What does a financial advisor do?
A financial advisor provides expert guidance on managing your finances, including investment advice, retirement planning, insurance and overall financial planning. They help you set and achieve financial goals, create personalised financial plans, and offer ongoing support to keep you on track.
How can a financial advisor help me?
A financial advisor can help you in several ways, including:
How do I choose the right financial advisor?
How do financial advisors get paid?
Financial advisors can be compensated in several ways:
What should I expect during my first meeting with a financial advisor?
During your first meeting, the advisor will:
How often should I meet with my financial advisor?
It’s recommended to meet with your financial advisor at least once a year to review and update your financial plan. You should also meet whenever you experience significant life events (e.g., marriage, having a child, changing jobs) or major financial changes.
What is the difference between a financial advisor and a financial planner?
While all financial planners are financial advisors, not all financial advisors are financial planners.
A financial planner specifically focuses on creating comprehensive financial plans that cover all aspects of a client's financial life, including budgeting, saving, investing, managing debt, retirement planning, tax planning, and more.
A financial advisor may specialise in specific areas such as investment management or retirement planning or insurance.
What information should I bring to my first meeting with a financial advisor?
Bring the following information to your first meeting:
How can I verify a financial advisor’s credentials?
You can verify a financial advisor’s credentials by:
Can a financial advisor help with tax planning?
Yes, some financial advisors offer tax planning services to help you minimize your tax liability and maximize your after-tax income. They can provide strategies for tax-efficient investing, retirement account contributions, and other tax-related matters.
What is asset consulting for pension funds?
Asset consulting for pension funds involves providing expert advice and strategic guidance on the management and optimisation of pension fund assets. This includes investment strategy development, asset allocation, performance monitoring and risk management to ensure the pension fund meets its long-term obligations to beneficiaries.
Why do pension funds need asset consultants?
Pension funds require asset consultants to:
What services do asset consultants provide to pension funds?
Asset consultants offer a range of services, including:
How do asset consultants develop investment strategies for pension funds?
Asset consultants develop investment strategies by:
What is the importance of asset allocation in pension fund management?
Asset allocation is crucial because it determines the overall risk and return profile of the pension fund’s portfolio. Proper asset allocation helps:
How do asset consultants assess and manage risk for pension funds?
Asset consultants assess and manage risk by:
How do asset consultants select and evaluate investment managers for pension funds?
What are the benefits of working with an asset consultant for a pension fund?
Working with an asset consultant offers several benefits, including:
How often should pension funds meet with their asset consultant?
Pension funds should meet with their asset consultant at least quarterly to review performance, discuss any changes in market conditions or fund objectives, and make necessary adjustments. Additional meetings may be required during periods of significant market volatility or major changes in the fund’s circumstances.
What should pension funds consider when choosing an asset consulting firm?
When choosing an asset consulting firm, consider the following factors:
How do asset consultants help pension funds stay compliant with regulations?
Asset consultants help pension funds stay compliant by:
Can asset consultants assist with sustainable and responsible investing for pension funds?
Yes, asset consultants can help pension funds incorporate sustainable and responsible investing (SRI) or environmental, social, and governance (ESG) criteria into their investment strategies. They can identify suitable investments that align with the fund’s values and ethical considerations while aiming to achieve financial goals.
A
Asset Allocation: The process of dividing investments among different asset classes such as stocks, bonds, and cash to optimize risk and return.
Annual Report: A comprehensive report on a company's activities and financial performance throughout the preceding year.
Annuity: A financial product that provides regular payments, typically for life, in exchange for an initial lump sum investment.
B
Bear Market: A market condition where prices are falling or are expected to fall, typically by 20% or more.
Blue-Chip Stock: Shares of a large, well-established, and financially sound company with a history of reliable performance.
Bond: A fixed-income investment representing a loan made by an investor to a borrower, usually corporate or governmental.
C
Capital Gains: The profit earned from the sale of an asset, such as stocks or real estate, when the selling price exceeds the purchase price.
Compound Interest: The addition of interest to the principal sum of a loan or deposit, where interest is earned on both the initial principal and the accumulated interest.
Custodian: A financial institution that holds and safeguards a client's securities, ensuring their security and proper handling.
D
Diversification: A risk management strategy that involves spreading investments across various financial instruments, industries, and other categories.
Dividend: A portion of a company's earnings that is distributed to shareholders, typically on a quarterly or annual basis.
Dow Jones Industrial Average (DJIA): A stock market index that measures the performance of 30 large, publicly-owned companies in the United States.
E
Equity: The value of an ownership interest in an asset or company, typically represented by shares of stock.
Exchange-Traded Fund (ETF): A type of investment fund and exchange-traded product, which are traded on stock exchanges, much like stocks.
Expense Ratio: The annual fee expressed as a percentage of total assets, that mutual funds and ETFs charge their shareholders to cover the fund's operating expenses.
F
Fiduciary: An individual or organization that acts on behalf of another person, putting their clients' interests ahead of their own, with a duty to preserve good faith and trust.
Fixed Income: Investments that provide a return in the form of fixed periodic payments and the eventual return of principal at maturity. Examples include bonds and certificates of deposit.
Front-End Load: A sales charge or commission that an investor pays "upfront" when purchasing mutual fund shares.
G
Growth Stock: Shares in a company that are expected to grow at an above-average rate compared to other companies.
Gross Domestic Product (GDP): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
Government Bond: A bond issued by a government to support government spending and obligations.
H
Hedge Fund: A pooled investment fund that employs different strategies to earn active return, or alpha, for their investors.
High-Yield Bond: A bond that pays higher interest rates because it has a lower credit rating than investment-grade bonds.
I
Index Fund: A type of mutual fund or ETF with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500.
Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Initial Public Offering (IPO): The process through which a private company becomes publicly traded by offering its shares to the public for the first time.
J
Junk Bond: A high-yield, high-risk security, typically issued by a company seeking to raise capital quickly in order to finance a takeover or other business objectives.
L
Liquidity: The ability to quickly convert an asset into cash without significantly affecting its price.
Load Fund: A mutual fund that comes with a sales charge or commission, which can be front-end, back-end, or level-load.
M
Market Capitalization: The total value of a company's outstanding shares of stock, calculated by multiplying the stock price by the total number of outstanding shares.
Mutual Fund: An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, and other assets.
N
Net Asset Value (NAV): The value per share of a mutual fund or an ETF, calculated by dividing the total value of all the fund's assets by the number of outstanding shares.
O
Option: A financial derivative that gives the buyer the right, but not the obligation, to buy or sell an asset at an agreed-upon price and date.
Over-the-Counter (OTC): The trading of securities directly between two parties without a central exchange or broker.
P
Portfolio: A range of investments held by an individual or institution.
Price-to-Earnings (P/E) Ratio: A valuation ratio of a company's current share price compared to its per-share earnings.
Prospectus: A formal legal document that provides details about an investment offering to the public, typically used by mutual funds and ETFs.
R
Return on Investment (ROI): A measure used to evaluate the efficiency or profitability of an investment, calculated as the gain from the investment minus the cost of the investment, divided by the cost of the investment.
Risk Tolerance: The degree of variability in investment returns that an investor is willing to withstand in their investment portfolio.
S
S&P 500 Index: A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.
Stock: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
T
Treasury Bond: A long-term, fixed-interest government debt security with a maturity of more than 10 years.
Total Return: The full return on an investment over a given time period, including interest, capital gains, dividends, and distributions.
V
Volatility: The degree of variation in the price of a financial instrument over time, often measured by the standard deviation of returns.
W
Wealth Management: A comprehensive approach to managing an individual's or family's wealth, including financial planning, investment management, and other services.
Y
Yield: The income return on an investment, such as the interest or dividends received from holding a particular security, usually expressed annually as a percentage based on the investment's cost, current market value, or face value.
Z
Zero-Coupon Bond: A bond that does not pay periodic interest payments and is issued at a significant discount to its face value.
A
Asset Allocation: The process of dividing investments among different categories, such as stocks, bonds, and cash, to optimize risk and return.
Annual Percentage Rate (APR): The annual rate charged for borrowing or earned through an investment, expressed as a percentage.
Annuity: A financial product that provides regular payments, typically for life, in exchange for an initial lump sum investment.
Assets: Resources with economic value owned by an individual, corporation, or country, which are expected to provide future benefit.
B
Balance Sheet: A financial statement that summarizes an individual's or organization's assets, liabilities, and equity at a specific point in time.
Beneficiary: A person who is entitled to receive benefits or assets from a will, trust, insurance policy, or retirement account.
Budget: A financial plan that estimates income and expenses over a specific period, used to manage spending and saving.
C
Cash Flow: The total amount of money being transferred into and out of a business, individual, or project, particularly regarding liquidity.
Certificate of Deposit (CD): A savings certificate with a fixed maturity date and specified interest rate, usually higher than a regular savings account.
Compound Interest: Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
D
Debt-to-Income Ratio: A personal finance measure that compares an individual's monthly debt payments to their monthly gross income.
Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio to minimize risk.
Dividend: A portion of a company's earnings distributed to shareholders, typically on a quarterly basis.
E
Emergency Fund: A savings account that is set aside to cover unexpected financial emergencies.
Estate Planning: The process of arranging the management and disposal of a person's estate during their life and after death.
Equity: The value of an ownership interest in an asset or company, typically represented by stocks.
F
Financial Advisor: A professional who provides financial services and advice to clients based on their financial situation and goals.
Financial Plan: A comprehensive evaluation of an individual's current and future financial state by using known variables to predict future cash flows, asset values, and withdrawal plans.
Fixed Income: Investments that provide a return in the form of fixed periodic payments and the eventual return of principal at maturity.
G
Goals-Based Planning: A financial planning approach that focuses on helping individuals achieve specific life goals, such as retirement, education, or buying a home.
Gross Income: The total income earned by an individual or business before any deductions or taxes.
I
Inflation: The rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.
Insurance: A financial product that provides protection against financial loss or liability.
Investment Portfolio: A collection of assets such as stocks, bonds, and other investments held by an individual or institution.
L
Liabilities: Obligations or debts owed by an individual or company to others.
Liquidity: The ease with which an asset can be converted into cash without affecting its market price.
M
Market Capitalization: The total value of a company's outstanding shares of stock, calculated by multiplying the stock price by the number of outstanding shares.
Mutual Fund: An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, and other assets.
N
Net Worth: The value of all assets owned by an individual or corporation, minus the value of all its outstanding liabilities.
P
Pension Plan: A retirement plan that requires an employer to contribute to a pool of funds set aside for a worker's future benefit.
Portfolio Management: The process of making decisions about investment mix and policy, matching investments to objectives, and balancing risk against performance.
Principal: The original sum of money invested or loaned, on which basis interest and returns are calculated.
R
Retirement Planning: The process of determining retirement income goals and the actions necessary to achieve those goals.
Return on Investment (ROI): A measure used to evaluate the efficiency or profitability of an investment, calculated as the gain from the investment minus the cost of the investment, divided by the cost of the investment.
Risk Tolerance: The degree of variability in investment returns that an investor is willing to withstand.
S
Savings Account: A bank account that earns interest and is used to hold money that is not needed immediately.
Stock: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
T
Tax-Deferred: Investment earnings such as interest, dividends, or capital gains that accumulate tax-free until the investor takes constructive receipt of the profits.
Trust: A fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.
W
Wealth Management: A comprehensive approach to managing an individual's or family's wealth, including financial planning, investment management, and other services.
Will: A legal document that expresses a person's wishes as to how their property is to be distributed after their death.
Y
Yield: The income return on an investment, such as the interest or dividends received from holding a particular security, usually expressed annually as a percentage based on the investment's cost, current market value, or face value.
Z
Zero-Based Budgeting: A method of budgeting in which all expenses must be justified for each new period, starting from a "zero base."
This glossary provides an overview of common financial planning terms to help you better understand the concepts and make informed decisions. If you have any questions or need further clarification, please don't hesitate to contact your financial advisor.
A
Active Management: An investment strategy where a portfolio manager makes specific investments with the goal of outperforming an investment benchmark index.
Actuary: A professional who analyzes financial risks using mathematics, statistics, and financial theory, often involved in the pension fund sector to determine funding levels and liability management.
Asset Allocation: The process of distributing investments among various asset categories, such as stocks, bonds, real estate, and cash, to achieve a desired risk-return profile.
Asset-Liability Matching (ALM): A strategy in pension fund management that seeks to ensure that assets are invested in a way that matches the timing and amount of liabilities.
B
Benchmark: A standard against which the performance of a security, mutual fund, or investment manager can be measured. Common benchmarks include the S&P 500 and the MSCI World Index.
Bond: A fixed-income security that represents a loan made by an investor to a borrower, typically corporate or governmental, with periodic interest payments and return of principal at maturity.
C
Capital Markets: Financial markets where long-term debt or equity-backed securities are bought and sold, such as the stock market and bond market.
Consulting Agreement: A contract between a pension fund and an asset consultant outlining the services to be provided, including investment advice, performance analysis, and asset allocation strategies.
Custodian: A financial institution that holds securities and other assets in electronic or physical form for safekeeping on behalf of the pension fund.
D
Defined Benefit (DB) Plan: A pension plan where the benefits are calculated based on factors such as salary history and duration of employment. The employer typically bears the investment risk.
Defined Contribution (DC) Plan: A pension plan where the contributions are defined, but the future benefits depend on investment performance. The employee typically bears the investment risk.
Diversification: A risk management strategy that involves mixing a wide variety of investments within a portfolio to reduce risk.
E
Endowment: A financial asset, in the form of a donation made to a non-profit group or institution, consisting of investment funds and other property.
Equity: The value of shares issued by a company, representing ownership interest in the corporation.
F
Fiduciary Duty: The legal obligation of one party to act in the best interest of another. In the context of pension funds, trustees and asset consultants owe fiduciary duties to the plan participants.
Fixed Income: Investments that provide a return in the form of fixed periodic interest payments and the return of principal at maturity. Examples include bonds and certificates of deposit.
G
Governance: The system of rules, practices, and processes by which a pension fund is directed and controlled. This includes the roles and responsibilities of the board of trustees and other stakeholders.
I
Investment Policy Statement (IPS): A document that outlines the principles and guidelines for managing the investment portfolio of a pension fund, including asset allocation, risk tolerance, and performance benchmarks.
Index Fund: A type of mutual fund or ETF with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500.
L
Liability-Driven Investment (LDI): An investment strategy that focuses on matching the investment strategy to the pension fund’s liabilities in order to minimize the risk of underfunding.
Liquidity: The ease with which an asset can be converted into cash without significantly affecting its price.
M
Manager Selection: The process of evaluating and choosing investment managers for the pension fund, based on factors such as performance, strategy, and fees.
Market Value: The current price at which an asset can be bought or sold in the market.
P
Portfolio Management: The art and science of making decisions about investment mix and policy, matching investments to objectives, and balancing risk against performance.
Private Equity: Equity capital that is not listed on a public exchange, typically involving investment in private companies or buyouts of public companies.
Pension Fund: A fund established by an employer to facilitate and organize the investment of employees' retirement funds.
R
Real Assets: Physical assets that have intrinsic value, such as real estate, commodities, and infrastructure.
Risk Management: The process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
S
Strategic Asset Allocation: A long-term approach to asset allocation that sets target allocations for various asset classes based on the pension fund’s investment objectives and risk tolerance.
Sustainable and Responsible Investing (SRI): An investment strategy that considers environmental, social, and governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
T
Tactical Asset Allocation: A dynamic strategy that actively adjusts asset allocation to take advantage of market opportunities and manage risk.
Trustee: An individual or organization that holds and manages assets for the benefit of another. In the context of pension funds, trustees are responsible for managing the fund in the best interests of the beneficiaries.
V
Valuation: The process of determining the current worth of an asset or a company.
Y
Yield: The income return on an investment, such as the interest or dividends received from holding a particular security, usually expressed annually as a percentage based on the investment's cost, current market value, or face value.
