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Glossary of Financial Terms

Every industry has its own language and financial planning is no different.  We don’t think talking to a financial planner should be intimidating or confusing. We offer this glossary of commonly used terms and acronyms to help you navigate your financial journey whether you work with us or go it alone.

Advisor – A financial advisor (sometimes spelled adviser), provides guidance on financial matters. They may offer a range of other services and the term or title does not guarantee or specify what services are offered. 

Allocation – An investment allocation is a strategy to manage risk. The idea is to distribute your portfolio’s assets in a way that is designed to help you reach your goals while considering your risk tolerance and timeline. 

Asset – Any resource you own that has economic value such as cash, mutual funds, stocks, or real estate.

AUM (Assets Under Management) – This term refers to the total market value of the investments managed on behalf of clients. Some financial advisors, wealth managers, and financial planners use this value to calculate some or all of the fees charged for their services.

Beneficiary – A person who receives proceeds from assets such as: life insurance, the assets in a trust, and/or a retirement plan.

Broker-Dealer – A person or firm who buys and sells securities on behalf of their customers.

Custodian – The company that holds your securities and investments such as TD Ameritrade or Schwab.

Donor Advised Fund – A vehicle for charitable giving that allows individuals to put assets aside for future distribution to a charity.  Donations made through such a fund can provide additional tax benefits.

Estate planning – The decision making process to determine how assets should be distributed at your death or incapacitation. The process includes identifying strategies to ensure your wishes are carried out and tax planning for those who stand to inherit your assets. Financial planners can help you consider the best ways to distribute assets to heirs and help implement the financial aspects of the estate plan. We recommend you consult with an attorney for legal advice and to draft legal documents such as wills or trusts.

Fee-only – The financial planning firm is compensated for their services directly by clients and earns no commissions, referral fees, or kickbacks for recommending certain products or providers.

Fiduciary – Meaning to hold or be given in trust, in the financial planning industry being a fiduciary is to be legally and ethically bound to act in the interest of the client, even ahead of what benefits the planner or firm.

Financial freedom – To be free of financial worries and have the ability to live how you desire. For some people financial freedom is associated with retirement – when they can stop working entirely. For others it means to be able to work part-time and travel extensively well before traditional retirement age.

Financial planning – The ongoing process of identifying strategies to use financial resources to achieve the life the client wants.  As life changes, so does the plan to ensure the actions taken align with what the client wants and needs and risk is mitigated.

Insurance – A contract that provides financial protection or reimbursement against losses or liability. Insurance policies are used to reduce risk (see risk management).

Investment management – To buy and sell portfolio holdings as part of a larger financial strategy. This service is sometimes also called portfolio management.

Risk management – This term is used in two ways as it relates to financial matters. The first is a general method of evaluating uncertainty or potential results which have a negative impact on a financial goal or state. The second is in relation to the specific use of insurance policies for assets and individuals to protect against damage, expenses, or losses.

Rebalancing – The buying and selling of assets to maintain the desired allocation within an investment portfolio to reduce risk and make adjustments to meet the client’s financial goals as they age or experience life changes.

Registered Investment Adviser – An investment manager required by law to put their client’s best interest first. An RIA may be registered with individual states or the Security and Exchange Commission (SEC), depending on the size of the firm.  Also required, is the disclosure of any potential conflicts of interest in fulfilling their role with clients.

REIT (Real Estate Investment Trust) – A company that owns, operates, or finances income producing real estate. Investors can buy and trade REITs like stocks and earn dividends without having to directly own or manage real estate.

Roll-over IRA – Reinvesting the holdings in one retirement account such as an employer 401k to another. In many cases, the transfer can take place without generating additional taxes.

Roth IRA conversation – Moving assets in a traditional IRA or 401k to a Roth IRA as a tax planning strategy.

Securities – Assets bought and sold via financial markets such as stocks and mutual funds.

Looking for definitions of other financial planning related terms? These resources may be helpful:


Financial Education Resources from the Alliance of Comprehensive Planners (ACP)