Financial Services Glossary

By Grant A. Webster on December 8, 2020
Categories: TIPS & TRICKS

Personal financial management can seem very complicated, especially when there appears to be an endless amount of financial terms. However, it can be empowering to learn the basics of these technical terms. Having an understanding of basic financial vocabulary can help guide you to a better understanding of your own money.

Explore our financial services glossary below, and don’t worry — there won’t be a quiz at the end.

Asset manager

Someone who oversees an investor’s portfolio and makes decisions on overall asset allocation. Frequently used investments overseen by an asset manager include stocks, bonds, real estate, and low-correlated assets. Decisions are made based on the client’s individual circumstances, income, goals, and risk tolerance. Asset managers are typically paid as a percentage of the client’s assets under management rather than by commission.


A standard by which investment performance can be measured. Typically, a benchmark is an index that encompasses a range of securities that represent a broader market. For instance, the two most quoted benchmarks in the U.S. are the Dow Jones Industrial Average Index and the S&P 500 Index. Investors may judge the performance of their own portfolios by comparing them to an appropriate set of investment benchmarks. Diversified portfolios often invest in many different asset classes, making it important to compare to the appropriate mix of benchmarks. For example, the Dow Jones Industrial Average only tracks the performance of 30 U.S. stocks, hardly making it an appropriate benchmark for a globally diversified investment portfolio. Indices cannot be invested in directly and performance does not include fees.

Capital gain

When selling an asset, the capital gain represents the excess proceeds above the cost which you paid for the asset. Capital gains can either be long-term or short-term, depending on the length of time you held the asset. This classification impacts how much tax you pay on the gains when you sell the asset.

Capital loss

When you sell an asset for less than the price you paid, it is typically considered a capital loss. You may be able to use your capital losses to offset any capital gains on your taxes. They are also categorized as either short-term or long-term losses.

Charitable trust

A charitable trust is used to make charitable contributions while qualifying for specific tax benefits. Two common structures are a charitable lead trust and a charitable remainder trust, which operate differently in terms of how the trusts’ remaining assets are distributed.


A commission is a fee charged by a broker in exchange for buying and selling a client’s securities. A commission-based advisor can earn different rates based on each investment bought or sold, which could influence his or her recommendations. An alternative is a “fee-only” advisor, like D&Y, which charges a percentage of the client’s assets under management.


This refers to a portfolio with a mix of assets to balance risk and growth potential. Using diversification as an investment strategy which lessens the risk of being over-exposed to a single type of asset class, industry, or geographic region.


A dividend-paying stock distributes some of its earnings to shareholders through occasional payments. Investors may opt for cash payments or choose to reinvest the dividends into buying additional stock.

Donor-advised fund

A donor-advised fund allows you to contribute cash or securities into an investment account and potentially take a tax deduction in the same year. To get a greater tax advantage, an investor may opt to gift highly appreciated securities in order to forgo paying taxes on the unrealized gain on the gifted security. The assets in the donor-advised fund can be donated at a later time to public charities of the investor’s choosing.

Estate planning

Estate planning is a comprehensive strategy for how your assets should be handled upon your death. It includes tasks such as naming beneficiaries for specific assets and minimizing future estate taxes in order to preserve wealth for your heirs. An estate attorney can help create a will, name an executor, and set up living trusts or charitable giving instruments.

Family foundation

A type of private foundation, a family foundation uses the family’s assets to manage and fund charitable giving. The board is typically composed of family members who make decisions on donations. At least 5% of a family foundation’s assets must typically be distributed each year.

Fee-based advisor

A fee-based advisor is paid by the client but also receives commission based on certain financial products purchased by the client. Some view this pay structure as a conflict of interest as the advisor may benefit from recommending one product over another.

Fee-only advisor

A fee-only advisor is paid directly by the client in exchange for a set of services. The advisor may charge hourly, as a flat rate, or as a percentage of the client’s assets under management. A fee-only advisor does not receive a commission based on the investment products recommended to the clients.


A fiduciary has a duty to act in the client’s best interest, even ahead of their own. It is both a legal and an ethical principle. For investment clients, a fiduciary must typically meet higher standards compared to those financial advisors who are only required to meet a suitability standard.

Financial advisor

The role of a financial advisor is to offer advice to clients on topics such as investments, tax planning, retirement planning, and comprehensive financial planning. A financial advisor is a partner with you throughout your financial journey, communicating with you through every life changing event or regular meetings to review your portfolio.  At Dowling & Yahnke Wealth Advisors, our financial advisors are called Lead Advisors who are the main point of contact for our clients to leverage the firm’s experience (see financial planner below).

Financial planner

A financial planner reviews your finances to provide a roadmap on how to use your money towards achieving your goals. While a financial planner does not typically help manage your investment portfolio, they will help make a plan for things like a retirement plan, student loans / financial aid, and other life events. At Dowling & Yahnke Wealth Advisors, we have dedicated Financial Planners who work alongside our Financial Advisors to create a comprehensive plan for our clients.

Investment management

Investment management entails crafting a portfolio to achieve an investor’s short-term and long-term goals. It focuses on the proper investment allocation across an investor’s portfolio. Investments may include a diversified mix of stocks, bonds, real estate securities, and low-correlated assets.

Investment objective

This refers to a set of goals for an investor that guides portfolio investment decisions. Two main factors used to determine investments include the investor’s risk tolerance and the time horizon; that is, the amount of time until the invested funds are needed. Many financial advisors offer a planning session with clients to create an investment objective.

Legacy planning

Legacy planning is the process of creating a strategy to pass on your assets to your chosen beneficiaries after you pass. It is similar to estate planning but often incorporates your values as part of the planning process. You can also craft a plan that helps your heirs maintain their own lasting wealth based on certain financial terms.

Mutual fund 

A mutual fund is an investment vehicle that allows investors to pool money to invest in securities such as stocks, bonds, money markets, or various other assets.  A mutual fund can be actively managed (typically attempting to beat a stated index) or passively managed (typically attempting to track a board index).


A prospectus is a legal document filed with the Securities and Exchange Commission (SEC) by companies who offer share to the public. It details Business plans, financial and operational history, and information about the company to help make informed decisions on whether to proceed with the investment opportunity or not.

Risk tolerance

Risk tolerance refers to the amount of volatility an investor is willing to take on with their investment decisions. An investor with a high-risk tolerance invests with the hope to earn greater returns, knowing that there’s a higher chance of market fluctuation and a higher level of volatility. An investor with a low risk tolerance will likely experience less gains, less market fluctuation and typically less volatility.

Tax efficiency

Tax efficiency is a financial strategy that helps to reduce your tax liability. There are a number of methods you can use, and your team of financial professionals can help you navigate the best options for your specific needs. For example, you may use a combination of tax-advantaged retirement accounts. You may also opt for tax efficient investments and asset location, which is the strategic placement of certain investments in taxable and tax-deferred accounts. Your financial advisor can also improve your tax efficiency by employing tax loss harvesting. This involves selling some investments at a tax loss in order to offset future capital gains (although there are several IRS rules governing how this can be done).

Time horizon

A time horizon is the amount of time you expect to hold your investments before you’re ready to use them. Understanding your time horizon helps you (or your financial advisor) determine the types of investments that may be suited to achieve your goals. Investing funds towards a down payment on a house, for example, constitutes a short-to-intermediate time horizon, while investing for retirement is typically a long-term time horizon.

Bottom Line

Strengthening your financial planning vocabulary allows you to better grasp your own financial strategies. Whether you’re having a conversation with a financial advisor, accountant, or attorney on your financial team, this glossary can equip you with the contextual knowledge you need. Outside of navigating a financial conversation, you’ll also understand your financial team’s reasoning when it comes to recommendations about your cash flow or investment management.

Need help designing and executing a roadmap for your financial future? Reach out to Dowling & Yahnke Wealth Advisors today.

Interested in diving in deeper to financial terms? Head to our blog to learn more, such as our post on wealth management vs financial planning.


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