Glossary of Financial Terms

A

Adviser Charge
The fee you agree to pay for financial advice. Adviser charges must be disclosed clearly and agreed in advance.

Asset
Anything you own that has value, such as cash, investments, property, or pensions.

Asset Allocation
How investments are spread across different asset classes (for example, cash, bonds, and equities) to manage risk.

B

Beneficiary
A person or organisation entitled to receive benefits from a pension, trust, will, or insurance policy.

Bond (Fixed Interest)
A loan to a government or company that pays interest and returns the capital at maturity.

C

Capital Gains Tax (CGT)
Tax payable on the profit made when selling or disposing of certain assets.

Capacity for Loss
The amount of money you could afford to lose without it affecting your standard of living or financial objectives.

Cash Flow
The movement of money in and out of your finances over a period of time.

Compound Interest
Interest calculated on both the original investment and any interest previously earned.

D

Defined Benefit (DB) Pension
A workplace pension that pays a guaranteed income, usually based on salary and length of service.

Defined Contribution (DC) Pension
A pension where retirement income depends on contributions and investment performance.

Diversification
Spreading investments across different assets to reduce risk.

E

Equities
Shares in a company that represent ownership and potential for growth and dividends.

Estate Planning
Arranging your affairs to manage and pass on wealth efficiently during life and after death.

F

Financial Conduct Authority (FCA)
The UK regulator responsible for overseeing financial firms and protecting consumers.

Financial Plan
A structured strategy designed to help you meet your financial goals.

Fixed Rate
An interest rate that remains unchanged for a set period.

G

Growth
An increase in the value of investments over time.

H

Higher Rate Taxpayer
An individual who pays income tax above the basic rate threshold.

I

Income Drawdown
A flexible way of taking retirement income directly from a pension while keeping funds invested.

Independent Financial Adviser (IFA)
An adviser who considers products from across the whole market and provides unbiased advice.

Inflation
The rise in prices over time, reducing the purchasing power of money.

Inheritance Tax (IHT)
A tax on estates above the nil-rate band when someone dies.

ISA (Individual Savings Account)
A tax-efficient savings or investment account where returns are usually tax-free.

L

Lifetime Allowance (LTA)
A former limit on pension savings. Although abolished, legacy considerations may still apply in planning.

Liquidity
How easily an asset can be converted into cash.

M

Market Risk
The risk that investments may fall in value due to market movements.

Mortgage
A loan secured against property.

N

Nil-Rate Band
The portion of an estate that is not subject to Inheritance Tax.

O

Ongoing Advice
Regular financial advice and review services provided for an agreed ongoing charge.

P

Pension Commencement Lump Sum (PCLS)
The tax-free lump sum you can usually take from your pension at retirement.

Portfolio
The collection of investments you hold.

R

Retail Distribution Review (RDR)
A regulatory change that improved transparency of adviser charges and professional standards.

Risk Profile
An assessment of your attitude to and capacity for investment risk.

S

Suitability Report
A document explaining why a financial recommendation is suitable for you.

T

Tax Planning
Arranging finances efficiently within tax rules to minimise unnecessary tax.

Trust
A legal structure where assets are held by trustees for beneficiaries.

V

Volatility
The degree to which investment values rise and fall over time.

W

Will
A legal document setting out how your assets should be distributed after death.

This glossary is for information only and does not constitute financial advice. Tax rules and legislation may change and their impact depends on individual circumstances.