Investment Terminology

Investment Advisors

An investment advisor is defined by the Investment Advisors Act of 1940, as any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications.

An investment advisor who has sufficient assets to be registered with the SEC is known as a Registered Investment Advisor, or RIA. Investment advisors are prohibited from disseminating advice known to be deceitful or fraudulent, and from acting as a principal on their own accounts by buying and selling securities between themselves and a client without prior written consent.

May also be referred to as a “financial advisor”.

Source: Investopedia.com

Annuities

An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

Source: Investopedia.com

Captive Insurance

A captive insurer is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits. These points do not clearly distinguish the captive insurer from a mutual insurance company. A mutual insurance company is technically owned and controlled by its policyholders. But no one who is merely a mutual insurance company’s policyholder exercises control of the company. The policyholder may be asked to vote on matters requiring policyholder action. But this usually means that the policyholder will be presented with a proxy and advised by the board that runs the company as to how to exercise its vote. As soon as the insurance ceases, so does the policyholder’s ownership status. The policyholder has not invested any assets in the insurance company and does not actively participate in running it. Captive insurance is utilized by insureds that choose to put their own capital at risk by creating their own insurance company, working outside of the commercial insurance marketplace, to achieve their risk financing objectives.

Source: Captive.com

Pension Plans

A pension plan is a type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee’s future benefit. The pool of funds is then invested on the employee’s behalf, allowing the employee to receive benefits upon retirement.

Source: Investopedia.com

Brokerage Transactions

A brokerage fee is a fee charged by an agent, or agent’s company to facilitate transactions between buyers and sellers. The brokerage fee is charged for services such as negotiations, sales, purchases, delivery or advice on the transaction.

Source: Investopedia.com

Fiduciary

A fiduciary’s responsibilities are both ethical and legal. When a party knowingly accepts a fiduciary duty on behalf of another party, they are required to act in the best interest of the party whose assets they are managing. The fiduciary is expected to manage the assets for the benefit of the other person rather than for his or her own profit, and cannot benefit personally from their management of assets. This is what is known as a prudent person standard of care, a standard that originally stems from an 1830 court ruling. This formulation of the prudent-person rule, required that a person acting as fiduciary was required to act first and foremost with the needs of beneficiaries in mind, and that they must work to preserve the estate or corpus of a trust, as well as the amount and regularity of income.

Source: Investopedia.com

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