Glossary
Grosvenor Wealth Management’s glossary is designed to help clarify terms used in wealth management and investment literature.
If you are unfamiliar with any terms, you will find this page useful.
A
An accountant will provide advice, audit accounts and provide information about financial records. This may involve financial reporting, taxation, auditing, forensic accounting, corporate finance, business recovery and insolvency, or accounting systems and processes.
A unit class that reinvests any income back into the fund instead of paying it out to the investor as income.
A financial analyst works in banks, pension funds, insurance companies, and other businesses. Financial analysts guide businesses and individuals in decisions about expending money to attain profit. They assess the performance of stocks, bonds, and other types of investments for clients.
An amount charged each year (usually expressed as a percentage of the value of the investment) to cover running costs of a policy. An AMC can also be charged by a fund manager to cover the running costs of the fund.
An asset is anything of value or a resource of value that can be converted into cash. Individuals, companies, and governments own assets. For a company, an asset might generate revenue, or a company might benefit in some way from owning or using the asset. Personal assets may include a house, car, investments, artwork, or home goods.
Investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.
Asset management is the direction of all or part of a client’s portfolio by a financial services institution, usually an investment bank, or an individual. Institutions offer investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor.
The exchange of information between countries without having to request it, reducing the possibility for tax evasion.
An arrangement under which an institution automatically deposits dividends or capital gains generated by an individual’s investment back into the investment to purchase additional shares.
B
A portfolio containing several different investment types. Most balanced portfolios are invested in stocks, bonds and money market instruments.
Terms frequently used to describe the outlook for short and long-term market performance:* bear refers to the expectation that prices will decline;* bull refers to the belief that stock prices are likely to rise.
A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products.
A fixed income investment in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate.
A finance broker is a “go-between” who usually arranges loans for a fee. A finance broker deals with the lenders for you and arranges a loan for you. Some finance brokers are called “mortgage brokers”. Mortgage brokers are finance brokers who specialise in arranging home loans or investment property loans.
C
Capital is the amount of money invested in a unit or shares. When discussing funds, capital can also mean the market value of the assets within the fund (excluding income).
Capital Gain, or Realised Capital Gain, is where a profit is made on an asset when it is sold for a higher price than it was originally bought for. Unrealised Capital Gain is simply where the asset is valued at a higher selling price, but has not yet been sold.
This is the tax paid on the profits made when an asset is sold. Unless units and shares are held through a pension plan, ISA or tax-exemption system, any profits (above the annual allowance) made through the sale of assets is taxable. No CGT is payable on transactions within an authorised fund and investors will only need to consider CGT when selling units in the fund itself.
Tax treatment depends on the individual circumstances of each investor and may be subject to change in future.
Capital Growth is the increase in value of an investment from its original amount, excluding income. Funds targeting capital growth aim to select investments that will increase in value over time.
Capital loss occurs when assets are sold for a lower price than they were originally bought for.
This is the rate of return, excluding income, on an investment. It is the increase in value of assets in a portfolio.
Cash describes all money, paper or digital. In relation to funds, cash usually refers to the percentage of a fund that is on deposit rather than invested into another asset class. This could be a short-term decision by the fund manager who expects asset prices to fall and therefore an opportunity to buy assets more cheaply may present itself.
A cash ISA is a savings account where as your money grows you don’t pay tax on the interest you earn.
A collective investment which has a fixed number of shares traded on a stock exchange. In the UK the most common example of this is an Investment Trust.
A collective investment scheme (CIS), which is sometimes referred to as a ‘pooled investment’, is a fund that several people contribute to. A fund manager will invest the pooled money in one or more types of asset, such as stocks, bonds or property.
CRS is an information standard for the automatic exchange of tax and financial information on a global level, which the Organisation for Economic Co-operation and Development (OECD) developed in 2014.
A specialised company that is responsible for holding financial assets for safe keeping and record keeping on behalf of corporate or individual investors.
D
Discretionary Management Service is a form of investment management in which buy and sell decisions are made by a portfolio manager or investment counsellor for the client’s account. The term “discretionary” refers to the fact that investment decisions are made at the portfolio manager’s discretion. This means that the client must have the utmost trust in the investment manager’s capabilities.
The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.
Cash payment made by a company to stockholders.
Total amount of cash dividends received annually on a share of stock divided by the price of the stock.
A company’s legal obligation to obtain documentation to establish certain information before a contract is signed or transaction completed. It often relates to the process that companies carry out when they are about to acquire another company to determine all of the financial information and liabilities before an acquisition is completed.
E
The ownership interest of shareholders in a corporation.
A fund that invests primarily in equities.
Estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an IFA and a solicitor experienced in estate law.
Exchange traded fund is a type of investment fund that is traded on a stock exchange, much like stocks. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF’s price changes throughout the day, fluctuating with supply and demand.
A fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group (or “family of funds”).
F
The FCA regulates authorised investment funds. The FCA is the UK regulator of Financial Services and requires firms to adhere to strict rules, principles and guidance to put their customers’ well-being at the core of their business.
The FOS is an independent body that handles complaints regarding investment and financial services companies.
The FSCS exists as the fund of last resort for customers of UK financial services firms. It is able to pay compensation to consumers if an authorised financial services firm is unable, or likely to be unable, to pay claims against it.
Another term for Bonds or Gilts as an asset class where the amount of income paid out is fixed.
The most common method of pricing authorised investment funds. The price of sale for units is calculated at the same time daily. An investor giving an instruction to buy or sell receives the unit price at the next valuation point of the funds.
The fund manager, or management company, is the firm responsible for making decisions on how a fund should be invested. Working to the established rules set up by the regulator, they can also be described as the ‘fund provider’.
A fund of funds is a fund which invests in a portfolio of other funds. Fund of funds generally come in two ‘flavours’. In the case of a ‘fettered’ fund of funds, the underlying funds will be funds managed by the same company. In the case of an ‘unfettered’ fund of funds, the underlying funds will be from different fund management groups.
An online fund supermarket is a service where investors can buy and sell funds and other financial products from multiple portfolios through one account. It may also provide information and other relevant material. A Fund Supermarket will typically charge a fee for its service.
The fund provider has responsibility for its operation, and can establish an investment manager to oversee its assets and investor promotion.
G
Gain is the profit made when assets are sold for more than their original buying price.
Gearing is typically used to describe longer term borrowing by a fund, with the objective being borrowing money and investing it in profit-heavy assets. Gearing can lead to higher returns but can also lead to higher risk.
A GIA or General Investment Account, is a flexible savings account that allows the account holder to invest in a great variety of investments areas.
Another term for Bonds or Gilts as an asset class where the amount of income paid out is fixed. A bond issued by the UK Government is known as a Gilt. A Gilt can be purchased by investors and will pay a regular fixed income expressed as a percentage of the capital value.
A Growth Fund is a fund that aims to grow through capital appreciation. The fund manager will tend to target holdings which they believe will demonstrate above average growth over the long term. Growth funds typically are less focussed on generating a yield than income funds.
H
Hedging typically means taking a position intended to offset potential losses that might be incurred by another investment.
A private fund that is not allowed to be publicly offered. This is due to the structure, borrowing or investment powers of the fund, as they do not comply with the regulatory requirements for retail funds.
Yield is typically expressed as a percentage and is a measurement of dividends paid out over the previous 12 months divided by the current price.
I
A professional who offers independent advice on financial matters. They can choose to make recommendations from all the products available on the market as they are not tied to one particular provider. They make sure the policyholder gets the right product for their individual needs.
Inheritance refers to the assets that an individual bequeaths to their loved ones after they pass away. An inheritance may contain cash, investments such as stocks or bonds, and other assets such as jewellery, automobiles, art, antiques, and real estate. Those who receive an inheritance may be subject to inheritance taxes, where the more distantly related a beneficiary is to the decedent, the larger the inheritance tax is likely to be.
Intergenerational planning is a way for families to use their collective wealth to support one another during their lifetimes. Traditionally, wealth has passed from one generation to the next upon death. Intergenerational planning takes a different approach and allows families to pass on their wealth, and alleviate financial disparities amongst different generations, here and now. It uses holistic financial planning strategies to make the best use of intergenerational wealth, creating much longer and more robust saving and investment strategies that can pass through the generations. In this way, intergenerational planning is much more than just Inheritance Tax planning, although this is an important element.
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. An investment always concerns the outlay of some asset today—time, money, or effort—in hopes of a greater payoff in the future than what was originally put in.
ISA stands for Individual Savings Account. The main difference between an ISA and any other savings account is that it offers tax-free interest payments, so you could get more for your money.
J
A Junior ISA is a type of ISA designed to be a tax-efficient savings account for under 18s. Parents, guardians and friends can contribute on behalf of the child.
K
This document provides the investor with important information about their potential investment fund including costs, risks, performance and objectives. It is a requirement that this document be available to the investor prior to investment. The regulator specifies both the information contained in the document and the format of it.
L
A legal adviser, also called a legal counsellor, is a professional who provides legal advice to individuals and organisations.
Lifetime ISAs (also known as LISAs) are a type of ISA created to help people save either for their first home or for retirement. If you take out a Lifetime ISA, the government will give you a bonus worth 25% of what you pay in, up to a set limit, every tax year.
An investment is described as liquid if it can be quickly and easily bought and sold.
M
Market capitalisation describes the value of a company or corporation, where their shares are traded and listed on the stock exchange. This value is estimated by multiplying the market price of its shares by the number of shares the company currently has in issue.
Market risk is an investment risk that can potentially impact the entirety of an asset class as asset prices rise and/or fall.
Mixed asset funds can invest in a broad variety of asset classes including cash, bonds and shares. In theory, performance should not rely upon any one asset class.
A monthly investment is an amount of money deposited or invested into a fund every month. This can be useful as a regular savings plan.
The monthly savings plan is a timetable or schedule encouraging the investor to deposit a certain amount of money per month.
A mortgage is a loan that the borrower uses to purchase or maintain a home or other form of real estate and agrees to pay back over time, typically in a series of regular payments. The property serves as collateral to secure the loan.
N
It is the value of an entity’s assets minus the value of it’s liabilities and in relation to a mutual fund or ETF (Exchange Traded Fund) it’s the value per share on a specific date.
A person or company, not the owner, in whose name a stock, bond, or company is registered.
O
A company incorporated in an offshore financial centre.
An open-ended fund is a fund where the number of shares or units in existence can increase or decrease. The fund manager creates units for new investors and cancels units for those selling out of the fund. The term ‘open ended’ is used because the number of units that can be created is theoretically unlimited.
An open-ended investment company (OEIC) is a type of company or fund in the United Kingdom that is structured to invest in other companies with the ability to adjust its investment criteria and fund size.
P
Passive investing is a strategy focused on achieving long-term appreciation of portfolio values with limited day-to-day management of the portfolio itself.
An amount of money paid into a plan by an individual and their workplace. The pension can be accessed following the individual’s retirement from their business.
Personal financial planning typically involves creating a personal budget, planning for taxes, setting up a savings account and developing a debt management or recovery plan. All of these activities may be assumed by a certified financial planner who is hired to assist an individual with their finances.
A portfolio describes a collection of investments.
A risk management technique, in which an investor holds a wide variety of investments within a portfolio in order to produce higher returns and lower risk.
Portfolio management involves building and overseeing a selection of investments that will meet the long-term financial goals and risk tolerance of an investor.
Active portfolio management requires strategically buying and selling stocks and other assets in an effort to beat the broader market.
Passive portfolio management seeks to match the returns of the market by mimicking the makeup of a particular index or indexes.
Portfolio turnover describes the extent to which fund managers have bought and sold investments within a fund during a particular length of time.
Described as investing in commercial or residential land and buildings, property investment can cover shares in property companies, actual properties, and property developers.
Q
A measure of how an investment is performing in its peer group. For example, a Top Quartile fund would be in the top 25% of funds in its peer group.
R
Retail funds are traded on the open market and target the investing interests of individual investors. Closed-end mutual funds and exchange-traded funds are the two most common types of retail funds.
This is an online service offered by a financial intermediary that allows investments to be bought and sold online.
Retirement is the withdrawal from one’s position or occupation or from one’s active working life. A person may also semi-retire by reducing work hours or workload.
A risk profile is used to describe the ability and understanding of an investor to face the loss of capital, or an investment’s failure to meet financial targets.
Risk ratings are designed to evaluate the likelihood of risky investment. They help investors to gauge how much a fund could go up and down in value. Higher risk funds will typically exhibit a higher volatility.
S
Self-invested personal pension (SIPP) is a UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from a large selection of investments approved by HM Revenue and Customs (HMRC).
Share classes are special designations applied to stocks and mutual funds. Not all shares are created equal.
A solicitor is a legal practitioner who traditionally deals with most of the legal matters in some jurisdictions.
A stocks and shares ISA allows you to hold a range of investments. The income and profits from investments are protected from Income and Capital Gains tax.
T
An active management portfolio strategy that actively adjusts a portfolio’s asset allocation where three primary asset classes (stocks, bonds and cash) are actively balanced and adjusted.
An agreement signed by two countries to establish an official system for the exchange of information relating to taxes. Information is only provided if there is a proper request submitted.
Tax liability is the total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority like HMRC. In other words, it is the total amount of tax you’re responsible for paying to the taxman. Tax liabilities are incurred when income is earned, when there is a gain on the sale of an asset, or when another taxable event occurs. No tax liability means a taxpayer’s total tax was zero in the prior year, or they did not have to file a tax return.
An arrangement that empowers one or more people (trustees) to safeguard and administer the assets such as property and money of another person or persons (beneficiaries).
An individual (or business) which holds or manages assets for the benefit of the beneficiaries.
U
A unit is a share of an investment fund. It is a proportionate share of rights of the investment returns, earned by a unit trust.
An open-ended unit trust is an authorised investment fund created in the same legal structure as a trust.
V
An individual (or business) which holds or manages assets for the benefit of the beneficiaries.
Fluctuations in the value of a security or investment portfolio. Volatility is viewed as a measurement of an investment’s risk.
W
Wealth management is the process of putting together a financial plan that supports you in achieving your life goals. It can be as simple as helping you manage some money you want to invest, through to a full financial review which takes a close look at all aspects of your personal finances, your financial outgoings, options to improve tax-efficiency and above all to understand how your money can support your ambitions in life.
A wrapper is a term typically used to describe a tax efficient vehicle, for example a pension plan or an ISA, where fund investments and assets can be held.
X
At the end of an accounting period, the income in an income-paying unit class is stripped out of the price and is used to pay out income to investors. When this happens the price falls and the price is labelled XD up until the point at which income is paid out.
Y
The yield is the income return on an investment. There are different types of yield. For example, funds paying a dividend have a historic yield, while funds paying an interest distribution have a distribution yield and an underlying yield.