We know your clients don’t always speak in financial jargon - but the industry often does. To help make conversations clearer and easier, we’ve created a straightforward glossary of commonly used financial terms.
You probably don’t need it. But your clients might.
Use it as:
- A reference point when preparing reports or client meetings
- A resource to share directly with clients who want to feel more confident
- A way to cut through complexity without dumbing anything down
Absolute Return
Absolute Return is an alternative to traditional investing. An Absolute Return focus is different to many funds where success is measured by whether they outperform a specific benchmark. Instead, the aim here is a positive return regardless of market direction, in a low-risk manner.
Active fund
The aim of an active fund is to beat the market’s return by specifically choosing the individual holdings within the fund. These funds are typically more expensive because there is additional oversight – but this comes with the potential for outperformance. On the reverse is a passive fund which aims to track (not beat) an index, such as the FTSE 100.
Active management
Our highly experienced team rigorously review chosen active funds on an ongoing basis, making sure they remain the optimal choice for portfolios. We search available funds to find those that have consistently delivered above average returns with lower than average risk. Then, we use a range of quantitative (such as looking at past performance) and qualitative (such as interviews with fund managers) measurements to find the best possible blend of funds for our active portfolios.
Assets
In financial services when we refer to assets, we’re talking about the investments you own. These can include stocks, bonds, ETFs and alternative investments.
Asset allocation
Asset allocation is about spreading your investments across different types of assets - like stocks, bonds, and cash - to help manage risk and grow your wealth over time. It’s just like a recipe: a good meal has the right mix of ingredients, a strong investment portfolio balances different assets to suit your goals, risk tolerance, and time frame.
Assets under management
This is the total value of investments a financial firm or adviser manages on behalf of their clients. It’ll include all the cash, stocks, and other investments.
Attitude to risk
This measures how comfortable a client is with the possibility of losing the money in their investments, in exchange for the potential of higher returns. It's unique to each person and will depend on many things like their financial goals, time horizon, and past experiences.
Blue chip
A 'blue chip' is a well-established, financially sound, and historically secure company. Blue chips typically have a large market value, a long track record of reliability, and the ability to perform well in different market conditions. Companies like Apple, Microsoft, and Coca-Cola are blue chip stocks.
Capital gains tax
Tax charged to individuals on profits made on assets including shares and unit trusts (where these are held outside of a tax wrapper such as an ISA). A tax that is paid on the net increase of an investment when the investment is sold, and the gain exceeds the client’s annual exemption amount.
Centralised investment proposition
A CIP allows financial adviser firms to manage their clients’ investments in a consistent, scalable, and compliant manner. It does this by using a standardised investment process.
Diversification
This is a way to reduce risk by not putting all your eggs in one basket. Instead of investing in just one thing – like one company or one type of investment – you spread your money across lots of different things. That way, if one part doesn’t do well, the others can help balance it out. It’s about building a more stable mix, so your overall investment has a better chance of growing steadily over time.
Dividends
Like a thank you payment from a company to its shareholders. When a company makes a profit, it can choose to share some of that money with people who own its shares. This payment is called a dividend – and it’s usually paid out in cash, either every few months or once a year. It’s one of the ways you can earn money from investing in shares, alongside any rise in the share price itself.
Discretionary Fund Management (DFM)
DFM means handing over the day-to-day investment decisions to a professional manager. Instead of you or your adviser choosing each individual investment, a specialist team does it for you – picking, monitoring, and adjusting your investments to match your goals and risk level. It’s a hands-off way to invest, with the experts making the decisions on your behalf to help keep things on track.
Dynamic asset allocation
This is when your investments are regularly adjusted to respond to what’s happening in the markets. Instead of sticking to a fixed mix of assets (like shares, bonds, or cash), a professional manager makes changes along the way – adding more of what’s doing well or reducing what’s struggling. The aim is to take advantage of opportunities and manage risk as conditions change, keeping your investments better aligned with the current climate.
ESG investing
ESG investing means choosing investments based on more than just profits – it also looks at how companies treat the environment, look after their staff and communities, and run their businesses responsibly. ESG stands for Environmental, Social, and Governance. So, if you care about things like climate change, fair working conditions, or ethical leadership, ESG investing helps you put your money into companies that reflect those values.
Ethical funds
Ethical funds are investments that aim to do good as well as grow your money. They avoid companies involved in things like tobacco, weapons, or gambling, and instead focus on businesses that behave responsibly and make a positive impact – whether that’s through protecting the environment, supporting communities, or promoting fair treatment of people. It’s a way to invest in line with your personal values.
Fund manager
A fund manager is the person (or team) who looks after your investment fund. Their job is to decide where the money goes – choosing which shares, bonds, or other assets to invest in – and then keeping an eye on how everything is performing. They use their knowledge and research to try and grow your money, while also managing risk along the way.
Fund
A fund is a way of pooling your money with lots of other investors, so it can be spread across a wide range of investments – like shares, bonds, or property. Instead of picking everything yourself, a professional manager looks after the fund and makes the investment decisions. It’s an easy way to get a mix of investments without having to do all the work yourself.
Fixed income
Fixed income is a type of investment that pays you a regular, steady income – like earning interest from a loan. The most common example is a bond, where you lend money to a government or company, and in return, they pay you a set amount over time. It’s often seen as lower-risk than shares and can help add stability to your overall investment mix.
General Investment Account (GIA)
A General Investment Account (GIA) is a flexible way to invest your money without many of the restrictions or limits that come with things like pensions or ISAs. You can put in as much as you want, take money out whenever you like, and invest in lots of different things. It’s a straightforward option for growing your money, but keep in mind that you might have to pay tax on any profits or income you make.
Growth funds
Growth funds are investments that focus on increasing the value of your money over time. They mainly invest in companies that are expected to grow faster than others, which means the price of the shares can go up a lot. These funds might not pay much income regularly, but the goal is to see your investment grow steadily over the years. They’re a good choice if you’re happy to take a bit more risk for potentially higher returns.
Growth investing
Growth investing means putting your money into companies that are expected to get bigger and more valuable over time. Instead of focusing on companies that pay regular income. Growth investing looks for businesses that are expanding quickly and reinvesting their profits to grow even more. The goal is to see the value of your investment rise as these companies succeed.
High yield bonds
High yield bonds are loans you make to companies that might be a bit riskier than others. Because of that risk, these companies pay higher interest (or “yield”) to attract investors. They can offer bigger rewards, but there’s also a greater chance the company might struggle to pay you back.
Investment portfolio
An investment portfolio is just a collection of all the investments you own – like shares, bonds, funds, or cash. Think of it as your personal money toolbox, with different types of investments working together. The idea is to have a mix that suits your goals and how much risk you’re comfortable with, helping your money grow while managing ups and downs.
Investment management
Investment management means looking after your money by choosing and handling investments on your behalf. It involves deciding what to buy or sell, keeping an eye on how your investments are doing, and making changes when needed to help you reach your financial goals. Basically, it’s the ongoing care and attention your investments get to help them grow.
Investment style
Investment style is the approach or strategy a manager uses when choosing and managing investments. It’s like their “game plan” for how they pick investments – whether they focus on steady income, big growth, taking less risk, or something else. Different styles suit different goals and personalities, so it’s about finding the right fit for you.
Parmenion Investment Management (PIM)
Parmenion Investment Management, or PIM, is the team at Parmenion who professionally manage your investments day-to-day. They use their expertise to choose and adjust your investments based on your goals and risk preferences, helping to grow and protect your money over time. Essentially, PIM takes care of the details so you can feel confident your investments are in good hands.
Multi-asset portfolio
A multi-asset portfolio is an investment made up of different types of assets – like shares, bonds, cash, and sometimes property – all combined in one place. The idea is to spread your money across several areas to reduce risk and improve the chances of steady growth. It’s like having a balanced mix so you’re not relying on just one type of investment.
Individual Savings Account (ISA)
An ISA (Individual Savings Account) is a special type of account where you can save or invest money without paying tax on any interest, dividends, or growth you make. There are different kinds – like cash ISAs and stocks & shares ISAs – and you can put in a certain amount each year. It’s a great way to grow your money while keeping more of what you earn.
Passive funds
The aim of a passive fund is to track the market’s return by specifically choosing funds that are designed to replicate the index it’s linked to. These funds are typically less expensive. On the reverse is an active fund which aims to beat the market.
Pension drawdown
Pension drawdown is a way to take money from your pension once you’ve retired, while keeping the rest invested so it can keep growing. Instead of cashing it all out at once, you take out what you need, when you need it. This can help your pension last longer and give you more control over your income in retirement.
Risk
Risk means the chance that your investment might go down in value or not perform as well as you hope. All investments have some risk because markets can go up and down. The key is to understand how much ups and downs you’re comfortable with and choose investments that match that, so you don’t lose sleep over your money.
Self Invested Personal Pension (SIPP)
A SIPP (Self-Invested Personal Pension) is a type of pension that gives you more control over how your retirement money is invested. With a SIPP, you can choose from a wide range of investments, like shares, funds, or bonds, to build your pension pot in a way that suits you. It’s a flexible way to save for retirement with some tax benefits along the way.
Strategic asset allocation
Strategic asset allocation is like setting a long-term plan for how your investments are divided across different types of assets – like shares, bonds, and cash. It’s about deciding the right mix that matches your goals and comfort with risk, then sticking to that plan to help your money grow steadily over time. Think of it as your investment roadmap.
Tactical investing
Tactical investing means making short-term changes to your investment mix based on what’s happening in the market. Instead of sticking strictly to a long-term plan, a manager might shift money into assets that look more promising or reduce exposure to ones that seem risky at the moment. It’s like taking advantage of opportunities or protecting your money when things change.
Tax wrapper
A tax wrapper is a type of account that gives your investments special tax benefits. It helps protect your money from certain taxes on things like income, dividends, or growth. Examples include ISAs and pensions – these “wrap” your investments in a way that can save you money on tax.
This commentary is for general information and shouldn’t be seen as a personal recommendation. If you’d like to get advice on whether an investment is right for you, speak to your financial adviser. It’s also important to remember that an investment’s past performance isn’t an indicator of its future performance, and you could get back less than you put in. There’s also no guarantee that an investment will meet its objectives.
