Glossary of Terms
We know that the field of Financial Planning comes with a lot of jargon. That is why we've created a simple glossary of terms for you to reference at any time. You can also ask one of our expert team members when you speak to them. To find out more, contact us.
An accountant is a professional person who performs accounting function such as bookkeeping and in preparation, auditing and analysis of accounts.
Accountants at CBD Financial Services work closely with our Financial Planning experts and other specialised professionals on our team to save you money and time.
This includes the Financial Services Guide (FSG), Supplementary Financial Services Guide (SFSG), Statement of advice (SoA) and Record of advice (RoA).
The state of any superannuation fund before it begins paying a pension.
A fortnightly payment from the federal government. You must meet various criteria to qualify in part of full.
Annuities are bought with a one-off payment and provide a fixed income for a set number of years or life. Generally your money is locked away for the period of the annuity, although some permit withdrawals or “residual capital value”. There is no capital left at the end of the specified period. Payment may be indexed, often in line with inflation.
Assets are the things you own. These can be cash or something that can be converted into cash such as property, vehicles, equipment and inventory.
This is a snapshot of a business as of a particular date. It lists all of a business' assets and liabilities and works out the net assets.
A fund that invests across a mix of classes like cash, fixed interest investments, property and shares, to achieve medium – to long term capital growth and a reasonable level of income.
Bookeeping is the process of recording the financial transactions of a business.
If you can make budgeting a lifelong habit, you should stay out of debt, have money for incidentals and build solid savings. Is a listing of planned revenue and expenditure for a given period.lying this website or any part of it to you, or to paying for the resupply of this website or any part of it to you.
Bankruptcy is what may happen if you don’t budget. People unable to pay their debts may formally ask to be declared bankrupt. Creditors to whom they owe money may also apply for this declaration. Bankrupts cede control of the finances to a manager and a permanent record is created on the National Personal Insolvency index.
Bonds are a form of a medium – to long – term investment issued by governments and some companies. They pay regular, fixed amounts of interest for the term of the bond. Since they are usually low-risk, returns are commensurately lower. The investment funds (the principal) are repaid at the end of the term (maturity).
For individuals, capital is the money of other assets owned for the purpose of investing. For a company, capital is the funds received from owners or investors to further its business objectives.
Chart of Accounts
This is an index of the accounts a business will use to classify transactions. Each account represents a type of transaction such as Asset, Liability, Owner's equity, Income, and Expense.
A notional interest rate that combines any fees and charges relating to a loan with the basic interest rate to reveal the true cost of the loan.
Your credit score is calculated from information such as unpaid and overdue mortgage repayments, plus credit cards and other defaults. I also factors in your lender request and credit enquiries history. You can receive a free copy once a year if you can wait 10 days. You may have to pay if you need the report faster.
You can get a copy of your credit report from a credit reporting agencies. Some agencies have a form to fill out on their website, others allow you to email them your details or send them a letter.
This is the process of combining several loans or other debts into one for the purposes of obtaining a lower interest rate or reducing fees.
From owing a small fortune on the credit card to getting behind on your mortgage repayments, debt can easily creep into your life. But don't let it become unmanageable - find a financial planner or debt consolidator to discuss your options.
A payment made by a company to shareholders. It is a share of profits based on the number of shares a person holds. A franked dividend is from profits on which tax has been paid. Which translates to big savings at tax time.
A diversification strategy involves spreading your money across different assets types such as cash, fixed interest, property and shares, in the hope that if one investment loses money, the others will perform and help make up for the loss.
Equity is the value of an asset – your house, shares and so on – less any money owed against it.
Estate planning might not top the list of fun things to do, but creating a will is crucial part of securing your family’s future. Developing an estate plan ensures your assets are given to the right beneficiaries and are also protected if a beneficiary has legal issues.
Nominating beneficiaries on your superannuation account is equally important.
Fact Find Document
This document is designed to enable planners to form a reasonable basis for advice, for use in the ‘question’ phase of the 7 Step advice process. It includes meaningful questions to ask the client and has adequate space to record their answers. Its use is mandatory in advice situations and it must be completed in full and signed by the client/s.
Financial Advisor / Financial Planner
These terms mean the same thing. A financial adviser reviews your circumstances, then puts together a plan to help you reach your goals – whether that’s investing in shares or planning to retire. When choosing an adviser, ensure they are licensed and have the qualifications and knowledge for your situation.
A strategy, usually created with help from a financial adviser, that defines your current financial position and goals, and sets out investment strategies to reach those goals.
Financial Services Guide (FSG)
The FSG explains the nature of financial services being offered, the fees being charged and how the planner deals with customer complaints. All clients, except in time critical cases, must be given an FSG before they receive a financial service. In time critical cases, the FSG may be provided within five days of the service being provided.
Keeping track of your net worth is the first step to increase your net worth by adding assets and decreasing debt. Spend weekly discretionary income wisely – avoid splurging too often on things that don’t appreciate in value such as clothes, dining and nights out. They may be fun but won’t make you rich.
This is a person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person's debts if the debtor can’t pay them.
Home Buying / Home Loans
Do it right. Research properties and neighbourhoods, than set your budget: aim for 20 percent deposit and factor in costs such as stamp duty. Ask mortgage provider for fact sheets so you can compare like with like. Many websites and apps can help. Work out repayments you are sure you can handle. If possible build a reserve in case interest rates rise, as most home loans apply variable rate rather than fixed rates.
Honeymoon or Introductory Interest Rate
An interest rate offered for a short period: reduced, for a new loan or credit card account; or raised, for a new savings account or term deposit. Remember, it will even eventually revert to the standard rate.
Whether you are looking into shares, managed funds or property, investing is a key way to grow your wealth. An investment needs to make you money, or a “return”. Before deciding on an investment, it is recommended to speak to a financial planner, and read its product disclosure statement to understand fees or financials risk involved.
Depending on where you are in life and your risk level, you will probably have many types of insurance. Whether choosing life, health care home or consumer credit insurance, research the details, know what they do and don’t cover and what they cost.
Have you heard the terms “good debt” or borrowing “solutions”? The finance industry is loaded with cringe worthy phrases and jargon. Don’t let marketing copy or think pieces on the state of the economy cloud your judgement – if something doesn’t makes sense, ask questions.
An account with a financial institution in the name of more than one person. Many families and married couples have their assets in joint accounts. Anyone names as a joint account holder can operate it (unless any activity required two signatures) so the account can be still accessed in the event of the death of an account holder.
As they say, knowledge is power and that is definitely the case in the finance world. By keeping up to date with the latest economic developments, financial products and services, you will be better equipped to discuss your options with your accountant, adviser and financial institution.
A measure of how easy it is to turn an investment or financial product into cash. Shares for instance, can be traded daily and are considered liquid. Property, on the other hand, can take weeks or months to sell.
Loan to Value Ration (LVR)
The LVR is the size of the loan compared to the value of the property. The higher your LVR, the greater the risk to the lender. Avoid high-risk loans such as one with 90% LVR, as you will incur extra cost such as lender mortgage insurance.
The date on which a debt or investment and all outstanding interest payments must be paid in full.
Gearing is the process of borrowing money to invest in assets such as property. Negative gearing is when the cost of owning an assets higher that the income it generates. Under current law tax, this loss can be used to offset tax on profits on other income-producing properties.
An overdraft is when you withdraw more money that you have in the bank account. You can also arrange an overdraft with your bank if you are in need of emergency cash. Extra interest is charged for as long as the account remains overdraft and other fees may also apply.
A cash advance against your next pay. These short-term loans charge high fees, and usually must be repaid within a single pay cycle. There are many warnings about such products, as they lead borrowers into spiralling debt traps.
This is financial advice that takes into account a client’s personal objectives, financial situation and needs.
Profit is what you make after accounting all expenses. It is a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Your preservation age is not the same as your pension age. Your preservation age is the age at which you can access your super if you are retired (or have started a transition to a retirement income stream).
Your preservation age depends on when you were born. You can use this table to work out your preservation age.
Product Disclosure Statement (PDS)
The Product Disclosure Statement (PDS) gives information about the financial product issuer, the benefits, risks and costs of the product and certain other information.
Record of Advice
Also known as the Record of Advice - Further Advice or Record of Debt Advice.
A Record of Advice is an advice document for clients. It is used to provide further advice to that already given in the SoA. There are a number of conditions that must be met for each RoA, including those for further advice and debt advice.
This is the point where a person stops employment completely. A person may also semi-retire by reducing work hours. An increasing number of individuals are choosing to put off this point of total retirement, by selecting to exist in the emerging state of pre-retirement.
Having a financial plan for your retirement is essential. You can increase your retirement income by investing in assets, watching your spending and continuing to work longer. Don’t forget to take advantage of increased entitlements as you age, such as travel concession as and reduced council and water rates.
A loan used by retirees to boost to boost their cash holdings without having to sell their home. Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of a deceased estate.
Risk Insurance (Personal & Business)
Risk insurance applies to persons both as individuals and as key persons in a business.
Personal risk includes death, trauma, total and permanent disability (TPD) and income protection insurances.
Business risk includes buy/sell insurance, key person insurance, loan insurance (guarantor protection) and business overheads insurance (business expense insurance).
Also known as an investor profile. It is an individual’s or an investment manager’s willingness to trade the risk of losing money for higher returns over time.
This is in related to superannuation and is the transfer of an Eligible Termination Payment (ETP) into another superannuation arrangement in order to defer or avoid paying a lump sum tax. Also the re-investment or re-financing of either a term deposit or loan is considered a rollover.
Part of your before-tax salary can sometimes be ‘salary sacrificed’ straight into superannuation – which means it is taxed at a beneficial rate (15%), and paid before income tax (lowering your taxable income). Many people find this a valuable way to save for retirement.
Statement of Advice (SoA)
The Statement of Advice (SOA) records the advice given to a client and explains the basis for the advice. An SoA must be given by a planner, with an FSG, to every client to whom the planner provides advice.
Strategic advice to clients in relation to property. This could be, for example, a recommendation to downsize a home to fund a retirement planning need.
However, strategic advice is much more than examining budgets and cash flows. It involves the ability to look at the person/business holistically; assessing its strengths and weaknesses, identifying opportunities and threats, and reigning in resources to allow the person/business to meet their desired goals.
Strategic Asset Allocation (SAA)
Strategic asset allocation (SAA) refers to the long term mix of assets (shares, property, bonds, alternatives and cash) that aligns the expected risk profile of the client’s portfolio with his or her own risk profile.
Structural advice refers to recommendations dealing with legal structures and entities used to hold the property.
Also known as mortgage settlement.
Once you have exchanged contracts with the vendor on your property and paid a deposit, you will generally have a few weeks to get your solicitor/conveyancer to organise settlement. This period usually takes 4 to 8 weeks depending on the state or territory the property is located in and negotiation between the vendor and buyer.
Also known as a loan serviceability. Serviceability is defined as your ability, as a borrower, to service or meet loan repayments as calculated by the lending institution. If you’re after a construction loan or a mortgage, the lender is likely to be very interested in how easily you’ll be able to make your repayments.
Transition to Retirement (TTR)
Transition to retirement refers to the opportunity for people who have reached their preservation age (see above) to start receiving an income from their super without having to retire, by way of an account based pension.
Unit Investment Trust
An investment vehicle that pools the resources of a group of investors. In Australia, a unit investment trust must be registered with ASIC as a managed investment scheme.
Variable Rate Home Loan
This is a mortgage where the interest charged changes, usually in line with the Reserve Bank’s official cash rate. The possibility of rises in mortgage payments should be considered for in your financial planning.
The opposite of this loan type a fixed rate.
This is one of the many terms used to explain that investments carry risk, and that markets can fall as well as rise. When they fluctuate rapidly, they are described as volatile which may not be the best time to make investment decisions.