Glossary A – B terms used in Financial Services

AITC: The AITC (Association for Investment Trust Companies) is the trade association for investment trust companies. It offers background reading and useful material that provide an explanation of investment trusts. Its address is Durrant House, 8 -13 Chiswell Street, London, EC1Y 4YY.
Absolute Title: Ownership of registered land where the State guarantees that no one has better right to the land. Absolute leasehold title guarantees that the lessor has title to grant the lease.
Acceptance Letter: The Acceptance Letter issued by an insurance company in response to a proposal is deemed a counter proposal, acceptance by the proposer being by payment of the first premium.
Accident & Health: Class of insurance under the Insurance Companies Act including two main types of business – personal accident and medical expenses. Personal accident policies will pay a lump sum or weekly benefits in the event of accidental death or injury. Medical expenses insurance will pay the costs of treatment for acute conditions.
Accumulation Units: One way of recouping expenses under a unit linked contract is to issue two types of unit: Capital Units, purchased by ‘new’ contributions and which bear a heavy charge or deduction for a defined period, and Accumulation Units, purchased by existing contributions after the end of the capital unit period, when the charges are reduced.
Accumulation and Maintenance Trusts: A trust in which any investment returns or deposit interest accumulates and is used to support/educate the beneficiaries without disposal of the capital. Entitlement to the capital must arise, however, within 25 years.
Activities of Daily Living: Generally used as a basis for assessing claims under a long-term Care contract. They are considered to be basic activities essential to an active adult existence e.g. eating, dressing, bathing, using the toilet, getting in and out of bed, walking, climbing stairs.
Act of God: An event that is not the fault of any individual. Acts of God can be insurable.
Actuary: A professional person qualified to apply mathematical principles to solving long-term financial problems, primarily in connection with pensions, life insurance and investment.
Additional Voluntary Contributions: Additional contributions made voluntarily by company pension scheme members to boost their eventual retirement income. They are organised on a group basis, unlike FSAVC’s and must not exceed 15% of remuneration when added to any existing scheme contribution.
Advance Corporation Tax: When companies pay dividends to shareholders, they must also pay to the Revenue Advance Corporation Tax (ACT), effectively a payment on account of the shareholders tax due on the dividend, and the company’s corporation tax.
Agent: A person who acts for one or small number of companies, particularly in selling insurance.
Agricultural Property Relief: Applied to lifetime transfers of agricultural land. When certain conditions are met, the value of the transferred property is reduced by up to 100% depending on the type of property, for Inheritance Tax calculation.
Allocation: The amount of premium actually used to purchase units. Under various charging structures less than the full premium will be allocated to purchase units in the early years of the contract.
Allocation of Interest Election: Where husband and wife may elect to have the tax relief allocated in a split other than 50/50, the latter being the ‘norm’ without an election.
Allowance: When taken in the context of tax ‘allowance’, it is a figure that reduces income that would otherwise be subject to tax.
All Risks: Wider cover than given under a normal property insurance policy. Covers any loss or damage apart from exclusions stated in the policy.
Alternative Investment Market: AIM is a separate market within the London Stock Exchange designed as a forum for the sale and purchase of shares in small, young and growing companies. It is aimed at giving investors the opportunity to invest and trade in the shares of these companies on a market regulated by the Exchange. Due to the nature of the companies, shares traded on this exchange are likely to be more volatile than those traded on the official list of the London Stock Exchange itself. AIM is a trademark of London Stock Exchange PLC.
Alternative investments: These can include works of art, horses, antiques, classic cars, and fine wines. It is advised that investors seek highly specialised advice before investing, as investments can be quite erratic, i.e. when highly sought after, you could receive a high return but economic recessions or fashion trends can lead to lower returns on your investment.
Annual Equivalent Rate (AER): Appears in adverts relating to all interest-bearing accounts. This shows the advertised interest rate as if it were paid and compounded once a year. It should allow consumers to compare products more easily. From 1st January 1999 all adverts will have to include the AER.
Annual Management Charge: General term for a charge levied on an investment fund for its management and administration.
Annual Percentage Rate (APR): Standard measure of true interest on a loan measured over one year, reflecting the cost of paying on a monthly basis.
Annuity: A contractual arrangement by which an insurance company pays someone a regular income, usually for life, in return for a lump sum premium.
Annuity Mortgage: More usually called a ‘repayment mortgage’, but sometimes referred to in these terms because of the make up of the payments i.e. as with some annuities, a mix of capital and interest.
Appointed Representative: Under Financial Service Act regulations, a Registered Individual may appoint others to act on their behalf. Such an individual or business would be an Appointed Representative. Such individuals are not registered directly with a regulatory organisation or professional body.
Appropriate Personal Pension: A personal pension plan that is used for contracting out purposes.
Approval Categories: Because of changes in Revenue approval of company pension schemes introduced in 1987 and 1989, there are now effectively three categories of Revenue approval, even though new schemes may only be approved under the 1989 rules.
Approved Share Schemes: Revenue approved share incentive schemes offering certain tax advantages to the participants.
Articles of Association: One of the establishing documents of a limited company, which sets out the internal operation of the company, including the powers of the directors.
Ask Price: Price at which a Market Maker will sell stock. Also known as the Offer price.
Assessment of Risk: Risk in the context of financial planning relates to the possibility of losing money. Assessment of risk can be generalised for initial discussions but must be personalised for final decisions to take account of the clients’ subjective view of the options.
Asset: Property that has value e.g. plant, machinery, shares or invoices.
Asset Backed Investments: Investments based on tangible, working capital/assets that have the potential for growth e.g. investment in the shares of an industrial or commercial concern, rather than investment in deposits.
Asset Conversion: An Estate Planning device to change assets which do not attract relief into assets which do attract relief.
Asset Freezing: An Estate Planning device to ensure that any growth in an asset is outside the estate e.g. an interest free loan payable on demand invested by the borrower will produce growth in the borrowers hands.
Asset Reduction: An Estate Planning device to reduce the value of a taxable estate by making use of suitable gifting arrangements.
Assignee: Someone to whom control over property is assigned.
Assignment: The transfer of a right (e.g. to claim on a policy) from one person to another
Assignor: Someone who assigns property.
Assistance: The provision by an insurer or a service company of immediate practical help to resolve an insured problem (e.g. arranging medical treatment abroad/organising a roadside repair).
Associated Operations: Actions that are deliberately linked, one to another, to produce, by a series of actions, a particular long-term result. When used in relation to tax planning, such operations no longer escape the tax evasion net.
Association of British Insurers: The ABI is the trade association to which most UK insurance companies belong. One of its main functions is to monitor quality so that minimum standards of customer service can be maintained.
Association of Unit Trust and Investment Funds: AUTIF is the representative body for over 100 unit trust and investment fund managers, which together have around £100 billion funds under management. It provides investor information on funds. For more information contact AUTIF at: 65 Kingsway, London, WC2B 6TD
Audited Accounts: Accounts which have been checked and examined to determine how the figures have been achieved.
Authorisation: Required by the Financial Services Act 1986 for any firm that wants to conduct investment business in the UK. Authorisation is achieved by obtaining admission to one of the front line regulators, i.e. PIA, IMRO or SFA. SIB (the chief watchdog) maintains a Central Register which provides information on all authorised firms and registered representatives and is where you can check if your firm or adviser is authorised and for what type of business.
Authorised Business: A business suitably registered with an SRO or RPB to deal with particular types of business.
Automatic Accrual: A type of business agreement whereby the shares or business share of an individual pass automatically on to the remaining shareholders or partners.
Average: A policy condition that requires the amount of a claim payment to be reduced proportionately if the policyholder has not insured his property for the full amount of its value or replacement cost.
Average Earnings Index (AEI): A government produced index of the measure of increase in average earnings in all industries, and includes basic pay and all related fluctuating payments e.g. bonuses, promotion increases. Relates to England, Wales and Scotland.
Bancassurance: General term describing the broader financial services activities of banks and building societies, in particular their ‘insurance company’ activities.
Bare Trust: A Trust where the Trustee has no obligation except to pass the trust assets to the beneficiaries at their request e.g. upon reaching majority.
Bargain: This is another word for a transaction or deal. It does not imply that a particularly favourable price was obtained.
Basic Pension: The flat rate state pension available from State Retirement Age to those who have contributed sufficient NI contributions.
Basic Rate Tax: Under the unified system of taxation introduced in April 1973 there are now three levels of taxation; a lower rate, currently at 20%, the basic rate of 25%, and a higher rate of 40%.
Balance Sheet: A statement of the financial position of a business at a particular point in time.
Bears: These are pessimistic city dealers who think investments are going to fall after rising a few points. Therefore they sell their investments in the hope of buying them back at a lower price.
Bear Market: An investment market term meaning that the value of investments is expected to fall.
Bed & breakfast: Is the process of selling shares on one day and then buying them back on another (usually the following day), for tax purposes. This is established stock market practice designed to enable alert investors to minimise their Capital Gains Tax (CGT) bills.
Beneficiary: Someone who will receive the proceeds from a trust or settlement.
Benefit: The money paid by the life insurance company when a claim is made.
Benefits Agency: The Executive agency of the DSS responsible for distribution of information concerning various State benefits.
Benefits in Kind: Refers to non-cash forms of employee benefit such as pension scheme membership, car packages, and so forth.
Best Advice: A generic expression referring to the regulatory requirement of a financial adviser to offer suitable and timely advice relevant to a clients needs.
Betterment: The principle by which a claimant has to make a payment towards the cost of the claim because his or her property will be in better condition after repair than before the loss or damage occurred.
Bid price: The price at which a Market Maker will buy stocks and shares, and a unit manager trust will buy units in his fund(s).
Bid/Offer Spread: Investment funds managed on a unitised basis differentiate between a low bid or buy-back price and the higher offer or sell price in order to use the difference to recoup some of the management expenses.
Bill of Exchange: A paper document indicating that one party (the drawee) agrees to pay the drawer the sum of money noted on the bill on demand or on a specified date e.g. a bank note, or a cheque.
Board Resolution: A binding decision made by the directors of a company.
Bonds: A generic description for a wide range of insurance policies with low protection element and high investment content. It is a loan agreement with a company or the Government (i.e. the company or government issues bonds) whereby there is an arranged repayment to the investor when the loan matures and the investor receives interest throughout the life of the loan. See Gilt edged securities.
Bonus: Amount of money added to the sum insured of a “with-profits” policy. It may be added during the term of the policy (reversionary) or when the policy matures (terminal), or both.
Bonus issue: Also known as a capitalisation or scrip issue. This is when a company issues free shares to a company’s existing shareholders. No money changes hands and the share price falls pro rata. This is usually used as an exercise to make the shares more marketable (i.e. cheaper per share and therefore more attractive to small investors).
Bonus Sacrifice: A way of giving up the bonus element of income, and diverting the sum to additional pension contributions. Any notice of intention to sacrifice must be made clear before any bonus is announced. Tax treatment depends on specific circumstances and the local inspector.
Bridging Loan: A short-term loan taken out to help fund the purchase of one asset before the sale of another asset has been finalised. Commonly seen in the property market.
Broker: A broker is an agent who brings two parties together to do business, and is remunerated by a fee or commission calculated as a percentage of the contract sum.
Broker Fund: Generic term for an investment fund managed by a specialist financial adviser. Usually invested in the units of other investment funds/unit trusts.
Budget: A budget is a financial plan that details future expected income and expenditure. Also refers to a specific sum of money set aside for a particular project.
Buildings Insurance: A policy covering the structure of a house or other building against a number of different risks.
Building Society: A financial institution which, traditionally, accepts cash deposits and pays out interest on the cash so deposited at a variable rate. Money is also lent, traditionally to finance house purchase.
Building Societies Association: Trade association for UK building societies that represent societies in discussions with government and other organisations.
Building Societies Commission: The organisation which now controls the affairs of building societies, having taken over from the Registrar of Friendly Societies.
Building Societies Ombudsman: A service set up in 1987, and funded by all building societies, to investigate complaints made by customers against societies.
Bull Market: A rising investment market. It is the opposite of bear market.
Bulls: These are optimistic city dealers who believes prices will rise and therefore buy securities in the hope of selling them at a higher price than they paid.
Business Card: A convenient way of satisfying the compliance requirement of informing a potential client of who you are, who you work for, your business and regulatory status, and your regulatory authority.
Business Expansion Scheme (BES): Introduced in 1983 as a tax effective inducement to encourage investment in companies not quoted on the stock exchange. The scheme ended 31.12.93 and was replaced by the Enterprise Investment Scheme.
Business Investor: Financial Services legislation recognises various types of investor requiring different levels of duty of care. The business investor is someone not involved full time with investments, but deals with them as part of his business role e.g. a finance director would be expected to have a higher level of knowledge than the ‘man in the street’.
Business Property Relief: An Inheritance Tax relief, applying to lifetime transfers of business property or business interests.
Business Protection: Generally used to refer to such areas as share protection, key employee protection and partnership protection i.e. arranging by use of life assurance policies for money to be in the right hands in the event of death and retirement to help preserve a business and/or its status quo.
Business Rollover Relief: Where there is a capital gain on the sale of a company fixed asset, some or all of the gain may be offset by the purchase price of a replacement.
Buy and Sell Agreement: Both partnerships and director/shareholder controlled companies need agreements to help ensure a satisfactory disposal of shares in certain circumstances. The ‘buy and sell’ route is one such, where it is written into a wider agreement that in the event of death/retirement, one party will sell the business share, and another buy. A fixed agreement rather than an option.
Buyers Guide: Information given to a client by the Financial Adviser showing the advisor’s status and obligations to the client.
Buy Out Policy: Refers to the type of stand-alone policy introduced by the 1981 Finance Act, which enabled those leaving an employment to transfer pension entitlement from a pension scheme to a personal contract.

Glossary A – B terms used in Financial Services

Legals