Here is an A to Z of financial services terms (aka wealth management jargon), what they mean and how they are used to enable clients and candidates to navigate clearly. This glossary will help you in understanding what these financial services terms signify and how they will enable you to feel confident and in control when navigating the financial services world and in finding your perfect role within the myriad of wealth management careers.
The chances are if you have been in wealth management for some time you will already be familiar with most of the terms we’ll list below, but if you are just setting out in your career, or you have just started recruiting for your business you may be a little mystified by some of the terms bandied about – let us help! A refresher never hurts, and you never know, you might even learn something new!
Understanding the language of wealth management isn’t just for experts, it’s for anyone who wants to make informed decisions with confidence. So, whether you’re a client looking to take control of your financial future or a candidate stepping into the industry, knowing the A to Z puts you one step ahead.
An absolute return investment strategy aims to achieve positive returns regardless of the market direction, rather than simply aiming to outperform a benchmark index.
Alternative Investments are investments that are classed as being outside of the traditional asset classes of cash, equities and fixed income (bonds):
Assets can be divided into classes for ease – this is a convenient way to group investments that share the same or similar financial characteristics and are subject to the same regulations. It is arguable how many differing types of class there are, but most investments fit into one of 3 classes, with “alternatives” making up a 4th! In essence, an asset can be pretty much anything with an intrinsic commercial (or exchange) value.
Each asset class with its differing traits has a different level of risk and therefore, return. In order to spread the risk of an investment, it is common practice to combine different asset classes in your fund. This is known as diversification, and can produce a higher value, reduced risk investment.
This is a measure of the average rate of return of investments for the year. It is used by financial planners and clients to compare investments year on year to see how their fund is progressing and subsequently look into options for improvement, or at least discussion.
Asset management is the assessing, buying and selling of assets over a designated period of time, or indefinitely, measuring risk and reward in line with personal tolerances, to increase the total value of the assets.
There are numerous professionals that do this for others (clients) such as portfolio managers, financial planners or wealth managers. They can either work independently or for a financial institution – a bank or asset management company for example.
Assets under management (AUM) and funds under management (FUM) are two terms used in the financial services industry to refer to the amount of money being managed by an individual or institution. AUM is a measure of the total value of all assets held by an entity, while FUM measures only those assets that are invested in collective investment vehicles, such as mutual funds or hedge funds.
This is a key metric in wealth management.
In more depth…
AUM: Assets Under Management
AUM is the sum of the market value of all types of assets held by an entity, and managed by a fund or family of funds, a venture capital firm, a brokerage company, or an individual registered as an investment adviser or portfolio manager.
FUM: Funds Under Management
Whilst AUM is a measure of the total value of all assets held by an entity, FUM measures only those assets that have been pooled with others and are invested by a professional in collective investment vehicles, such as mutual funds or hedge funds.
A back-end load is a fee you pay when you sell an investment, like a mutual fund. It’s usually a percentage of the investment’s value, and the longer you hold it, the lower the fee may be – sometimes dropping to zero if you wait long enough.
A blue-chip stock belongs to a large, well-known company that has a strong track record of steady profits, reliable dividends, and long-term success.
A list, database or portfolio of clients managed by a wealth manager or financial adviser. It is a useful tool in keeping a record of all clients, both current and historic, and is often considered a valuable asset in recruitment. Advisers often take their clients with them when they move role, so it is essential to keep good records.
Book value is what something is worth on paper. It’s the original price paid for an asset, minus how much its value has dropped over time (depreciation).
The process of attracting and onboarding new clients, a critical skill for candidates in wealth management roles. Some companies, however, will have a specific Business Development Manager/Department for obtaining new clients. Should you want to know more about this, check out our dedicated IFA Acquisition page for clients wanting to buy businesses and retiring IFAs looking to sell IFA businesses: https://www.truestartalent.co.uk/specialisms/retiring-ifa/
Adherence to legal and regulatory standards in financial advisory services. Wealth management recruitment often seeks candidates with a strong knowledge of compliance regulations.
They work closely with the whole team to ensure that the firm adheres to regulatory requirements and industry standards.
Cross-selling is the practice of offering additional financial services or related, complementary products to existing clients. For example, if a client comes in to discuss their succession or estate planning, it might be worthwhile trying to cross-sell them some inheritance tax advice services.
This is a heavily regulated practice, and care must be taken to carry this out in an ethical manner – it must always be carried out with the client’s best interests front and centre. Ultimately though if the intent is to fully support the client with all their needs, then all needs should be addressed.
Diversification spreads the risk of an investment, by creating a portfolio from a broad range of differing assets, thus reducing potential losses.
This is similar to KYC when relating to clients, but it can also be used to describe any process that involves a thorough evaluation, be this of:
This is very similar to succession planning, and indeed, they are inter-connected, but unlike succession planning, which is the managing of wealth in your lifetime, for the future generations, estate planning is focused on managing and transferring an individual’s wealth efficiently after their lifetime.
The two are often carried out together to optimise the maximum transfer of wealth and reduce tax obligations.
Refers to how wealth managers and other financial advisers are paid – through fees charged for services (fee-based).
This will be discussed with the client during the onboarding process.
A broader term that encompasses a number of differing roles, including wealth managers, financial planners, and investment advisers. They provide financial guidance in many areas not just investments, such as estate planning, tax strategies and retirement planning. They look to create and secure a roadmap for clients to achieve their short and long-term financial goals.
They address a broader range of clients and focus on the overall financial picture, potentially including investment advice, for a wider audience.
Funds under management (FUM) and Assets under management (AUM) are two terms used in the financial services industry to refer to the amount of money being managed by an individual or institution. AUM is a measure of the total value of all assets held by an entity, while FUM measures only those assets that are invested in collective investment vehicles, such as mutual funds or hedge funds.
This is a key metric in wealth management.
In more depth…
FUM: Funds Under Management
Whilst AUM is a measure of the total value of all assets held by an entity, FUM measures only those assets that have been pooled with others and are invested by a professional in collective investment vehicles, such as mutual funds or hedge funds.
AUM: Assets Under Management
AUM is the sum of the market value of all types of assets held by an entity, and managed by a fund or family of funds, a venture capital firm, a brokerage company, or an individual registered as an investment adviser or portfolio manager.
A gilt is a British government bond.
This is the least amount a company pension must pay you if you were part of a pension scheme that opted out of the State Earnings-Related Pension Scheme (SERPS) in the past.
A hedge fund is a type of investment fund that collects money from investors and uses a wide range of strategies to try to make a profit. These strategies can include investing in stocks, bonds, currencies, or other assets and often involve more risk than traditional funds.
High-Net-Worth / Ultra-High-Net-Worth Client
Coming as probably no surprise, this refers to individuals with significant (high-net) wealth. Those with these significant liquid assets are often the primary client type for wealth managers.
Clients who are ultra-high-net-worth individuals (UHNW) refer to those with even larger assets and extremely high levels of wealth.
Discretionary Investment Management
This is a form of investment management where the wealth management professional has been granted authority by the client to make investment decisions on their behalf. This involves a trusting client/adviser relationship and one where the adviser is fully versed on the client’s risk tolerance and financial and life objectives. Some clients prefer this method as it frees them from the stress of making decisions which are outside their knowledge and comfort zone.
Execution Only
This is the exact opposite of Discretionary Investment Management. It is an investment service whereby the client takes full responsibility for their investment decisions. There is no input or investment advice from the wealth management professional, they simply execute the client instructions.
Active Management
The active management of investments is an approach whereby the portfolio is managed with a view to achieving higher returns, beating the current market benchmarks through detailed research and analysis, and the adviser utilising their expert judgement and financial skills.
Passive Management
Passive Management is a more, as the name suggests, un-proactive style of investment management. It aims to match current market returns by tracking and replicating the performance of a set benchmark index.
These are the strategies that wealth managers use to achieve their clients’ financial goals and maximise their return on investment, such as:
This is a type of equity release for two people, usually a couple, that lets them both take money out of the value of their home.
A regulatory process to ascertain and verify the identity, financial profile and other information of clients. It is used to ensure compliance, prevent money laundering, reduce general risk, and the risk of encountering those linked to corruption or terrorism.
Liquidity refers to how quickly and easily an investment can be turned into cash without affecting its value. The more liquid something is, the faster and easier it is to sell.
LTV shows how much you’re borrowing compared to what your property is worth. It helps work out how much money you can release from your home.
A mutual fund is a type of investment that combines money from lots of people to buy a mix of investments like stocks and bonds. It helps spread risk and is managed by professionals.
NAV shows how much each share in a fund is worth. It’s worked out by taking the value of everything the fund owns, minus what it owes, and dividing that by the number of shares.
The process of integrating new clients or employees into the system, ensuring they have the tools and knowledge to succeed. This is a vital part of making new clients feel comfortable and valued. Questions are answered, due diligence carried out and the requisite paperwork is completed. Check out our article on this subject “Effective Onboarding: Starting as you mean to go on”.
Options are contracts that give you the choice (but not the requirement) to buy or sell an investment at a set price within a certain time. They’re often used to try to profit from changes in market prices.
A paraplanner provides technical and administrative support to financial advisers. The exact nuances of the role will vary but generally speaking a paraplanner can expect to be involved with the following activities:
A professional who manages investment portfolios on behalf of clients. The process involves selecting specific investments that are tailored to the client’s specific requirements and risk tolerances in order to produce a return on their investments.
A specialist who provides a range of tailored banking and wealth management services to high-net-worth individuals.
QROPS is a pension scheme based outside the UK, but that adheres to UK rules (set by HMRC).
Ratio analysis means comparing different numbers from a company’s finances to understand how well it’s doing. For example, it might look at how much profit a company makes compared to its sales or how much debt it has compared to its assets.
A person responsible for building and maintaining and nurturing relationships with clients. They work closely with the financial planners and analyse any areas for improvement, to ensure that all clients are happy with the service they receive.
ROI tells you how much profit (or loss) you’ve made from an investment compared to what you originally spent. It’s a quick way to check if something was worth the money and is often used to compare how different investments are performing.
This can also be known as Profit and Loss or P&L Statement.
The Statement of Income/Income Statement shows how much money a company made (revenue) and spent (expenses) over a set period – usually a month, quarter, or year. It helps show if the business made a profit or a loss.
The basic formula is:
Money In (Revenues) – Money Out (Expenses) = Profit (Net Income)
The Statement of Income, together with the Balance Sheet and the Cash Flow Statement are used to evaluate the financial position of a company at the end of an accounting period.
A service offered to clients to ensure the smooth transition of wealth across the generations. It is a specialised and delicate process, often dealing with worst case scenarios and involves a detailed balance of financial and personal.
Succession planning can be constantly evolving as a client’s wealth and circumstances change.
This is the amount of money (cash value) your pension is worth if you decide to move it from one pension scheme to another.
Ultra-High-Net-Worth Client
Coming as probably no surprise, this refers to individuals with extremely high levels of wealth. Those with these significant liquid assets are often the primary client type for wealth managers.
This was the old name for taking an income from your pension, before newer flexible options came in.
Venture capital is money invested in new or growing businesses that have big potential but are often also high risk.
Wealth managers are specialised financial planners who cater to a very specific wealthy clientele with detailed financial needs and offer more extensive tailored services. They enjoy in-depth analysis and strategising and are comfortable managing high-net-worth relationships.
Quite often wealth planners, if sourcing from whole of market options for their clients, are also called IFAs.
We have a great article entitled “Financial Planner or Wealth Manager? Finding the perfect job in Wealth Management” which describes wealth managers in more detail.
Xplan is the UK’s top-rated financial advice software and delivers financial advice at a lower cost. It has automated best-practice workflows, streamlined reporting and seamless third-party integrations, simplifies processes, reduces compliance risks to enhance the client experience.
YTD means from the start of the year up to today. In finance or business, the “start of the year” might be January 1st or the beginning of a company’s financial year.
Yield is how much income (like interest or dividends) you earn from an investment, shown as a percentage of what it’s worth.
This shows how much more income you can earn by choosing one investment over another from the same company. It’s the difference in what each one pays you.
This kind of bond doesn’t pay interest while you hold it. Instead, you buy it for less than its face value and get the full amount when it matures. These bonds can be traded at any time before they mature.
Now that the buzzwords and acronyms are demystified, we hope this glossary gives you the clarity and confidence to navigate wealth management and your financial plans with ease. Whether you’re planning your financial future or building a career in the industry, understanding the language is a powerful first step.
At Truestar Talent, we believe informed people make empowered decisions and we’re here to guide you every step of the way.
So, please do get in touch if you have any questions at all or want to discuss your future career plans.
Click on our Wealth Management job page: Job Search
Just like a great Financial Planner, we start with soft facts and a full fact find, before going to recommendations that we have researched well. Great recruiters in Wealth Management enable informed choices, by providing comprehensive supporting information and introducing you to people we like, know and trust.
Wealth Managers and Financial Planners both help people manage their money, the key difference is primarily in the scope of services they offer and the clientele they typically serve. Wealth Managers often look after high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs) who have complex financial needs. Financial Planners work with a broader range of clients’ financial needs and goals, regardless of their client’s wealth level. Check out our blog Financial Planner or Wealth Manager to find out a lot more.
Our Financial Services clients range from international Merchant Banks, to national Mutuals, to national wealth management companies and also interesting niche IFA companies across the country. It is not the size of the company that impresses us, it is the quality of home for the people that we place.
