financial glossary

Accidental death benefit

This is a benefit included on some life insurance policies. A life insurance policy doesn’t come into legal effect until the proposed policy holder pays the first premium on the insurance company. Some insurers offer ‘accidental death’ benefit from the date they receive the application form. This means that if the proposed policy holder dies suddenly and before the policy is issued then the life company will either pay out the sum assured or a certain percentage of it, up to a specified limit.

Additional Voluntary Contribution (AVC)

An individual who is a member of a company pension scheme can also make personal contributions to a separate pension plan called an AVC plan. AVCs can help to increase the value of a pension fund or can be used to contribute to a tax-free lump sum at retirement. If you are earning an income, you can claim tax relief on AVC’s up to certain limits.

Administration fee

This is a fee you pay to a financial services firm for a service or product. All regulated firms have to give you details of administration and other fees before you buy a service or product.

AER

See Annual equivalent rate

Allocation rate

This is the percentage of your money that is used to buy units in a pension or other type of investment fund. For example, an allocation rate of 97% means that for every €100 you invest, €97 is actually used to buy units. In this example you pay €3 (or 3%) for every €100 contributed as a charge to the firm you invest with.

AMRF

See Approved Minimum Retirement Fund (AMRF)

Annual equivalent rate (AER)

AER shows you what the interest on a savings account would be if the interest was compounded and paid out to you each year (instead of monthly or over any other period). You may earn less than the AER because your money may not be invested for as long as a year. Sometimes firms use Compound Annual Rate (CAR) instead of AER on savings and investment products.

Annual percentage rate (APR)

The APR is the annual rate of interest charged on a loan. It takes account of all the costs involved over the term of the loan, such as any set-up charges and the interest rate. The APR is an accurate way of comparing different loans, as long as they are compared over the same timeframe.

Annuity

An annuity is a contract with a life assurance company through which the life company will pay the holder a guaranteed, regular income (a pension in most cases) for the rest of their life in return for the holder paying them a lump sum at the outset. The amount of pension income or annuity that the holder receives will depend on the size of the lump sum, the annuity rates available at the time, age, gender and the state of health of the individual at the time of purchasing the annuity.

Approved Minimum Retirement Fund (AMRF)

An Approved Minimum Retirement Fund (AMRF) is similar in nature to an ARF except that a sum of €119,800 invested in AMRF cannot be accessed until age 75 (it can be accessed/party accessed prior to age 75 in certain circumstances) at which point the AMRF becomes an ARF. Until then, the holder can only access the growth in the value of the fund over this €119,800 figure.

Approved Retirement Fund (ARF)

An Approved Retirement Fund (ARF) is a post-retirement investment fund. It is an alternative to buying an annuity. It is a personal tax-free retirement fund in which the holder can keep their pension invested as a lump sum after retirement. The holder can withdraw income (which can be subject to tax) from this as and when they wish. A minimum of 5% of the value of the ARF has to be drawn down every year by the holder.

ARF

See Approved retirement fund.

Authorised Advisor

This is a term defined by the Financial Regulator allocated to a financial advisor, which is authorised to:
• provide broad based investment advice on the most suitable product to clients whether or not an appointment in writing is held from a product producer
• receive orders in investment instruments and transmit those orders to product producers from whom it holds an appointment in writing.
An Authorised Advisor may only provide advice and receive and transmit orders in relation to the investment instruments set out in Section 26 of the Investment Intermediaries Act 1995. An Authorised Advisor may also act as a deposit agent or deposit broker.

Back to Back Arrangement

An arrangement in which a bank advances a loan on the basis of a receiving an investment as security and where the investment is purchased by monies advanced in the loan.

Benefit statement

This is a statement giving relevant details of‚ for example‚ a pension plan that is sent out to the holder‚ usually once a year.

Bid Price

The bid price is the highest price a buyer of a stock is willing to pay for a share of that given stock.

Bid-offer spread

Boiler rooms

This is the name given to an unauthorised ‘investment’ company that uses high-pressure sales tactics to sell worthless or high-risk shares, foreign currency or other ‘investments’ to unsuspecting investors.

Bonds

Bonds are a fancy name for IOUs. Governments and companies raise money regularly by selling bonds. The buyers receive interest in return and their initial capital back at maturity. Investors who buy company or government bonds can then also sell them on to other investors in the bond market. Some life insurance companies offer guaranteed bonds which provide either a guaranteed return of the investment amount at the end of the term‚ together with a guaranteed level of bonus or a guaranteed level of income for the term of the bond‚ together with a guaranteed return of the investment amount at the end of the term.

Buy-out bond

If you leave or move employment, you can transfer the value of your employer pension (the amount can depend on specific circumstances) to an individual fund‚ where your money grows tax free‚ until retirement. This fund can usually invest in a mix of assets. It may also be possible to transfer this benefit into another pension structure.

Call Option

A call option, often referred to as a call is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or writer) is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (a premium) for this right.

Capital

This can have a few definitions. Capital can refer to the cash or goods used to generate income either by investing in a business or other property. It can refer to the net worth of a business i.e. the amount by which its assets exceed its liabilities. It can also refer to the money, property, and other valuables which collectively represent the wealth of an individual or business.

Capital gains

This refers to any profit an investor makes on the sale of an asset for a higher price than originally paid for that asset.

Capital gains tax (CGT)

This is a government tax that an investor must pay if they make a profit (a capital gain) of more than €1,270 in any tax year if certain assets are sold. The CGT rate is currently 25%.

CAR

See Compound annual return

Central Bank of Ireland

The organisation that is responsible for the supervision of most financial institutions in Ireland including banks, building societies and a broad range of non-bank firms, .such as insurance and investment intermediaries.

CFDs (Contracts for Difference)

These financial instruments are bets on the future price of a share. They represent a contract between a buyer and a seller where the seller agrees to pay the buyer the difference between today’s share price and the share price at some date in the future. If the share price goes up, the buyer receives the difference but if it falls the buyer must pay the shortfall to the seller.

Children’s protection benefit

This is a benefit included on some life insurance policies. When life cover is put in place for an individual/s, their children may also covered, up to a smaller specified amount.

Code of Conduct

The set of rules outlining the responsibilities of or proper practices for an individual or organization. In the context of financial services in Ireland since 1995, such rules have roots in various statutes, chief among which is the Investment Intermediaries Act 1995.

Collateral

Collateral is something that a lender accepts as security for a loan. This is usually in the form of an asset such as an existing property or investment. If the loan is not repaid, the lender can sell the collateral to meet the outstanding debt.

Collective investment

A collective investment is one where many people put in different amounts of money into a fund, which is then invested in one asset or a mix of assets such as shares, property, bonds or cash. A professional fund manager picks the investments and chooses when to buy and sell them. The main benefits of pooled investments are that the investors can spread their risk, invest in assets that they might otherwise not be able to invest in, choose from a range of different funds and have lower dealing and administration costs

Collective Investments In Transferrable Securities

Also referred to as UCITS and is a term introduced by European Union Directives entitled The Undertakings for Collective Investment in Transferable Securities Directives 2001/107/EC and 2001/108/EC. This allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. In practice many EU member nations have imposed additional regulatory requirements that restrict totally free operation with the effect of protecting local asset managers.

Commission

This is a payment that a financial services company gives to a financial intermediary for selling their financial product.

Compound annual return (CAR)

CAR is a measure of the rate of return on a deposit or investments and it can be used to compare different investment and savings products.

Consumer Price Index, also known as CPI

This measures the overall change in the prices of items that people typically buy over time. In Ireland this is calculated by collecting over 50,000 prices every month and comparing these to the prices from the previous month. The CPI measures prices for a wide range of items including not only goods but also services such as hairdressing, taxi fares, insurance etc. The basket does not apply to any particular person or family but represents the majority of households in Ireland. The goods and services that are included in the basket are determined from the 5 yearly Household Budget Survey. The relative importance or weights (the greater the importance, the greater the weight) of these goods and services are also decided from information collected in the Household Budget Survey.

Contributory occupational pension scheme

The is a type of company pension scheme to which employees are required to contribute (usually a fixed percentage of their pensionable pay) in order to meet part of the cost of their future retirement benefits.

Conveyancing

This is the term for the legal process of transferring the ownership of property from seller to buyer.
CPD, also known as Continuous Professional Development or Continuous Professional Education (CPE)
This is the means by which members of professional associations maintain, improve and broaden their knowledge and skills relevant to their professional lives. By maintaining their knowledge professional are deemed to be demonstrating an ongoing commitment to professionalism, keeping up to date and continuously seeking to improve.

Credit crunch

This happens when banks severely tighten up on lending money to businesses and consumers. This has a knock-on effect in the wider economy as businesses find it harder to borrow money. It usually begins when banks severely restrict lending to each other.

Credit history

This happens when banks severely restricts lending money to businesses and consumers. This has a knock-on effect on the wider economy as businesses find it harder to borrow money. It usually begins when banks severely restricts lending to each other.

Credit Institution

This means:
• an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account; or
• an electronic money institution.

Credit scoring

When an individual applies for a credit card, current account, personal loan, hire purchase (HP) agreement or mortgage, the lender will award points or marks based on their credit history and on specific answers to questions on the loan application form. The total score received by the individual helps the lender predict how big a risk they are taking by giving a loan and decide what size loan to give to that individual.

Credit watch

The rating agencies sometimes announce that they are placing a country or company on ‘credit watch’, with a negative outlook. This means they are thinking of downgrading that country’s or company’s credit rating.

CREST

CREST is the electronic settlement system used to buy and sell shares traded on the London and Irish stock exchanges. CREST also offers investors the opportunity to hold their shares in electronic form in their own name through personal membership.

Critical illness cover

This is an insurance that pays out a lump sum if the holder is diagnosed with a specified critical illness covered by the policy. It is also known as Serious Illness cover.

Current Value

This is when a fund manager measures and gives you an estimate value of the investments in your fund.

Custodian

A custodian bank, or simply a custodian, is a specialised financial institution responsible for safeguarding a firm’s or individual’s financial assets and is not likely to engage in “traditional” commercial or consumer/retail banking.

Death-in-service benefit

If an occupational pension plan has death-in-service benefit, the benefit is the amount paid out to dependants should a member die while still in employment.

Debt consolidation

This means taking out a single loan to pay off a number of other loans. Also called ‘wrapping up your debt’, often a mortgage, to pay off individual, smaller, loans.

Deeds

These are the legal ownership documents of a home or property. A lender holds them as security, until the mortgage has been paid off.

Default

This is when a payment or series of payments on a loan or mortgage are missed.

Deferred period

This is the length of time an income protection policy holder must be out of work due to sickness or disability before the policy pays out the income protection benefit. The deferred period can be chosen by the holder and the options can vary from between 4, 8, 13, 26 and 52 weeks, depending on the policy and on the specific institution underwriting the policy.

Defined benefit pension plan

This is a type of pension plan whereby the pension income paid at retirement is related to the holders final salary and the number of years of service spent with the employer.

Defined contribution pension plan

With a defined contribution pension plan, the pension income and capital payable on retirement depends on the value of the pension fund at that particular time.

Deflation

Deflation is a decrease in the general price level of goods and services over time. It is the opposite of inflation.

Deposit

This is money held in a savings or deposit account at a financial institution that earns interest. A mortgage deposit is the difference between the price of a property and the amount borrowed.

Deposit Agent or Deposit Broker

An individual or firm that facilitates the placement of investors’ deposits with a financial institution such as a bank. Where the individual or firm holds a tied agency with the institution, they are referred to as a deposit agent. Where the individual or firm holds agencies with several institutions they are referred to as a deposit broker.

Deposit Interest Retention Tax (DIRT)

This is a form of tax on interest earned on bank accounts in Republic of Ireland that was first introduced in the 1980s. DIRT is deducted at source by financial institutions (e.g. banks, building societies, Credit Unions, Post Office Savings Bank, etc.) from interest paid or credited on deposits of Irish residents.
The above D.I.R.T. rate was
• 27% from 1st January 2011
• 25% from 8th April 2009 to 31st December 2010
• 23% for the period 1st January 2009 to 7th April 2009 and
• 20% for the period 1st January 2002 to the 31st December 2008.

Where interest cannot be calculated at least annually and cannot be determined until it is paid, the rate of DIRT is 28%. Persons aged over 65 or incapacitated, whose income is less than the exemption limit (currently €20,000), may claim a refund of DIRT, or may submit an appropriate form to their banks or financial institutions to have interest paid free of DIRT.

Deposit Protection Scheme

This is a scheme designed to compensate depositors, when a bank, building society or credit union fails, subject to certain limits.

Discretionary service (stockbroker)

This is when a stockbroker will invest money on an investor’s behalf. The stockbroker does not have to tell the account holder about every trade that is made on their behalf prior to making a trade.

Dividend

This is a payment that some public companies pay to their shareholders as a way of distributing some of their profits. The payment may be in cash or shares.

Dividend Cover

Dividend cover is the number of times that a company’s dividend payment is covered by its earnings.

Dividend Yield

The dividend yield is the dividend per share divided by the share price.

Dormant account

This is an account on which there has been no transaction for 15 years or more. If this happens, the institution where the account is held will try to contact the account holder to find out what the holder wants to do with the account. Any money not claimed will be transferred to a fund managed by the National Treasury Management Agency (NTMA). The money remains the account holder’s and it can be reclaimed at any time, including interest. If you have a dormant account, where the account was originally held. If the institution no longer exists, contact the Irish Banking Federation. If someone has died and you think they had a dormant account, their next of kin can also reclaim the money.

Dual life policy

This is a life insurance policy that provides cover for two people and continues after the first person dies. It pays out benefit on each death.

Earnings Per Share (EPS)

EPS can be calculated by dividing the company’s net profits by the number of shares in issue.

Earnings Yield

The earnings yield is calculated by dividing the company’s earnings per share (EPS) by its current share price.

EBIT

A company’s pre tax and interest earnings are referred to as Operating Earnings or EBIT – Earnings Before Interest and Tax.

EBITDA

When we add depreciation or amortisation to operating profits of a company we get EBITDA – Earnings Before Interest, Tax, Depreciation and Amortisation.

Emergency fund

An emergency fund is money set aside in a readily accessible cash account specifically for unforeseen circumstances. Typically this fund should contain approximately six times an individual’s or couple’s monthly lifestyle income amount.

Endowment policy

An endowment policy is type of investment plan. The holder usually pays premium levels into it each month, and the money is invested in a range of assets. The aim of this type of plan is to grow the policy value so that after a specific number of years, the fund will be enough to pay off the original loan borrowed by the investor. Endowment policy values can fall as well as rise so there is no guarantee the policy will be enough to pay off an outstanding mortgage.

Entry charge

This is a charge that can apply for the setting up some certain pension plans or investments.

Equity

Equity is the value of any assets owned after any debts associated with those assets are paid off. In the context of a property, equity refers to the difference between its market value and the mortgage outstanding on it.

Equity release

This is a term used to describe the process of allowing a property owner to release some of the equity, or the value built up in the property, without having to move out or sell it. Certain schemes are available to older homeowners in the form of ‘life time loans’ or ‘home reversions’.

Equivalent annual rate (EAR)

This is used to show the full price of interest on an account. EAR takes into account the basic rate of interest charged or earned, and any additional charges such as quarterly fees, set-up charges, and so on. EAR calculates interest as if it is paid once a year, even if it is paid twice or three times per year. The higher the EAR, the more interest you will be charged or earn. EAR applies to deposits (credit) as well as overdrafts (debits).

Euribor

Euribor (Euro Interbank Offered Rate) is the interest rate at which euro interbank term deposits are being offered by one prime bank to another within the European Monetary Union zone. There is a separate rate for each lending period (a lending period can be from one week to 12 months). Euribor rates may have an effect on the interest rate a retail bank offers its customers. These rates change every day.

European Central Bank (ECB)

The ECB is the central bank for Europe’s single currency, the euro. Its main task is to maintain the purchasing power of the euro and price stability in the euro area. One of the main functions of the bank is to set interest rates for the member countries in the euro zone. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany.

European Monetary Union

A monetary union is an arrangement where several countries have agreed to share a single currency. The Republic of Ireland is part of such a union which is termed the European Monetary Union whose members utilize the Euro currency.

Eurozone

The eurozone (as known as the ‘euro area’) is an economic and monetary union (EMU) of 16 European Union (EU) member states which have adopted the euro currency as their sole legal tender.

E

xchange-traded fund (ETF)

This is an investment fund that tracks the shares of a particular stock market index. The fund itself is also quoted and traded on the stock market.

Exchequer surplus/deficit

This is the difference between what the Government spends and what it receives in taxes and other revenue.

Exclusions

Exclusions, or restrictions, are events or situations that are not covered by your insurance policy. Standard exclusions are contained in every policy. Specific exclusions are restrictions your insurer adds to your policy only.

Execution-only

This is where a stockbroker is simply instructed to buy or sell a particular investment on behalf of an investor. The broker does not provide any advice in such cases.

Executor

This is a key person who carries out the wishes contained in a Will. The Executor of the Will attends to the legal formalities in dealing with the estate of the deceased.

Exit penalty

Also known as an early encashment or exit charge, this is a charge applied by a financial institution when an investment is cashed in or a loan is repaid within a set number of years or before a specific maturity date.

Exit tax

This is a tax that you are liable for if certain investment makes a profit.

Factfind

This forms the starting point of any financial advisory service and is intended to create a profile of a client and involves research into an individuals circumstances including personal details, current financial situation and family circumstances. The financial situation would require information on assets, liabilities and protection arrangements such as insurances as well as the individuals attitudes towards investment and financial risk.

Financial advisor

A regulated financial advisor is someone who is authorised by the Central Bank of Ireland to give advice to individual members of the public. Advisors can either be ‘tied’ and only able to advise on products provided by their employer or they can be ‘independent’ and advise on a range of providers and products.

Financial Regulator

The body responsible for overseeing the activities of financial service providers including banks, insurance companies, investment intermediaries and insurance intermediaries. In Ireland this role is currently dealt with by the Central Bank of Ireland.

Financial Services Ombudsman

The Financial Services Ombudsman is an independent statutory officer who deals with complaints from consumers about financial services providers. The FSO only deals with complaints that have not been resolved through the provider. It is a free service to the complainant. Broader issues of consumer protection are the responsibility of the Central Bank of Ireland.

Fixed rate

This refers to interest rates that are fixed at a particular rate over a fixed period of time. If interest rates fall then those that are locked into fixed rates can miss out on the benefits of lower rates. If such a holder wants to pay off a loan within the fixed time scale it is likely that penalty fees will be applicable.

Fixed rate penalty

This is an amount a holder of a fixed rate loan will have to pay if they wish to pay off the loan or part of the loan or change any of the terms, during the fixed rate period.

Fixed Trust

A Fixed Trust is a Trust in which the entitlement of the beneficiaries is fixed by the settlor. The Trustee has little or no discretion.

Fixed-term deposits

With fixed-term deposits, money is placed into an account for an agreed period of time. Usually the interest rate is fixed for that period and if money is accessed during that fixed time period a penalty is normally applied to the account holder.

Fund management charge

This is an annual charge that an investor in a fund has to pay to get a particular fund manager to manage their investment.

Gilts

Gilts are bonds issued by the governments of the United Kingdom, South Africa, or Ireland.

Gold Standard

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold and all currency issuance is to one degree or another regulated by the gold supply.

Government Bond

A government bond is a bond issued by a national government, and is often denominated in the country’s domestic currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.

Guaranteed insurability option

This is a benefit included on some life insurance policies. It means that an option exists to take out additional life cover at certain stages, for example, if a couple have children or their mortgage amount increases, without having to provide evidence of good health.

Guarantor

This is a person who agrees to pay off a loan if the borrower fails meet his/her repayment obligations of a loan.

Guardian

A legal guardian is a person who has the legal authority (and the corresponding duty) to care for the personal and property interests of another person, called a ward.

Hyperinflation

Hyperinflation is inflation that is very high or “out of control”.

IIF, abbreviation for Insurance Industry Federation

The IIF was founded in 1986 and is the representative body for insurance companies in Ireland, having 64 member companies which in turn are responsible for the writing of 95% of all life and non life insurance business in Ireland.

Insurance Policies

In insurance, the insurance policy is a contract between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for payment, known as the premium, the insurer pays a sum insured to the insured in respect of damages which are caused by covered perils under the policy conditions. In Ireland, insurance companies also issue contracts to cover investments which are referred to as either unit linked investments or with profit investments

Investment Intermediaries Act 1995

Introduced in Irish Statute law in 1995, this Act sets out the Authorisation, Regulation and Supervision procedures, probity and broad based codes of conduct for investment business firms operating in the Republic of Ireland.

Insurance Intermediary

A person or firm that, for remuneration, undertakes or purports to undertake insurance mediation.

Investment Mandate

This is the instruction by an investment client to a fund manager or an investment adviser which sets out:
• The investors requirements and objectives
• The expectations of risk and return
• The operational procedures within which the fund manager or investment adviser is to operate.

IMF

The International Monetary Fund (IMF) is the intergovernmental organisation that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It is an organisation formed with a stated objective of stabilizing international exchange rates and facilitating development through the enforcement of liberalising economic policies on other countries as a condition for loans, restructuring or aid. It also offers loans with varying levels of concessionality.

Impaired loans

Banks define loans as impaired when they believe that they are unlikely to receive part or all of the money back. Banks have to account for these in their financial results, when they make an estimate, or provision of how much they have lost on these loans. This is also referred to as a bad debt charge.

Income protection (or permanent health insurance)

This is an insurance that pays the holder a monthly income, after a deferred period, if they are unable to work due to illness or injury. It will pay the claimant the certain benefit up until they are able to return to work, to retirement, or to the maturity date of the policy.

Indemnity Bond

An indemnity bond is a type of insurance policy that can be taken out by a lender when they provide a mortgage. The policy insures the lender against making a loss if they repossess a property and it is worth less than the outstanding amount of the mortgage. When a mortgage is taken out, some lenders may charge the person getting the loan the indemnity bond costs.

Index-linking

Index-linking, or indexation, increases the benefit on life insurance or on an investment policy automatically every year to make allowances for inflation. The premium amount may also increase each year to pay for indexation.

Inflation

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money.

Interest on loans

This is the amount a borrower pays to a lender to borrow money.

Interest on savings

This is a return that a bank gives the saver for the savings held within that institution. This money is added to the savings in the account.

Interest relief

A refund of tax based on the amount of interest a borrower pays on their mortgage. The refund is deducted from the monthly repayment by the lender.

Investor compensation scheme

The investor compensation scheme pays compensation, subject to certain limits, to eligible consumers if an authorised investment firm fails. More information about the scheme is available on the Investor Compensation Company website.

Irish Credit Bureau

This is a credit reference agency that maintains information about individual borrowers’ credit histories. Anyone can get a copy of their own details for a small fee by contacting the ICB.

Joint life policy

This is a type of life insurance policy that covers two lives. It pays out the benefit only once, when either party dies while the policy is in force.

Land Registry

Now incorporated in the Property Registration of Ireland, this is a central register of the ownership of land and buildings. Not all properties are registered. A search of the Registry of Deeds is required to find out if a property is registered.

Letter of Offer

Also called the ‘offer of advance’, this is a formal statement by the mortgage lender of the amount they are prepared to lend to the borrower.

Letter of Suitability

This is a letter issued by a financial services firm/financial advisor to a client setting out why, in the opinion of the financial services firm/financial advisor, the product which the client has purchased or invested in is appropriate to that particular client and their current needs.

Libor

The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).

Life Cover

The is a type of insurance policy which pays a lump sum to the beneficiary in the event of the policy holder’s death.

Liquidity

This is the ease or speed with which an investment can be converted to cash. Illiquid investments, such as property, cannot be converted to cash at very short notice.

Listed Stock Exchange Company

This is where a company raises capital for its needs by way of an offering to the public, which such capital is then traded on a stock exchange.

Living Will

A Living Will (also known as Advance Directives) is where you set out your views in writing with regard to future medical care, to cover a situation where you were to become mentally incapable or unable to make decisions yourself.

Loading

This is a charge added to an insurance premium because of some specific risk factor, such as the poor health of an individual looking for a life insurance policy.

Loan-to-Value (LTV)

This is a percentage representing the amount owing on a mortgage relative to the market value of the property. A 50% loan-to-value of a property means that it is worth €400,000 and the outstanding loan is €200,000.

Market capitalisation

Market capitalisation represents the value of a company on the stock market and it is determined by multiplying its share price by the number of shares it has in issue.

Market Value Adjustment (MVA) (also termed Market Value Reduction (MVR))

A Market Value Adjustment is a reduction in the value of a particular investment that a life insurance company may apply when the investor withdraws some or all of that investment at certain times, usually during volatile investment periods.

Maturity value

This is the amount an investor will get at the end of the term of the investment policy. Maturity values are not always guaranteed.

Mortgage contract

A document or group of documents that contain all of the terms and conditions laid down by the lender with regard to a mortgage.

Mortgage deed

The legal document that a borrower signs when they get a mortgage.

Mortgage Intermediary

A mortgage broker acts as an intermediary between clients who require mortgages to purchase property and financial institutions such as banks who are prepared to advance monies based on specific financial criteria.

Mortgage protection

This is a form of life cover, the purpose of which is to pay off the outstanding balance of a mortgage in the unfortunate event of the death of the person taking the mortgage.

Mortgage term

This is the number of years of a mortgage.

Mortgagee

The mortgagee is the lender that lends the borrower the money to purchase a property.

Mortgagor

The mortgagor is the person taking the mortgage.

Multi Agency Intermediary

This is a financial advisor regulated by the Financial Regulator, which is authorised to:
• provide advice on the investment instruments available from each product producer from whom it holds an appointment in writing.
• receive and transmit orders in investment instruments and transmit those orders to product producers from whom it holds an appointment in writing.

A Multi Agency Intermediary may only receive and transmit orders, and provide advice, in relation to the investment instruments set out in Section 26 of the Investment Intermediaries Act 1995. A Multi Agent Intermediary may also act as a deposit agent or deposit broker.

National Treasury Management Agency (NTMA)

This is an Irish Government agency that manages the national debt and administers the national pension fund. It also administers a fund to which unclaimed money from dormant accounts is transferred.

Negative equity

This term is used to describe a situation where the market value of a property is less than the outstanding balance on the mortgage.

Net Asset Value (NAV)

Net Asset Value is a term used to describe the value of an entity’s assets less the value of its liabilities.

Net Worth Statement

Net worth is the total assets minus total outside liabilities of an individual or a company. In personal finance, net worth (or wealth) refers to an individual’s net economic position and uses the value of all assets less the value of all liabilities.

Occupational pension scheme

A pension scheme set up by an employer to provide retirement benefits for employees. This term is used interchangeably with ‘Company Pension Scheme.’ It is also known as an ‘Employer Pension Plan’ or Superannuation scheme.

Offer Price

The offer price, also know as the ‘ask price’, is a price a seller of a good/share is willing to accept for that particular good/share.

Option

An option is a derivative financial instrument that establishes a contract between two parties concerning the buying or selling of an asset at a reference price during a specified time frame. During this time frame, the buyer of the option gains the right, but not the obligation, to engage in some specific transaction on the asset, while the seller incurs the obligation to fulfill the transaction if so requested by the buyer.

Ordinary Shares

Ordinary shares are any shares that are not preferred shares and do not have any predetermined dividend amounts. An ordinary share represents equity ownership in a company and entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. Ordinary shareholders are entitled to receive dividends if any are available after dividends on preferred shares are paid. They are also entitled to their share of the residual economic value of the company should the business unwind; however, they are last in line after bondholders and preferred shareholders for receiving business proceeds. As such, ordinary shareholders are considered unsecured creditors, also known as “common stock”.

Overdraft

When more money is paid out of a current account than the holder has deposited, the account is said to be in overdraft. The bank effectively gives the holder a loan, generally at high interest rates. The bank must normally approve such loans in advance.

Pay-related social insurance (PRSI)

This is a contribution toward the cost of social welfare and pension benefits. It is payable by employers, employees and the self-employed. It is calculated as a percentage of your earnings and is deducted from your wages.

Payment protection insurance (PPI)

This pays a regular amount to the holder if they are unable to work for health reasons or redundancy. This insurance can also cover you for repayments of a loan and some bills for a limited time.

Pension fund value

This is the value of your pension, made up of payments into the fund and any growth that it has earned. Any fees and charges paid will reduce the value of a pension fund.

Pensioneer Trustee

Pensioneer trustee is a status conferred by the Revenue Commissioners on individuals or firms with specialist knowledge in the area of pensions law and pensions administration.

Pensions Ombudsman

The Pensions Ombudsman investigates complaints and disputes involving occupational pension schemes and Personal Retirement Savings Accounts (PRSAs) and decides on a resolution. The Ombudsman is completely independent and impartial and is a free service to the complainant.

Permanent total disablement (PTD)

PTD can mean two different things, depending on the insurance policy. It can mean that the holder is permanently and totally unable to do their current job. It can also mean that they are not capable of doing many normal daily activities, so they are permanently unable to work at any job.

Personal pension plan

A pension plan taken out by those who are self-employed or who are in non-pensionable employment in order to provide benefits in retirement.

Personal retirement savings account (PRSA)

This is a long-term personal retirement account introduced by the Pensions Act 2002. It is designed to enable people, especially those with no pension provision, to save for retirement in a flexible manner. A PRSA is a contract between an individual and a PRSA provider in the form of an investment account. Subject to age, employment status and income based limits, tax relief will be given for contributions to a PRSA.

Policy

A policy is an insurance contract between the holder and an insurance company.

Policy benefit

Also known as the sum assured, this is the amount of money the holder could receive if an insurance claim is successful.

Policy fee

This is a regular fee paid on some investment and pension policies. A policy fee is usually a fixed amount.

Pooled investment

A pooled investment (also called a collective investment) is one where many people put different amounts of money into a fund, which is then invested in one asset or a mix of assets such as shares, property, bonds or cash. A professional fund manager picks the investments and chooses when to buy and sell them. The main benefits of pooled investments are that the investors can spread their risk, invest in assets that they might otherwise not be able to invest in, choose from a range of different funds and have lower dealing and administration costs.

Preference Shares

Preference shares offer their owners preferences over ordinary shareholders. Preference shareholders are often entitled to a fixed dividend even when ordinary shareholders are not but they cannot normally vote at general meetings.

Premium

This is the amount that a policy holder pays for an insurance policy. It can be a once-off lump sum or it can be a monthly or yearly payment.

Price-to-Earnings Ratios (P/E Ratio)

The P/E Ratio shows the relationship between a company’s share price and its earnings. It can be calculated by dividing the company’s share price by its earnings per share (EPS).

Prime Bank

Term used to describe approximately the top 50 banks in the world. Prime banks trade financial instruments such as national loans and interest rates. They would be responsible for dealing in and setting Euribor rates.

Principal

This can have a number of definitions. It can refer to the Funds put up by an investor. It can refer to the person who owns or takes delivery of an asset in a trade. For example, an investor is the principal for whom a broker executes a trade. It can also refer to the face amount of a bond. Once a bond has been issued, it may sell at more or less than its principal amount, depending upon changes in interest rates and the riskiness of the security. At maturity, however, the bond will be redeemed for its principal amount.

Private treaty

A method of selling a property. Bids are offered in private over a period of time, usually to an auctioneer, and the seller decides which one to accept.

PRSA

See Personal retirement savings plan

PRSI

See Pay related social insurance

PTD

See Permanent total disablement

Put option

This is referred to as a “put”, and is a financial contract between two parties, the writer (seller) and the buyer of the option. The buyer acquires a short position by purchasing the right to sell the underlying instrument to the seller of the option for a specified price (the strike price) during a specified period of time. If the option buyer exercises their right, the seller is obligated to buy the underlying instrument from them at the agreed strike price, regardless of the current market price. In exchange for having this option, the buyer pays the seller or option writer a fee (the option premium). By providing a guaranteed buyer and price for an underlying instrument (for a specified span of time), put options offer insurance against excessive loss.

Quantitative easing

This is commonly referred to as ‘printing money’. This is where central banks try to boost economic activity by putting more money into the economic system. The most common way of doing this is by buying up bonds from banks or companies.

QFA, also known as Qualified Financial Advisor

Members who have completed the QFA® Diploma are entitled to use the professional QFA designation. Members retain the QFA designation by complying with the ongoing Continuing Professional Development (CPD) requirements and payment of the annual professional fee.

The QFA designation (qualification and attaching CPD programme) meets the Minimum Competency Requirements specified by the Financial Regulator, for advising on and selling five categories of retail financial products:
1. Savings, Investments and Pension Products
2. Housing Loans and Associated Insurances
3. Consumer Credit and Associated Insurances
4. Shares and Bonds and Other Investment Instruments
5. Life Assurance Protection Policies

For certain other specified activities, QFAs who complete the Professional Certificate in General Insurance for QFAs (Bridge Exam) are also eligible to advise on/sell General Insurance Policies.
QFA designates are entitled to use the designatory letters ‘QFA’ (Qualified Financial Adviser) after their name

Rating Agencies

The three main credit rating agencies are Standard & Poor’s (S&P), Moody’s and Fitch. They examine the financial positions of companies and countries and decide their creditworthiness (how safe it is to lend to them) and rate them based on the information they have.

Recapitalisation (banks)

This involves injecting money into the banks, usually in exchange for shares.

Recession

Period of general economic decline, defined usually as a contraction in the GDP of a country for six months (two consecutive quarters) or longer.

Return on Capital Employed (ROCE)

ROCE can be calculated by dividing operating profits (i.e. profits before interest and tax) by the average operating assets employed in the business, excluding all cash and debt balances. ROCE provides an investor with a good indication of the level of profits that a company can generate on its assets. A high ROCE indicates a company that is highly profitable relative to the assets employed in its business, irrespective of its tax rate or how those assets were financed.

Return on Equity (ROE)

ROE (or Shareholder Equity) is calculated by dividing a company’s after tax profits (or net income) by the average shareholder equity tied up in the business. ROE is trying to determine how much profits are made on the net assets employed in the business as some of those assets may have been financed by bank borrowings. A high ROE can tell an investor how profitable a business is relative to the level of shareholder capital tied up in the business.

Searches (property)

A solicitor will do searches to confirm that the seller of a property can pass ownership to a new buyer and that there are no outstanding judgments or debts against the property.

Securitised debt

These are debts which have been packaged up and sold on in return for an upfront payment. An example of this has been banks selling mortgages. The buyer, in return, gets a stream of future income from the mortgage repayments. When home-owners can’t meet their repayments, the buyer faces potential losses.

Security

Security is any asset that can be sold to repay an outstanding loan if a borrower doesn’t do so. It may be a mortgage on a property, an insurance policy or some other asset. The lender generally looks for some form of security from a potential borrower before giving a loan.

Self Administered Pension Plan

Also know as a Small Self Administered Scheme (SSAS), it is a flexible pension arrangement which allows the holder a significant level of control over their retirement fund. It is a type of occupational pension scheme and can be established by a company for an employee/director of that company.

Senior Bond Debt

When investors own senior bonds, it means that they are top of the list when it comes to being repaid and are most likely to get their money back. It is a safer investment than a subordinated bond and is therefore potentially less lucrative because risk is rewarded with higher payouts when things are going well in the financial world.

Serious illness insurance

This policy pays a lump sum benefit if the policy holder is diagnosed as suffering from one of the serious illnesses specifically covered by that policy. This is also known as Critical Illness cover.

Shares or Bonds In A Publicly Listed Stock Exchange

The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in quantity and value.

In financial terms, a bond is a debt security, in which the authorised issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (usually referred to as a coupon) and/or to repay the principal at a later date, termed maturity date. As such, a bond is a formal contract to repay borrowed money with interest at fixed interval.

Where shares and bonds are traded on a stock exchange they are termed as being publicly listed.

Short-selling

This is when investors borrow shares, or other assets, which they then sell in the hope of buying them back later at a lower price. They then pocket the difference as profit. Naked short-selling occurs when investors sell shares or other assets they do not own and have not even borrowed, again in the hope of buying them back later at a lower price.

Stagflation

Stagflation is the situation when both the inflation rate and the unemployment rate are very high.

Stamp duty (property)

This is a tax paid to the government when a buyer purchases a property. A rate applies depending on the purchase price of the property and whether the buyer is a first time buyer or not. For information on property stamp duty, go to the Revenue website.

Stamp duty (Share dealing)

A once-off stamp duty tax of 1% is due when shares are purchased in Ireland.

Stock Exchange

This is where stocks and other securities are bought and sold.

Subordinated Bond Debt

This is often referred to as a ‘junior’ bond debt because it is lower down the list of repayment priorities. If a government/company does not have enough money to repay all its debts, the subordinated/junior bondholders are most likely to lose out in the event of a default. It is a riskier but potentially more lucrative investment than senior bond debt.

Subprime

Subprime lending means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans.

Sum assured

Also known as the policy benefit, this is the amount of money the holder receives in the event of a successful insurance claim. With a life insurance or serious illness policy, the individual can choose the sum assured they would like to have in place at the outset.

Superannuation

A type of retirement plan set up by a company for the benefit of its employees. These types of plans use funds deposited by the company (defined benefit plan) or by the employee (defined contribution plan), with the funds growing in value until the employee retires.

Surrender value

This is the amount a policy holder or an investor will get if an insurance policy or investment is cashed in early.

Term insurance policy

This is an insurance policy that pays out a fixed benefit if the holder dies within a certain timeframe (the term of the policy).

Terms of Business

Within Irish financial services circles, the expression “Terms of Business” refers to a document which sets out the basis on which a financial service provider provides its services to its current or potential clients. The document would also contain details of the firm’s regulatory and statutory obligations and the respective duties of both the firm and the client in relation to such services.

Terminal illness

Insurance companies usually define terminal illness as an illness that is likely to result in a person dying within 12 months.

Terminal illness benefit

This is a benefit included on some life insurance policies. It means that a life cover benefit will be paid early if the policy holder is diagnosed as being terminally ill. In some cases there will be a maximum percentage of life cover that can be paid out on terminal illness, with the balance payable on death.

Tied agents

These are advisors who work in financial services firms like banks and insurance companies, and can only advise on and only sell their own products.

Tier 1 capital

Tier 1 capital is the core measure of a bank’s financial strength from a regulatory perspective. It is composed of ‘core capital’ which consists primarily of common stock and disclosed reserves (or retained earnings), but may also include non-redeemable non-cumulative preferred stock.

Title deeds

Title deeds are documents that show the ownership of the property.

Tracker Bond

These are fixed term investments generally over three to six years. Most trackers offer a guaranteed return of a fixed percentage of the investor capital at the end of the investment. In some cases this return may be enhanced by performance linked to a stock market index or mix of indices or direct shareholdings. Where an investor borrows some or all of the investment capital to apply to the tracker bond, the arrangement is referred to as a Geared Tracker Bond.

Tracker mortgage

This is a mortgage that is set at a fixed percentage or ‘margin’ above the ECB rate. For example, it could be set at the ECB rate plus one percentage point. So, in such an example, if the ECB rate rises by a percentage point, so does this rate. It will also ‘track’ the ECB rate when this rate goes down.

Trustee

Trustee is a legal term for a holder of property on behalf of a beneficiary.

UCITS

This is a term introduced by European Union Directives entitled The Undertakings for Collective Investment in Transferable Securities Directives 2001/107/EC and 2001/108/EC. This allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. In practice many EU member nations have imposed additional regulatory requirements that restrict total free operation with the effect of protecting local asset managers.

Unit Linked Investment

This is a type of medium to long term life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets. The premium paid is used to purchase units in investment assets chosen by the policyholder.

Unit Trust

This is a form of collective investment constituted under a trust deed. Unit trusts are open-ended investments and the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.

With Profit Investment

This is a medium to long‑term investment that aims to offer some protection against short‑term changes in investment markets. Unlike unit linked investments, the value is determined by bonus declarations which may occur annually, on death or on maturity, all of which are at the discretion of the fund manager. The only guarantee is that a specified percentage of the initial investment will be returned on either death or maturity.

Valuation fee

This is the fee a buyer pays to a professional valuer, such as an auctioneer or estate agent, to estimate a property’s market value.

Valuation report

An estimate of the value of the property reported to the lender by the valuer nominated by the lender. The Valuer’s fee is usually paid for by the mortgagor.

Variable rate

Variable rates rise and fall in line with general interest rate changes in the euro zone but not exclusively. Variable rates offer the most flexibility (over fixed rates) and allow the borrower to pay off part, or all, of the outstanding loan without having to pay any penalties.

Vendor

This refers to the person selling the property.

Whole-of-life policy

This type of life insurance policy covers the holder for their whole life. It pays out a benefit on death – whenever that happens – as long as the policy is still in force. The benefit is not usually fixed and can vary over the life of the policy depending on the performance of the investment fund used by the policy. Also, premiums are generally not fixed and may increase from time to time.

Will

A will or testament is a legal declaration by which a person ‘the testator’ names one or more persons to manage his/her estate and provides for the transfer of his/her property at death.

Will Register

Will Register is a national registry of Wills established to help safeguard the location of Wills www.willregister.ie

Yield

This describes the amount in cash that returns to the owners of a security.

Eamon Porter, trading as Aspire Wealth Management, is regulated by the Central Bank of Ireland.

Why Choose Aspire Wealth?

Book Your Discovery Meeting!

Get In Touch