable now at the expense of later retirement savings.
→The legal options exist; the question is whether they suit these clients.
→Tax effectiveness is the attraction; risk capacity decides whether it is suitable.
The rule
Strategy questions combine the client's goals with tax, risk and cash flow. Check affordability, the consequence of the worst case, and whether a cheaper or simpler option meets the goal.
Common traps
Trap: Dollar-cost averaging smooths entry prices; it does not remove market risk.
Trap: Borrowing to invest does not share losses with the lender.
Trap: Longer income protection waiting periods usually mean lower premiums.
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