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.
Agricultural property relief: An exemption / relief from the full amount of inheritance tax being applied against your estate.
Related reading: Changes to agricultural property relief rules for inheritance tax
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.
Related reading
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.
Financial security: When you reach a point in your life when your financial position creates a level of protection for you and your family
Funds under management: This is the overall value of the investments and assets a financial adviser will manage on behalf of a customer.
Related reading
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.
Related reading
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.
Related reading
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.
Related reading
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.
Related reading
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.
Related reading
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.
