Glossary E – F terms used in Financial Services

Early Leavers: Generally refers to occupational pension scheme members who leave the scheme before normal retirement age.
Easement: In simple terms, rights of a landowner exercised over neighbouring land e.g. a right of way.
Eligibility: Most occupational pension schemes have age and service qualifications that must be met before an individual is able to join the scheme. Such qualifications may be termed eligibility conditions.
Employee Profit Sharing Scheme: A type of share incentive scheme whereby a special trust is established to purchase company shares which, provided certain conditions are met, will escape income tax.
Employee Share Incentive Schemes: Arrangements that enable employees to purchase the shares of their employing company, some with tax advantages, some without.
Employee Share Ownership Trust: Trustees then use the money to buy company shares for all participating employees, who qualify by reference to working hours and length of time worked.
Employers’ Liability: A compulsory class of insurance that most employers must have to cover them against claims by employees who are injured at work.
Emoluments: Used as a term to cover total earnings package when calculating potential benefit from an occupational pension scheme.
Endorsement: A written amendment to an insurance policy which becomes part of it.
Endowment Policy: A life insurance policy which pays a sum of money after an agreed period of time, or on the death of the policyholder, whichever happens first. See also Maximum Investment Plan (MIP)
Endowment Mortgage: Essentially an interest only house purchase loan where the outstanding capital will be repaid at the end of the term out of the fund accumulated under an endowment policy.
Engrossment: Preparation of legal document in its final form prior to signing.
Enterprise Investment Scheme: Introduced by the November 1993 budget as a replacement for the BES scheme that ended 31/12/93. Investors can invest up to £100,000 each year and get 20% tax relief; an additional 20% is available if the venture fails.
Enterprise Zones: Designated areas throughout the country offering special tax incentives to encourage investment in commercial property.
Equal Access: The equal access provision of legislation relating to occupational pension scheme membership makes it obligatory to offer the same eligibility conditions to men and women doing effectively the same type of job.
Equities: Common alternative term for ordinary shares.
Equity: The value of a business (assets less liabilities, but excluding ordinary share capital) or of a property less the amount of the mortgage. Commonly the name given to shares. Shareholders are the owners of a company who can vote on important matters such as the appointment of directors. They also participate in the increased value of the company, and therefore its shares, if the company is successful.
Equity of Redemption: The rights of the mortgagor, the property owner, over the mortgaged property. E.g. the right to redeem the property. Escalation. A term used to describe contracted increases in pensions in payment, or in regular contributions.
Estate: More properly used in connection with ownership of land. Generally used in a wider context, however, relating to one’s personal possessions.
Estate Duty: A tax payable on an estate at death between 1894 and 1975.
Estate Planning: General phrase relating to personal financial planning, the emphasis being on passing on intact as much of one’s estate/possessions on death with as little tax as possible being paid.
Estate Protection: Generally a mix of asset reorganisation and use of packaged life products to reduce tax liability and to pay any tax that does become due.
Ethical Investments: “Ethical investment” is the term given to investment in companies which make a positive contribution to the world rather than to companies which harm the world, its people and wildlife. For example, someone may avoid investing in a company because it produces alcohol or is thought to exploit labour from poor countries.
Eurobond: A medium/long-term bearer bond denominated in a European currency and issued by Government or international companies.
Excess: An amount of money that the policyholder has to pay towards the cost of a claim, for example, the first £50.
Excess of Loss Policy: Covers claims costs exceeding an amount specified in the policy
Exclusion: Specified property, person or event which the policy does not cover.
Execution only: Where an adviser is instructed by a client to arrange a particular investment, without having received advice from the ADVISER.
Executive Pension Plan (EPP): A company sponsored, individual occupational pension arrangement governed by occupational pension rules, not Personal Pension rules. Open to employees only.
Exempt Approval: The usual, and less strict, route to achieve Revenue approval for a group occupational pension scheme.
Exempt Unauthorised Unit Trusts: Whilst most unit trusts are authorised, authorisation places limitations on the types of investments permitted. Some funds do not seek authorisation, to escape these restrictions.
Ex Gratia Payment: Any payment made by an insurance company which is not strictly necessary, under the terms of the policy.
Expatriate: Someone who works away from their own country.
Experienced Investor: One of the categories of investor under the Financial Services regulations, one who regularly invests in their own right and should, therefore, have a clear understanding of the risks and rewards involved.
Export Credit Insurance: Provides cover for exporters’ losses arising from non-payment.
Exposure: Whether, and the extent to which, an insurer is subject to losses arising from a particular risk.
Extra Statutory Concessions: Additional allowances permitted by the Revenue in certain circumstances e.g. individual Permanent Health Insurance policy payments are not taxed immediately.
Fact Find: An important stage in the advice cycle, one which enables the adviser to draw out all pertinent information about a potential client, and to update information already held concerning an existing client.
Family Income Policy: A type of term insurance policy that, on the death of the life insured, pays benefits by instalments until the end of a specified period.
Fatal Accident Benefit: Certain life policies will make an additional payment – over and above the sum insured – if the policyholder dies as a result of an accident.
Fidelity Guarantee Policy: A policy covering the risk of dishonesty on the part of an employee who holds a position of trust, for example, a wages clerk.
FIMBRA: Financial Intermediaries, Managers, Brokers Regulatory Association. An SRO in the regulatory hierarchy, one to which Independent Financial Advisors could become registered prior to the PIA.
Final Remuneration: The pension benefit produced by a final salary/defined benefit scheme will be based on one or two definitions of final salary permitted by the Pension Schemes Office i.e. remuneration for any one year in the five years preceding retirement; the average of three consecutive years in the last 10.
Financial Services Authority (FSA): Was set up in late 1997 and will become the new single regulator for financial services, including banks & building societies, in 1999, when a new Financial Services Act has been passed.
Financial Underwriting: Underwriting in general is concerned with assessing the risk that a proposal represents to the insurance company. Part of the assessment involves the health hazard. Equally important is assessing the moral hazard attached to a proposal, part of which requires a question to be asked along the following lines: ‘Given the circumstances outlined and the information provided, is the sum assured in question disproportionately high in the light of lifestyle/business requirements’. i.e. is there deliberate over insurance, and why.
Financial Year: Financial years run 1/4 to 31/3 and are identified by the calendar year in which they commence e.g. financial year 1995 is the year to 31.3.1996.
First Death: This is an option under a joint life policy to have the policy proceeds paid out on the first death of the insured persons.
Fiscal Year: Period of twelve months for the purpose of tax calculation; in the UK the fiscal year runs 6th April in one year to 5th April the following calendar year.
Fixed Rate: Unchanging, not subject to movement or fluctuation, usually for a specified term.
Flexible Trust: One under which the settlor may change the beneficiaries to the trust property, or the way in which the property is divided.
Forward Pricing: Price quoted for units where the manager arranges the underlying assets after the investor applies for the units. The price reflects the future or rearranged asset valuation.
Franked Investment Income: Dividend income received by corporate investors that, because corporation tax has already been paid on it by the distributing company, will not attract additional tax in the hands of the investing company.
Free-standing AVCs (FSAVCs): Additional contributions paid voluntarily into personal pension policies by employees in occupational schemes who wish to top up their pensions, but keep the money separate from the occupational scheme. It is available to all pension scheme members except 20% directors.
Free Cover: Usually, but not always, relates to group employee benefit schemes where an element of protection is offered without the need for medical evidence.
Freehold: Complete ownership of land; held in ‘fee simple absolute in possession’ i.e. not likely to end on death or after a time (fee simple); unconditional (absolute); the owners rights are immediate (in possession).
Friendly Society: Similar to a mutual insurance company. A friendly society is owned by and established for the benefit of its members, mainly through the provision of life insurance and sickness benefit.
Front End Loading: One of the reasons for heavy penalties if a life or investment policy is cancelled in its early years, is that often the expense of selling and setting up the policy is recouped by the insurance company in the first year or two of the policy. This method of expense allocation is called front end loading.
Fully Contracted-out: Pension policy where the only premium received is the DSS rebate.
Fund Links: With unit linked/unitised investment policies it is often possible to spread the premium or investment between a number of funds linked to the policy.
Funded Unapproved Retirement Benefit Schemes (FURBS): The 1989 Finance Act extended the scope for unapproved pension schemes to provide benefits in excess of the ‘normal’ benefits for approved schemes. Both types may now run in tandem.
Funds – Closed ended: These are investment funds that issue a fixed number of shares. To buy shares there must also be someone wishing to sell their shares. These shares will usually be dealt on the London Stock Exchange.
Funds- Open ended: These are collective investment schemes , in which the number of units in the fund varies from day to day according to the number of people wishing to buy or sell their holding in the fund.
Future: This is a contract to buy or sell a commodity at a future date, at a fixed price that is agreed now. Whilst wealthy private individuals trade them, futures are normally traded by institutions as a substantial amount of risk can be involved. A future is a derivative

Glossary E – F terms used in Financial Services

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