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Read this financial advice glossary of terms to help improve your understanding of the words and phrases used in our industry.

Article by Akwasi Duodu

Financial advice glossary of terms

The terms used by financial advisers can sometimes feel like learning a new language. To help your understanding of the words used in the industry, we have created our own financial advice glossary of terms.

Whether you’re a seasoned investor or new to the world of financial advice, understanding these terms is helpful to improve your overall financial literacy.

A – Actuary, annuities, asset classes

Annuities: A financial product that pays out fixed payments to an individual, typically used as an income stream in retirement.

Asset classes: Categories of assets, such as stocks, bonds, and cash, each with different risk and return characteristics.

AVC (Additional Voluntary Contributions): Extra payments you can make to enhance your pension benefits.

B – Basic rate tax, bonds, bull market, budget deficit

Basic rate Tax: This is the lowest rate of income tax in the UK

Beneficiary: A beneficiary is a person or entity named in a will, trust, or insurance scheme to receive assets or benefits upon the death of the person who created the document or policy.

Bonds: These are debt securities issued by entities like governments or corporations to raise capital.

Bull market: A financial market in which prices are rising or are expected to rise.

Budget deficit: This occurs when expenses exceed revenue, indicating poor financial health.

Budgeting: The process of creating and managing a financial plan that outlines expected income and expenses to ensure that resources are allocated efficiently.

Business protection policies: Safeguarding a company’s financial stability against unexpected events like owner illness or death, covering key person losses, shareholder issues, and business loan repayments.

C – Capital gains, compound interest, credit rating

Capital Gains Tax (CGT): A tax imposed on the profit earned from the sale of assets, such as stocks,  property, or investments.

Company pension schemes: retirement plans established and

Compound interest: Interest calculated on the initial  sum and the accumulated interest from previous periods.

Credit rating: A measure of creditworthiness assessed by credit bureaus in the UK.

Critical Illness Cover: An insurance that provides a lump sum payment if the policyholder is diagnosed with one of the specific illnesses listed in the policy.

D – Defined contribution, dividends, diversification

Defined contribution pension scheme: A pension scheme in which the contributions are defined, but the final pension benefit is determined by the performance of the investments.

Derivatives: Derivatives are financial instruments whose value is derived from the underlying asset, such as options and futures contracts.

Dividends: A portion of a company’s earnings distributed to shareholders.

Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio.

E – Early retirement, estate planning, equity release

Early retirement: The choice to retire before reaching the standard retirement age, often requiring careful financial planning.

EIS: The Enterprise Investment Scheme (EIS) is a UK government initiative designed to help smaller, higher-risk companies raise finance by offering tax reliefs to investors.

Estate planning: The process of arranging the management and disposal of a person’s estate during their life and after death, including the gift of assets to heirs and the settlement of estate taxes.

Equities: Stocks or securities representing ownership interest in a company.

Equity release: A financial arrangement in the UK allowing homeowners, aged 55 or over to access the equity tied up in their home, either as a lump sum or an additional income.

ESG investments:  Investments prioritising companies with strong environmental, social, and governance practices. These investments aim to generate positive returns while contributing to social or environmental goals.

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F – FCA, fixed income, fiduciary, financial planner

Fiduciary: A person or organisation that acts on behalf of another person or persons, putting their clients’ interest ahead of their own.

Financial advice: Guidance and recommendations provided by financial professionals to help individuals and businesses make informed decisions about their money.

Financial conduct Authority (FCA): The regulatory body in the UK responsible for overseeing financial markets and ensuring the protection of consumers

Financial planner: A qualified professional who helps individuals and corporations meet their long-term financial objectives .Fixed Income: A type of investment security that pays investors fixed interest or dividend payments until its maturity date.

Financial planning: Making a plan for your money so it can cover your needs now and in the future, like paying bills, saving for retirement, or buying a home. It also covers wealth-building, investment, and tax planning

Funds under management: This is the overall value of the investments and assets a financial adviser will manage on behalf of a customer.

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G – Gross income, growth stocks, guarantor

Gilt: these are UK government bonds or debt securities issued by the government to raise funds, and are historically considered low-risk investments.

Gross income: The total income from all sources before deductions or taxes.

Group personal pension (GPP): A type of pension scheme provided by employers for their employees to save for retirement.

Growth stocks: Stocks from companies that are expected to grow at an above-average rate compared to other companies in the market.

Guarantor: A person or entity that agrees to be responsible for another’s debt or performance under a contract if the other fails to pay or perform.

H – Hedge funds, home equity, high-yield bonds

Hedge funds: Private investment funds that use a range of strategies to earn returns for their investors.

Higher rate tax: A higher income tax rate applied to individuals whose income exceeds a certain threshold.

I – ISAs, IFAs, inflation, inheritance tax

Income drawdown: A retirement income option that allows individuals to withdraw money directly from their pension fund.

Independent financial adviser (IFA): An Independent Financial Adviser is a professional who offers unbiased advice on an unrestricted range of products and services.

Inflation: The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Investments: Allocating resources, often money, into assets, company, funds or ventures expecting future financial returns. Investments typically include stocks, bonds, real estate, and other financial instruments.

Inheritance Tax (IHT): A tax paid on the estate (the property, money, and possessions) of someone who has died in the UK.

ISA (Individual Savings Account): A tax-advantaged savings or investment account available to residents of the UK.

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J – Joint account, junk bonds, Junior ISA

Joint account: A bank account shared between two or more individuals.

Joint-life annuity: An annuity that provides regular income payments for the lifetimes of two or more individuals, typically a couple.

Junior ISA: A tax-advantaged savings account in the UK for children under 18.

JISA (Junior Individual Savings Account): Another term for Junior ISA, offering tax-free savings for children.

K – KYC (Know Your Customer)

KYC (Know Your Customer): The process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship.

L – LIBOR, liquidity, liability, life insurance

Liquidity: The ease with which an asset can be converted into cash without affecting its market price.

Liability: A financial obligation or debt.

Life Insurance: A contract that pays out a sum of money either on the death of the insured person or after a set period.

M – Mutual funds, market capitalisation, mortgage

Market capitalisation: The total value of a company’s outstanding shares of stock.

Mortgage: A loan used to purchase a home, where the property serves as collateral. Typically a deposit is required, and mortgages are usually paid off over 15-25 years.

Mortgage advice: Guiding individuals on choosing the right home loan, considering interest rates, loan types, and repayment options to fit their financial situation and goals.

Mutual funds: Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.

N – National Insurance, net worth, negative equity

National Insurance Contributions: Payments made by individuals and employers in the UK to fund certain state benefits and services.

Net worth: The total assets minus total liabilities of an individual or company, indicating their financial health.

National Savings and Investments (NS&I): A UK government-backed savings organisation offering a range of savings and investment products.

Negative equity: A situation where the value of a property is less than the outstanding balance on the mortgage secured on it.

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O – Options, overdraft, operating income

Offshore: This typically refers to financial activities or investments held in a foreign jurisdiction, often for tax or asset protection purposes.

Options: Financial derivatives that give buyers the right, but not the obligation, to buy or sell an asset at an agreed-upon price and date.

Overdraft: An extension of credit from a lending institution when an account reaches zero.

Ongoing fees: Continuous fees paid for services such as financial advice or investment management, which can vary and should always be communicated prior to any work being carried out

P – Portfolio, principal, pension

Pension: A type of tax-efficient investment that allows people to save toward retirement. Platform: A digital service that allows investors to buy, sell, and manage a portfolio of investments, offering access to a wide range of assets.

Pension advice: This helps you understand how to save for retirement, including choosing pension types, contribution levels, and investment options. A good pension advice service aims to ensure a comfortable and financially secure retirement.

Personal protection: Financial security for individuals and families against unforeseen events such as illness, injury, or death, covering income loss and medical expenses.

Policyholder: An individual or entity that owns an insurance policy and is entitled to its benefits.Portfolio: A range of investments held by an individual or institution.

Principal: The amount of money borrowed or invested, excluding any interest or dividends.

Product provider: A company that develops and offers financial products or services, such as insurance, investments, or loans, to consumers and businesses.

Private medical insurance: These policies offer coverage for health-related expenses, providing quicker access to medical treatment and a choice of care providers, often bypassing NHS queues.

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Q – Quantitative easing, quick ratio, qualified dividends

Quantitative easing: A monetary policy whereby a central bank buys government securities to increase the money supply and encourage lending and investment.

Quartile: One of four equal parts into which a data set can be divided, often used in the performance ranking of investment funds.

Quick ratio: An indicator of a company’s short-term liquidity.

Qualified dividends: Dividends that are taxed at the capital gains tax rate.

R – Retirement planning, risk tolerance, Retail Price Index (RPI)

Retail Price Index (RPI): A measure of inflation published monthly by the UK Office for National Statistics.

Retirement planning: The process of setting financial goals and strategies to secure a comfortable retirement.

Risk tolerance: An individual’s willingness to take risks when investing.

S – Stocks and shares ISA, Stamp Duty, savings and investments

Salary Sacrifice: An arrangement where an employee agrees to give up a portion of their salary in exchange for certain non-cash benefits, such as pension contributions or childcare vouchers.

Savings and investments: Financial assets and strategies used to grow wealth over time, including savings accounts, stocks, bonds, and other investment vehicles.

School fees planning: Saving and investing toward your children’s education.

Shares: pieces of a company that people can buy, which let them own a small part of it and possibly earn money if it does well.

SIPPS (Self Invested Personal Pensions): These personal pension plans allow individuals in the UK to have greater control and flexibility over their pension investments.

Stocks and Shares ISA: A type of Individual Savings Account that invests in stocks and shares.

Stamp duty: A tax paid on the purchase of properties in the UK.

T – Tax planning, tax relief, trusts

Tax planning: Strategies and financial management aimed at minimising tax liability.

Tax relief: Special provisions or deductions that reduce the amount of tax payable. Tax relief on pensions reduces taxable income, incentivising savings for retirement by offering deductions or credits.

Tied adviser: An adviser is restricted to recommending products from a specific provider or a limited range of providers.

Trusts: Legal arrangements where assets are held by one party for the benefit of another, often used for estate planning and wealth management.

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U – Underwriting, unsecured loan, utility stocks

Underwriting: The process by which an institution takes on financial risk for a fee. Insurance companies take the risk for a payment made by the policy holder.

Unsecured loan: A loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.

Utility stocks: Stocks of companies that provide essential services like water, electricity, and natural gas.

V – Variable interest rate, venture capital, volatility

Value investing: An investment strategy that seeks to buy undervalued assets or securities with the expectation that their value will increase over time.

Variable interest rate: An interest rate that moves up and down based on the changes of an underlying interest rate index.

Venture capital: Financial capital provided to early-stage, high-potential, high-risk startup companies.

Venture Capital Trusts: Investments that offer tax incentives to individuals investing in small, higher-risk companies not listed on major stock exchanges.

Volatility: The degree of variation in the price of a financial instrument over time, indicating the risk and stability of its value

W – Wealth management, warrants, working capital

Warrants: A derivative that provides the right, but not the obligation, to buy or sell a security at a certain price before expiration.

Wealth planning: Wealth planning is a long term approach to managing financial assets, investments, and estate to achieve personal goals and financial security.

Wealth management: A high-level professional service that combines financial and investment advice, accounting and tax services, retirement planning, and legal or estate planning.

Working capital: The difference between a company’s current assets and liabilities.

Wrap account: A comprehensive investment management service that bundles various types of investments together and accounts under a single management fee structure.

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Y – Yield

Yield: The income return on an investment, such as the interest or dividends received from holding a particular security.

Z – Zero-coupon bond

Zero-Coupon Bond: A bond issued at a discount and repaid at face value at maturity but does not pay interest.

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