Jargon buster
We try to use clear and easily understood language, but sometimes we have to use financial jargon which you may not have seen before. This glossary is designed to help explain some of the technical terms we use. Words in italics are explained elsewhere in the glossary.
| Actuary | A person who calculates the answers to financial problems, such as “What rate of return do I need to replace the benefits in my final salary scheme?” |
| Adviser Charges (or Fees) | Money paid to us in return for our services; either directly by you – or via a Product Provider. Adviser Charges (also called fees) are agreed in advance between the Client and Financial Planner. Product Providers have no say in the matter. We think this helps protect our impartiality by reducing the risk of a conflict of interest. |
| Asset Allocation | A term used as shorthand to describe the investment mix, or the proportion of asset classes included in your investment. |
| Asset Class | A broad type of investment (such as UK company shares). |
| Best Execution | A term used as shorthand for the Financial Services Authority rule which obliges firms to take all reasonable steps to ensure the best possible result for clients when executing orders to buy or sell investments. |
| Buy-to-let Mortgage | A mortgage on a house that you rent out, rather than live in. |
| CERTIFIED FINANCIAL PLANNERCM (CFPCM) Certification | An international advanced professional designation which is renewed annually and is achieved by only a small number of UK financial planners. The CFPCM certification mark is not to be confused with the Certificate in Financial Planning (CertFP) or the Financial Planning Certificate (FPC) which are entry level exams for UK financial advisers and equivalent to one AS-level paper. |
| Chartered Financial Planner | A UK advanced professional designation (equivalent to Chartered Accountant status) achieved by only a small minority of UK financial planners. |
| Chattels Mortgage | In the case of a SSAS: A loan made by the Managing Trustees (usually to the Company) which is secured against certain specified Company assets. |
| Child Trust Fund (CTF) | A tax-efficient investment for children. |
| Co-fiduciary | A firm acting as a fiduciary holds your assets in trust for you, in common with you and others. (This is an important distinction from, say a bank holding your cash deposits or an insurance company’s with profits fund, where the ownership of the assets passes to the provider firm in exchange for a contractual promise). Where the firm holding your assets is a co-fiduciary it means the assets are still legally yours. |
| Commission | Money paid to us by the provider of a financial product in return for placing your business with them. Normally the amount of commission is set by the provider of the financial product. Commission varies between products and the companies providing the product. This creates a conflict of interest, which we try to avoid by using the Adviser Charge payment method where possible. In almost all cases, any commission paid will increase your insurance premiums or decrease the amount you will receive from your investment.The Financial Services Authority has announced that from 1st January 2013 no financial adviser will be able to receive commission from a product provider for advising on or arranging regulated investments. However, product providers will still be able to pay commission on non-investment insurance products. |
| Debenture | In the case of a SSAS: A loan made by the Managing Trustees (usually to the Company) which is secured against unspecified assets not already secured against other debts the company may have. |
| Discretionary Investment Management | A Discretionary Investment Manager agrees an investment strategy with you at the start and then buys and sells your investments as they see fit, updating you periodically. PageRussell are not discretionary managers. We provide an Advisory service, where we advise you to buy or sell an investment and only act when we have received your written instruction to do so. |
| Diversification | A technique used to lower the total risk of loss in your investment portfolio by investing it in a range of different underlying investments. |
| Equities | Publicly traded shares in companies. |
| Execution | This normally refers to carrying out a trade in your investment portfolio. |
| Financial Planner | The person responsible for the financial planning advice provided to you. |
| Fixed-Interest (securities) | Publicly traded debt, normally issued by governments and large companies. |
| Hedge Funds | The generic name for a wide variety of funds which invest in alternative assets (that is, not cash, fixed interest, equities or property). Often they will use complex financial instruments in order to profit from other assets falling in price. Hedge funds are usually unregulated by the Financial Services Authority and not covered by the Financial Services Compensation Scheme. |
| Hypothecate | To use as security for loan. |
| Hybrid-SSAS | A Small Self-Administered pension Scheme where an insurance company acts as the Scheme Administrator. In return for lower explicit Scheme Administration fee you make a minimum contribution into the insurance company’s funds (so there would be less cash available for self-investment). |
| Independent Financial Adviser (IFA) | Independent Financial Advisers advise on investment products from the whole market and offer their clients the option of paying a fee for the advice. Other advisers are restricted to advising on products from a limited range of companies and are not obliged to offer a fee payment option. |
| Indemnified Initial Commission | The most common form of income paid to financial adviser firms in the UK is upfront commission from the sale of financial products. Where the financial product is paid for by regular payments the Product Provider will take some of the charges from an initial period of the contract (up to 5 years) and pay them as initial commission over that period. Normally the initial commission is rolled up into one indemnified payment. (This is actually a loan from the financial product provider to the firm which is repaid over the initial period). If the financial product is cancelled or the regular payments are stopped during the initial period, the product provider will “claw back” a portion of the indemnified initial commission. |
| Individual Savings Account (ISA) | A tax-efficient savings and investment contract for the medium and long term.
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| Intermediary Firm | A firm that arranges a financial product, sourced from a Product Provider for you. This includes Independent Financial Advisers and firms restricted to one or a small range of Product Providers. Some Product Providers offer their products direct to the public, rather than via Intermediary Firms, on more favourable terms. |
| Liquidity | The term used to describe how easy it is to buy or sell an investment. |
| Non-investment Insurance | The Financial Services Authority splits the retail financial products it regulates into three categories:
Many insurance-based contracts have an investment element and are regulated as investments. Non-investment insurance covers all the other pure protection contracts and general insurance (such as motor insurance). |
| Open Market Option Annuity | At the selected retirement age for your pension fund, your current pension provider will normally offer you the chance to buy a regular pension income (called an annuity) with them. You have the right to take your pension fund and buy an annuity on the open market; this is an Open Market Option. |
| Paid-Up | Describes a life insurance or pension contract where the regular payment has been stopped usually by the policyholder and no more payments are made. |
| Payment Protection Insurance | Insurance which can be included in or separate to another financial product to which you make regular payments (such as a loan). If you are unable to pay the regular payments due to an accident, sickness or unemployment this insurance is designed to pay the regular payments for you. |
| Policy Document | The document issued by the Product Provider specifying the terms of the financial product. The Policy Document is an important legal document. |
| Procuration Fee | Commission paid by a mortgage lender for introducing your business to them. |
| Product Provider | The bank, building society, insurance company or investment fund manager, or other firm, which provides the financial product we advise on or arrange. |
| Pure Protection Insurance | A financial product providing insurance only, with no investment element. |
| Relevant UK Earnings | Relevant UK earnings are defined as employment income taxed under Income Tax (Earnings and Pensions) Act 2003 or income from a trade or profession or vocation, or patent income under Income Tax (Trading and Other Income) Act 2005. So, for directors and employees of Limited companies this means P60 and P11D earnings (but NOT dividends). |
| Renewal or Trail Commission | In addition to Initial Commission financial product providers will often make ongoing payments throughout the life of a product called Renewal or Trail Commission. This commission is paid to the Servicing Agent to help pay for ongoing advice on the financial product. |
| Retail Client | When we carry out activities regulated by the Financial Services Authority we have to categorise our clients. PageRussell clients are almost always Retail Clients and receive a higher level of regulatory protection than the other categories (Professional Clients and Eligible Counterparties). |
| Secured Lending or Loan | A loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the lender. If the borrower defaults on the loan repayments, the lender can take possession of the asset used as collateral and may sell it to regain the amount originally lent. |
| Securities | The individual underlying investments held in your investment portfolio such as shares in a public company or UK government bonds. |
| Small Self-Administered Scheme (SSAS) | A Small Self-Administered (pension) Scheme is a scheme where a group of people can pool their pension funds to make their own investments in shares, commercial property or make loans to third parties, such as their company. |
| Self-Invested Personal Pension (or SIPP) | A Self-Invested Personal Pension is a personal pension fund which an individual can use to make their own investments in shares, commercial property (instead of solely relying on the skill of investment fund managers). |
| Servicing Agent | You can appoint a firm of Independent Financial Advisers as the Servicing Agent for a product. The Product Provider will usually take instructions from, copy correspondence and pay renewal or trail commission to that firm. Product Providers only allow one firm to be Servicing Agent at a time. Unless you specify otherwise, this will be the firm through which sold you the product. |
| Single Premium Contract | A financial product paid for by one, rather than a series of regular, payments. |
| Tax Wrapper | An investment contract can be thought of as having two parts: the tax wrapper and the underlying investment. The tax wrapper determines how the underlying investments are treated by HM Revenue & Customs. ISAs, pensions and CTFs are different examples of tax wrapper. |
| Wrap Platform | An administration service which allows you to hold a wide range of underlying investments and tax wrappers together in one place. |
