Glossary of Investment Terms

A

Accredited Investment Fiduciary Professional® (AIFP®)

This designation is granted to advisors through Fi360, an educational, software and data company. Advisors who hold this designation are not necessarily fiduciaries, but have a keen understanding of what it means to have a trust relationship.


Accredited Investor

To invest in certain private companies or exempt market securities an investor must be 'accredited'. Who qualifies as an 'accredited investor' is formally defined by the provincial securities commissions. Making this determination is not simple as there are 22 categories of AIs. Regulators are primarily concerned with individuals who are accredited investors and qualify them under either an income test or a net asset test. Generally speaking, you are considered an accredited investor if you are; (i) an individual who alone or with a spouse beneficially owns financial assets having a value of $1,000,000.00 or more; (ii) an individual whose net income before income taxes exceeded $200,000.00 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000.00 in each of the two most recent calendar years and who, in either case, expects to exceed that net income level in the current calendar year, or; (iii) an individual who alone or with a spouse, has net assets of at least $5,000,000.00.


Accrude Interest

Interest earned on a security - such as a bond - but not yet paid to the investor.


Accumulated Income Payment (RESP)

Money paid to the subscriber of an Registered Education Savings Plan (RESP) out of the earnings, including earnings on the Canada Education Savings Grant. Accumulate Income Payments are only made if the child (RESP beneficiary) does not attend college or university - or some other approved post secondary institution. Other conditions have to be present for the AIP to be paid: >the plan has to have been in place for 10 years >no beneficiary is in school >the beneficiary is 21 years or older >the subscriber is a Canadian resident There may be exceptions to these conditions (the beneficiary has passed away). AIP payments can be rolled into an RRSP - if this is not done an AIP is considered taxable income for the subscriber.


Active Management

One of the two broad categories of investment management. Active managers generally believe through their own research efforts and market forecasts that they will be able to outperform the market (or a specific benchmark) over time. The other investment management category is passive management [see Passive Management].


Adjusted Cost Base (ACB)

The amount paid for an investment - such as a stock - plus any other costs associated with the purchase such as fees and commissions.


All or None

This is a special term or condition that is placed when entering an order to either buy or sell a stock. When you include an 'all or none' condition you will only sell (or buy) shares to someone who will buy all of your shares. This is intended to avoid 'partial fills' on orders. Placing a condition on an order, such as All or None reduces the chances of filling an order.


Alpha

Measures the excess return of a portfolio above the expected return as established by comparison to a benchmark or by a financial model. The higher the alpha, the more outperformance.


Alternative Investments

Types of investments and/or investment strategies other than traditional investments such as stocks, bonds and mutual funds. Examples of alternative investments might include hedge funds, private equity or managed futures.


Annual Report

The yearly audited report of a corporation or a mutual fund's condition and performance that is distributed to shareholders/unit holders.


Annuity

An annuity is an insurance product or contract. Investors deposit a lump sum and are paid back either a fixed or variable amount for a fixed period of time or the remainder of their life. In the year RRSP investors turn 71 they must 'collapse' their RRSP. Purchasing an annuity is one of the three options available, the other two being converting the RRSP into a RRIF or liquidating the RRSP entirely.


Arbitrage

When an "arbitrageur " - which can be either a person or a computer program - simultaneously buys and sells a commodity or security in different markets. The arbitrageur exploits small price differences which appear in identical investments on different exchanges, simultaneously buying on one exchange and selling on the other.


Ask

A stock quote has three components, the bid, the ask and the last traded price. The 'ask' is the price at which a stock can be purchased at any moment in time. In other words, its the price a seller is asking for their shares. The Ask is also sometimes referred to as the Offer.


Asset Allocation

The intentional and targeted mix of stocks, bonds and cash held in an investment portfolio. Broadly speaking an investors asset allocation might be 40% Stocks and 50% Bonds and 10% Cash. When the portfolio deviates from one of these targets, the portfolio needs to be rebalanced. An individual’s ideal asset allocation is determined by assessing their risk tolerance, objectives and time horizon. This is a key concept in investment management.


Asset Class

Securities with similar, or the same features/characteristics. There are three main asset classes: Equities (Stocks), Fixed Income (Bonds) and Cash. Other asset classes might include Real Estate and Commodities.


Assisted contributions

These are contributions made to an RESP (made after 1997) on which Canada Education Savings Grant (CESG) money was or will be paid.


At the Money Option

An equity option whose strike price is currently at, or close to the current trading price of the the underlying security.


B

Back Office

This is the administrative department of an investment dealer/brokerage. For example, the back office of an investment dealer includes IT, compliance, accounting, corporate actions, account transfers, etc.


Balanced Funds

Mutual funds that seek both growth and income in a portfolio by holding a combination of common stock, preferred stock or bonds. The companies and instruments held typically operate in different industries and different geographic regions.


Bankers Acceptance (BA)

Similar to a bond a BA is a loan an investor makes to a corporation. A BA is purchased at a discount to par value and par value is paid back at maturity. For instance an investor might purchase a BA for $995 and be paid back $1000 at maturity. These are short term investments maturing within 30 to 180 days, with a minimum investment of $25,000.00. The borrower is usually a corporation - however BAs are guaranteed by chartered banks.


Basis Point

One-hundredth of one percent, or 0.01%. For example, 35 basis points is equal to 0.35%.


Bear Market

When markets are in a sustained decline. Bear markets can occur in stock markets, commodity markets, currency markets, real estate markets etc. Generally speaking, a bear market is declared when there is a broad market decline of 20% or more from a recent high.


Bench Mark

A standard or point of reference (frequently an index or market average) that an investment fund or portfolio’s performance can be measured against.


Beneficiary

A person who you choose to give your money, investments, and other property to when you die. A beneficiary might be named in will. Residents of every province (excluding Quebec) have the opportunity to name a person or persons directly as their beneficiary on their Registered Retirement accounts. A beneficiary can also be someone intended to receive the proceeds of a trust account.


Beta

The measure of the volatility of either a stock or a portfolio in relation to the broad market. In the simplest of terms, beta is the way the relative volatility of stocks are ranked. The market is said to have a beta of 1. Stocks that have a beta of >1 are considered to be more volatile than the market. Stocks that have a beta of <1 are less volatile than the broad market. A stock with a beta of 1.20 is thought to be 20% more volatile than the market.


Bid

One of the three components of a stock quote (bid, ask, last) – this is the highest price a buyer is willing to pay for a stock at any given moment in time.


Black Swan

An event that impacts stock markets negatively, resulting in extreme drops in stock prices and characterized by high levels of market volatility.


Blue Chip

A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term Blue Chip is borrowed from poker, where the blue chips are the most valuable.


Board Lot

Describes a standard number of shares in a securities transaction. The size of a board lot depends on the price of the security. For shares trading greater than $1.00, 1 board lot equal 100 shares. On Canadian exchanges, shares trading between 0.10¢ and 0.99¢ a board lot is equal to 500 shares. For shares trading under 0.10¢ a board lot is equal to 1000 shares.


Bond

A bond is a loan made by an investor (lender) to a borrower (typically a government entity or a corporation). The borrower pays a fixed rate of interest to the lender at regular intervals for a defined period.


Book

An investment industry term that refers to an advisors list of accounts/clients. A book may be described as 100 client households and $40 Million under administration.


Branch Manager

A person who supervises employees in the branch of an investment dealer. The branch manager is responsible for compliance supervision of advisors and overseeing operations of a branch.


Bull Market

Loosely defined as a period when stock prices are rising for a sustained period of time. No formal, agreed upon definition of an bull market exists – however some would say that a bull market is a sustained rise in broad market of 20% or more. Bull markets can also be found in bond markets, currency markets, commodity markets, etc.


Bulletin Board Stocks

Also sometimes called 'pink sheet' stocks, the over-the-counter bulletin board (OTCBB) is a trading platform provided by the National Association of Securities Dealers (NASD). The stocks listed on the bulletin board are speculative and typically trade there because they have either been delisted from a major exchange or they haven't met the listing requirements for a major exchange.


Business Succession Planning

Strategies related to the passing on of the leadership/ownership of a company or business. Advice may include taxation considerations, contingency planning and the coordination of external professional services.


Buy and Hold

An investment philosophy that advocates holding investments over a long period of time regardless of short term price fluctuations.


C

CA (Chartered Accountant)

Advisors with the CA designation are trained to provide advice in accounting, auditing and tax planning. The CA program combines academic study, professional education and practical working experience ensuring students develop analytical, financial, accounting, communication and leadership skills.


Caisse Populaire

A cooperative, member owned financial institution primarily found in Quebec. Caisse Populaire are similar to credit unions in the way they operate (owned by their members) and perform traditional banking roles such as deposit taking and lending as well as selling insurance and investments.


Canada Education Savings Grant (CESG)

The CESG is a grant made by the federal government to help Canadians save for their child's post secondary education. The CESG is equal to 20% of the first $2500 you make in annual RESP contributions for each child. This is equal to $500 each year to a lifetime grant limit of $7200 per child.


Canadian Investor Protection Fund (CIPF)

An organization that protects investor assets in the event of a CIPF members bankruptcy or insolvency. CIPF Member firms include all IIROC dealer members in Canada. Each investor’s coverage is limited to $1,000,000 in a combination of cash and securities at each dealer.


Canadian Securities Administrators (CSA)

Canada does not have a national securities regulator - instead the 10 provincial and 3 territorial regulators have formed the Canadian Securities Administrators, or CSA for short. The CSA is primarily responsible for developing a harmonized approach to securities regulation across the country.


Canadian Securities Course (CSC®)

One of the two courses anyone must complete in order to be licensed to provide advice to the public with regards to the buying and selling of stocks, bonds and ETFs. The CSC® is not a designation. The other requisite licensing course is the Conduct and Practices Handbook.


Canadian Securities Institute (CSI)

Offers the mandatory courses and testing that must be completed in order to be licensed to deal in securities in Canada. The CSI also offers a variety of certifications and continuing education courses. The institute is recognized by IIROC and the Canadian Securities Administrators as providing the requisite courses for anyone wishing to be licensed in the Canadian securities industry. The CSI is owned by Moody’s Analytics.


Capital Loss

The loss when you sell an asset for less than you paid for it. The difference being the capital loss.


Capital Preservation

An investment objective where the goal is to prevent the loss of principal. Investors can lose money either as a result of a loss in the value of an investment or over time if a ‘safe’ investment fails to keep pace with the rate of inflation.


Certified Cash Flow Specialist™(CCS™)

A designation that [from website] “…is the only nationally accredited Cash Flow Planning™ designation in Canada.” The designation is comprised of over 30 hours of education, and all modules and quizzes are completed online. Financial professionals learn a proprietary process designed to enable them to create written cash flow plans for clients.


Certified Divorce Financial Analyst (CDFA®)

A designation that focuses on pre divorce financial planning. The course of study covers topics such as; valuing and dividing property, personal vs. marital property, retirement assets and pensions, spousal and child support, splitting the house, tax problems and solutions, expert witness testimony, tax law and financial issues affecting divorce.


Certified Financial Planner (CFP®)

A designation granted by the Financial Planning Standards Council. The CFP® designation is the international standard for anyone wishing to provide financial planning services to the public. The course of study includes over 100 conceptual topics. In order to qualify for the designation students must pass a board exam and a background check.


Certified General Accountant (CGA)

Advisors with the CGA designation are members of the Certified General Accountants Association and have completed the CGA program, which combines training in theoretical and analytical knowledge together with practical work experience. They have extensive training in accounting, tax and financial management and are required to adhere to a code of conduct and a mandatory continuing education program.


Certified Health Insurance Specialist (CHS™)

A designation offered by the Institute for Advanced Financial Education. The course of study covers areas such as critical illness insurance, basic and extended health insurance, drug and dental insurance, travel insurance and disability insurance.


Certified International Wealth Manager® (CIWM®)

A designation whose course of study focuses on the wealth management needs of high net worth individuals, domestic and international taxation, retirement strategies, estate and trust planning and client relationship management.


Certified Investment Management Analyst (CIMA®)

A designation offered in partnership with the Wharton School of Business. Holders must first pass a qualification exam before attending in-class sessions covering topics such as modern portfolio theory, alternative investments, manager selection, investment policy and performance measurement.


Certified Management Accountant (CMA)

Advisors with the CMA designation are strategic financial management professionals who combine accounting expertise and business acumen with professional management skills to provide leadership, innovation and an integrating perspective to organizational decision-making. The CMA designation in management accounting is granted and regulated by CMA Canada under the authorization of provincial legislation.


Certified Private Wealth Advisor®(CPWA®)

Certification for advisors who serve high net worth clients (>$5 Million). In order to enroll applicants must have a minimum of 5 years experience, complete a background check and have either a bachelors degree or one of 6 recognized certifications or designations.


Certified Professional Consultant on Aging (CPCA)

This is a designation – from the ‘CPCA’ website. “We've created the top training in the world to teach you how to grow your business by harnessing the power of the 50+ Market. We teach you how to talk with this market, how to care for them, and how your business can benefit by making Boomers and Seniors a larger part of your customer base. Once you've successfully completed this training, you will have earned the right to use the CPCA designation to identify yourself to this market and to differentiate yourself from the competition. And we even take it one step further. We provide you with all the marketing tools to attract this market and make it a larger part of your client portfolio.


Chartered Financial Analyst (CFA®)

Perhaps the most highly respected designation in the Investment Management Industry. To obtain the CFA Charter candidates must pass three levels of self study – approximately 300 hours for each level, over three years. The CFA designation is globally recognized and charter holders must adhere to CFA Institutes Code of Ethics and Professional Standards.


Chartered Financial Consultant (ChFC®)

A designation whose core curriculum is very similar to the CFP®, allowing the designation holder to offer comprehensive financial planning services. The course of study includes investment planning, insurance and estate planning, ethics, tax planning, retirement planning and education planning.


Chartered Investment Manager® (CIM®)

A designation offered through the Canadian Securities Institute. The CIM is one of the qualifications that allows Advisors to become approved for and offer discretionary portfolio management services.


Chartered Life Underwriter (CLU®)

A designation that builds on the Certified Financial Planner (CFP®) designation. Generally considered the most respected insurance designation holders of the CLU® are able to provide guidance and specialized knowledge to clients on matters relating to insurance planning, wealth transfer and estate planning.


Chartered Market Technician (CMT®)

Confirms the designees mastery of technical analysis of financial markets with a focus on investment risk as it relates to portfolio management. Much of the course content is unique in focus relative to that of other designations. Less than 2500 individuals hold the CMT® designation globally.


Chartered Strategic Wealth Professional (CSWP®)

A designation granted by the Canadian Securities Institute, replacing the FMA designation. Intended to provide advisors with the know how in managing the investment and financial planning needs of the wealthy, high net worth clients.


Churning

When an investment advisor makes an excessive number of trades in a client's account - this is an unethical activity intended to generate commissions for the advisor.


Commission

A form of advisor compensation. This is a fee charged to a client for each individual transaction (purchase or sale) in an account.


Compound Interest/Return

Interest that is calculated based on the principal amount and on the interest paid. For Example – an investment that is purchased for $1000.00 and pays an annual interest rate of 5%, will return $50 in year 1. In year two the interest paid will be calculated based on a total investment of $1050.00, $52.50. In year three interest will calculated based on an investment of 1102.50 or $55.12. The original investment will double to $2078.53 after 15 years. [See: Rule of 72].


Concentrated Portfolio

An investment portfolio that holds a small number of securities. The purpose of a concentrated portfolio is to achieve a higher rate of return than what would otherwise be achieved in a diversified portfolio - the trade off being a higher level of risk than would otherwise be present in a more diversified portfolio.


Conduct and Practices Handbook Course (CPH®)

A course offered by the Canadian Securities Institute. Along with the Canadian Securities Course, the CPH® is one of the two mandatory courses anyone wishing to be registered with IIROC must complete.


Corporate Accounts

An investment account set up in the name of a corporation.


Correlation

When two investments move up in tandem they are said to be positively correlated. When two investments have a history of moving in different directions at the same time they are said to be negatively correlated. A well diversified portfolio should include a mix of investments that are negatively and positively corelated.


Covered Call

This is an option strategy. A covered call is implemented when someone who owns a stock wishes to generate income on that stock. The owner of the stock sells someone else the right to buy their shares from them at a specific price on or before a specific date in the future. In exchange for selling that right the owner of the stock receives a premium from the buyer of the option.


Credit Risk

The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation.


Critical Illness Insurance (CII)

Insurance that provides a benefit paid in a lump sum once the insured is diagnosed with one of a specified group of critical illnesses (such as cancer, stroke, or heart attack). Proceeds can be used as desired - pay off a mortgage or other debts; allow a spouse or family member to take a leave of absence from work; fund advanced treatments or therapies.


Cumulative Preferred

A preferred share that has a provision that if one or more dividends are not paid, these dividends are owing to the preferred shareholder and must be paid before dividends can be paid on the company's common stock.


Currency Risk

The change in price of a currency relative to a different currency where the depreciation of a currency may negatively impact the value of ones assets. Also known as exchange rate risk.


Custodian

A custodian is a company that has physical possession of client investments and holds them for safekeeping. A custodian will also issue client statements, ensures dividends are paid to client accounts and handles client transactions. Many small investment dealers have custody arrangement where the Advisor or Portfolio Manager at the dealer directs investments and the custodian holds the investments for safekeeping and client reporting.


D

Day Order

An order to buy or sell a stock that is open for the current trading day.


Debenture

Similar to a bond but more closely resembling a promissory note backed by the general credit of a company and usually not secured by a mortgage or lien on any specific property.


Defensive Stock

The shares of companies which are thought to be less vulnerable to economic downturns. In the event of an economic downturn defensive stocks should not decline as much as other stocks.


Deferred Sales Charge (DSC)

A type of mutual fund sales charge. The deferred sales charge is intended to discourage investors from selling a mutual fund early. Depending on when a fund is sold (how soon after it is purchased), the fee can be up to 6% of the total investment – the penalty declines each year according to a fixed schedule. If the fund is held long enough (between 5 and 7 years) there is no fee (DSC) when units are sold. The advisor’s firm receives a commission (typically 5% of the value of the purchase) from the mutual fund company when the fund is initially purchased by the client – the advisor receives a part of this commission.


Defined Benefit Pension Plan (DPSP)

A type of pension plan in which an employer pays a specific pension payment that is determined based on a formula based on the employees tenure, age and earnings history.


Defined Contribution Pension Plan (DCPP)

A retirement pension plan where the contributions made by an employee and/or the employer are fixed as a percentage of the employees salary or total compensation. The amount paid out at retirement is not fixed or guaranteed but rather a function of the performance of the employee’s account.


Derivative

An investment instrument whose value is a function of an underlying asset such as a stock, commodity, or currency.


Derivatives Markets Specialist® (DMS®)

A designation formerly offered by the Canadian Securities Instituted, discontinued in 2010 and replaced by the Certificate in Derivatives Strategy. Holders of this designation have gained core competencies in the use of complex financial instruments such as options, futures and swaps and the application of these derivative instruments as risk management tools.


Disability Planning

Strategic financial planning for individuals and dependents with physical or mental disabilities. Disability planning may include a combination of insurance needs assessment, estate planning, cash flow analysis, taxation and the use of trusts and/or the RDSP (Registered Disability Savings Plan).


Discretionary Portfolio Management

A service offered by advisors who hold the necessary qualifications (CFA, CIM) and are registered as a portfolio manager. A portfolio manager is authorized by his or her clients to make buy-sell decisions without referring to the client for approval of each transaction. Portfolio Managers are required to manage portfolios according to strict guidelines, frequently outlined in an Investment Policy Statement (an agreement between the client and the portfolio manager) which details how a portfolio is to be managed.


Diversification

A method of managing risk in a portfolio by investing in a variety of investment vehicles across multiple asset classes, risk levels, sectors and geographies that are not highly correlated.


Dividend

This is a payment made by a company to its shareholders out of its earnings. This payment can be paid either monthly, quarterly or annually. Not all companies (stocks) pay a dividend.


Dividend Growth Stock

A company that has a long history of increasing the dividend it pays to shareholders. Dividend growth investing can be a very effective investment strategy.


Dividend Payout Ratio

The proportion of a companies earnings that are paid out as dividends. Expressed as a percentage of earnings or earnings per share.


Dividend Reinvestment Plan (DRiP Plan)

A plan that allows an investor to use each dividend payment to buy additional shares in the same company. The amount of each dividend paid must be sufficient to purchase at least one whole share. A dividend reinvestment strategy supports a compounding strategy, particularly when the dividends being reinvested in a company that has a history of growing its dividend.


Dividend Yield

To calculate a dividend yield on the stock you divide the total annual dividend payment by the amount that you paid for the stock (or similar security). For example - if your cost per share for a stock is $100.00 and you receive $5.00 in dividends over a year, you dividend yield would be 5%.


Dollar Cost Averaging

An investment strategy that involves buying a fixed amount of an investment at regular intervals, regardless of price.


Dow Jones Industrial Average (DJIA)

The DJIA measures the daily price movement of 30 blue chip companies that trade on the NYSE and NASDAQ that are considered leaders in the US economy. The stocks included in the DJIA are selected by the editors of the Wall Street Journal.


E

Earnings Per Share

A company's profit divided by its number of common shares outstanding. If a company earning $10 million in one year had 10 million common shares of stock outstanding, its EPS would be $10 per share.


Education Planning

Creating a savings plan to support the financing of post secondary education that is balanced with other spending and saving priorities. The primary educational savings account for Canadians is the RESP (Registered Education Savings Plan).


Educational Assistance Payment (EAP)

This is the money paid from their RESP to a student to help pay for their post secondary schooling. The EAP is considered income and are taxable to the student.


Elder Planning Councelor™ (EPC™)

A designation offered through the Business Career College intended to provide training for professionals working in multiple disciplines (financial planning, social work, funeral planning) who work with clients over 55.


Embedded Compensation

Some advisors receive compensation directly from the manufacturers of products (mutual funds) which are sold to their clients. Most classes of mutual funds, for example, pay advisors an ongoing ‘trailer fee’ based on their holdings of particular funds. No money exchanges hands between the advisor and the client - instead the fee paid to the advisor is embedded in the total cost of the mutual fund.


Estate Planning

The arrangement and management of an individuals financial affairs with the goals of maximizing the value transferred at death through careful and strategic planning.


Exchange Traded Funds (ETFs)

An investment fund that trades on a stock exchange. ETFs are similar to mutual funds in that they typically hold a diversified portfolio of assets (stocks, bonds, commodities etc). Many ETFs track an index – such as a stock index or bond index and are managed passively (very little trading) whereas mutual funds are actively managed (lots of trading). ETFs have many attractive features such as tax efficiency and much lower costs (MERs) than actively managed mutual funds.


Ex-Dividend

The interval between the announcement and the payment of the next dividend for a stock.


Ex-Dividend Date

The date on which a stock goes ex-dividend. Typically about two to three weeks before the dividend is paid to shareholders of record.


Exempt Market Security

Investments that are exempt from distribution under a prospectus and therefore require less disclosure than a prospectus offering. To be eligible to purchase an exempt market security investors must be accredited. Exempt market products often carry a higher degree of risk than other investments.


F

Family Office

A family office is a specialized advisory practice intended to serve the needs of very high net worth and ultra high net worth individuals and families. Family offices offer the integration and co-ordination of professional services intended to oversee the complete financial affairs of wealthy families. Including, but not limited to business, tax and legal advisory, philanthropic planning, wealth transfer planning, family governance and investment consulting.


Family RESP

A Registered Education Savings Plan (RESP) that has more than one beneficiary. The beneficiaries must be related by blood or adoption and must be under the age of 21. Instead of having separated RESP accounts for each child in a family, just one needs to be set up - this is much more convenient than having multiple accounts and will reduce administration costs. In the event that one of the beneficiaries chooses not to attend post secondary schooling the other beneficiary or beneficiaries can use the funds in the account.


Federal Funds Rate (Fed Funds Rate)

The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board.


Fee Based Account

A form of advisor compensation. An advisor is paid a percentage fee based on the amount of money being managed. Fees typically decline as assets increase. Fees may be paid either monthly or quarterly directly from the account being managed.


Fee For Service Planning

An advisor who charges a set fee in exchange for their services. This fee can be either hourly, project based, or paid as a monthly or annual retainer. These advisors typically focus on providing detailed financial planning services rather than investment management services.


Fee-Based Advisor

An advisor who charges clients a fee, usually based on assets under management (rather than earning a commission or other form of compensation); these advisors often do still earn commission from some clients who have not switched to fee-based models, and these advisors also sometimes sell insurance, for which they earn a commission, so cannot call themselves “fee-only” (although they may eventually switch to strictly fee-only)


Fee-Only Advisor

An advisor who is solely compensated by their clients, through the fees those clients pay to the advisor, and does not earn any fees in any part of their business from commissions, referral fees, or other types of compensation. “Fee-Only” can refer to an asset under management fee for managing client assets or to a fee charged to a client for financial planning recommendations.


Fellow of the Canadian Securities Institute (FCSI®)

The Canadian Securities Institute considers this designation its highest distinction. Held by a relatively small number of advisors, the FCSI® recognises holders who have met stringent educational standards, education, ethics and have received peer endorsement.


Fiduciary

An Investment Advisor who acts in the expressed interest of their client. An Advisor who holds themselves out as a fiduciary is required to put their clients interests ahead of their own. In Canada, Investment/Financial Advisors are not held to this standard. Canadian regulators only require Advisors to make recommendations to clients that are “suitable”. For more information go to: http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20121025_33-403_fiduciary-duty.htm


Financial Management Advisor (FMA)

A designation issued by the Canadian Securities Institute, discontinued and replaced with the CSWP™ designation in 2008.


Financial Planner - Québec (Pl.Fin)

The use of the title Financial Planner in the province of Québec is strictly regulated. Advisors must have a minimum level (no less than 900 hours) of relevant academic training and enrol in a professional training course (PTC) offered by the Institut québécois de planification financière. Upon passing and exam based on the PTC candidates are awarded a certificate by the Autorité des marché financiers (Québec’s financial markets regulator).


Financial Planning

A dynamic process intended to achieve specific financial goals relating to an individual or families budgeting, saving, spending and investment needs. Financial Planning considers both short term and long term goals taking into account various unforeseen events and anticipated changes in circumstances.


Financial Risk Manager (FRM®)

This is a designation offered by the Global Association of Risk Professionals. The FRM® designation is awarded to individuals who pass two multiple choice exams covering a wide range of topics relating to various aspects of financial risk management.


Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

FINTRAC was created by an Act of Parliament in 2000 under the Proceeds of Crime (money laundering) Act. The mandate of FINTRAC is to gather information from regulated entities on matters such as large cash transactions, suspicious transactions and suspected terrorist activity.


Fixed Income Security

An investment that pays a fixed return (income) over the life of the investment. Most bonds and GICs would be considered fixed income securities.


Foreign Equities

Stocks that trade on exchanges outside of North America.


Forex

The market in which global currencies are traded. The forex market is the largest and most liquid market in the world where trillions of dollars change hands daily.


Front End Load (FE)

Sometimes referred to as an Initial Sales Charge (ISC) – this is a type of sales charge associated with the purchase of a mutual fund. The fee paid up front when a fund is purchased (up to 5% of the amount purchased). Front end loads can be negotiated with an advisor.


Fundamental Analysis

A method of evaluating a stock based on its financial condition and other key economic and sector related factors. The goal of fundamental analysis is to make a determination of the value of a security and compare that value to the prevailing market price.


Futures

A legal contract between two parties to buy or sell a commodity or financial instrument at a specific price at a specific future date. Futures are derivative contracts that derive their value from an underlying asset such as a commodity, currency or an intangible like an interest rate or an index. Futures contracts are used as either a hedging tool or for speculative purposes.


G

Group RRSP

RRSPs offered to employees by their employer. Contributions are taken from the employee's pre-tax pay through payroll deductions. Employee contributions are often matched by their employer. Contributions are then deposited into their RRSP as specified.


Group Scholarship Plan

A type of Registered Education Savings Plan (RESP) where savings are invested along side other members of the plan. These plans have fallen under the scrutiny of regulators (particularly the Ontario Securities Commission). The fine print in these plan agreements often contain terms and conditions that can be punitive and inflexible. Companies offering these plans include Canadian Scholarship Trust, Heritage Education Fund, USC Education Savings Plans Inc. and others. Anyone considering enrolling in these plans should conduct thorough due diligence. These plans are distinct from a ‘regular’ RESP account which can be self directed and hold a variety of different types of investments. To learn more follow this link; https://www.getsmarteraboutmoney.ca/invest/savings-plans/resps/understanding-group-resps/


Growth Investing

An investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.


Guaranteed Annuity

An annuity is issued by an insurance company and guarantees to make regular payments (monthly, quarterly or annually) for the remainder of your life.


Guaranteed Income Supplement (GIS)

A monthly benefit paid to low income Canadians receiving Old Age Security (OAS) benefits. The amount received depends on your income or your joint income if you have a spouse or common-law partner. GIS is not taxable.


H

Hedge Fund

Hedge Funds are alternative investment products typically only available to sophisticated investors and high net worth individuals. Similar to mutual funds, hedge funds are pools of securities, but this is where the similarity ends. Hedge funds can invest in a broader range of types of investments and strategies - frequently using leverage and derivatives to enhance returns.


Heir

A person you choose to leave some or all of your estate after your death. You name them in your will as your beneficiary.


High Net Worth Investors

Advisors who have the necessary experience and qualifications to meet the needs of individuals and families with a high net worth. These advisors typically offer specialized and integrated investment management, estate planning and wealth transfer solutions coordinating their services with other professionals such as attorneys and accountants.


Home Buyers Plan (HBP)

The Home Buyers' Plan (HBP) is a federal government program that allows you to borrow up to $25,000 from your RRSP tax free to fund your purchase. If both you and your spouse qualify, you can each borrow up to $25,000 from your RRSPs, for a total of $50,000. The money must have been in your RRSP for at least 90 days. The amount withdrawn must be repaid into the RRSP within 15 years.


Household Minimum

To maintain service standards, Advisors frequently require prospective clients to have, in aggregate, a minimum amount of investable ‘household’ assets held in their accounts. A household refers to the combined value of all accounts held in the names of individuals or family members residing together. This minimum may be a threshold set by either the advisor, or a policy of the advisor’s dealer. This is not always a strict minimum. Exceptions may be given under certain circumstances such as a prospective clients savings rate, their demographic or the services required.


Hybrid Advisor

An emerging financial advisory model that combines certain aspects of the traditional human led advisor driven model while being enhanced by automated technology and advanced forms of client communication.


I

IIROC (Investment Industry Regulatory Organization of Canada)

One of Canada’s primary regulatory authorities. IIROC provides oversight of all Investment Dealers across Canada as well Investment Advisors and Portfolio Managers working at these Dealers. Advisors who are registered with IIROC are licenced to advise clients on the buying and selling of stocks, bonds and mutual funds (As opposed to advisors registered with the Mutual Fund Dealers Association (MFDA) who are licensed to sell mutual funds only).


Index

An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.


Individual Pension Plans (IPP)

A retirement savings account that shares some features of an RRSP. IPPs specifically benefit owners of companies or executives of incorporated companies who do not participate in an employer pension plan and who have annual earnings greater than $120,000. IPPs allow for higher contribution limits than RRSP, they are locked in and cannot be accessed until retirement, and at retirement they pay a fixed amount of income, similar to a defined benefit pension plan. IPPs are creditor proof.


Individual RESP

This is a Registered Education Savings Plan with just one beneficiary.


Inflation

The rate at which the price of goods and services increases and as the purchasing power of money declines.


Initial Public Offering (IPO)

The first sale of shares of a private company to the public, which occurs concurrently to the listing of the companies shares on a stock exchange.


Insider Trading

Illegal trading in the shares of a company by a person or group of people who are in possession of information that may either negatively or positively impact the share price in the future.


Insurance

A contract, typically referred to as a policy that is intended to protect the holder against loss or other uncertain risks.


Insurance Planning

Advisors who offer clients insurance products based on an insurance needs analysis, making adjustments to coverage as necessary.


Interest Rate

The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.


Interest Rate Risk

The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates.


Investment Funds Institute of Canada (IFIC)

The mutual fund industry trade association set up to serve its members, co-operate with regulatory bodies, and protect the interests of mutual fund investors.


Investment Grade Bonds

A bond generally considered suitable for purchase by prudent investors.


Investment Management

A generic term that refers to the managing of a portfolio of investments (the buying and selling of stocks, bonds, ETFs, etc) to achieve a specific investment objective or combination of objectives (income, growth, capital preservation, tax minimization) while taking into consideration the clients tolerance for risk and investment time horizon.


Investment Objective

A broadly defined goal for an investment account. The most common categories of investment objectives are capital preservation, income, and growth, aggressive growth, speculative. The objectives of an investment account may focus on just one of these categories or a combination.


Investment Policy Statement (IPS)

A detailed guideline for an investment manager to follow when managing a client portfolio. One of the key benefits of an IPS is that it lends consistency and discipline to a investment process in periods of market volatility. A IPS should outline the client’s investment objectives, tolerance for risk, investment time horizon, liquidity needs, anticipated withdrawals, tax considerations, investment strategy, how assets will be allocated across different sectors, rebalancing procedures and constraints.


J

Joint Account

A type of account which is owned by two or more people.


Joint Tenants In Common

A type of joint account in which holders have the ability to name a beneficiary of their share of the assets held in the account.


Joint With Rights of Survivorship

A legal agreement between owners of a joint account that states that on the death of one of the account holders, the ownership of the assets held in the account transfer to the surviving account holder or holders.


Junk Bond

A lower-rated, usually higher-yielding bond, with a credit rating of BB or lower.


K

Know Your Client (KYC)

A cornerstone of securities regulation in Canada. The ‘know your client’ rule requires all registered advisors know a minimum amount of information about their clients to aid in determining the suitability of investment recommendations. A new account application – often referred to as a KYC form – captures information such as a clients age, net worth, income, marital status, investment objective and risk tolerance. This information fulfills the core of the information required under the know your client rule.


Know Your Product (KYP)

Refers to the obligation of individual registrants (advisors) to thoroughly understand a product before they can determine whether it is suitable to recommend the product to a client. Registrants must understand the structure and features of each investment product they recommend. This includes costs, risks and eligibility requirements. The KYP requirement applies to both the firm and the individual advisor.


L

Large Cap Stocks

The market capitalization of the stocks of companies with market values greater than $10 billion.


Legacy/Philanthropic Planning

Specialized advice relating to large scale charitable donations. Planning advice may include identification and vetting of recipients, goal setting and measurement, tax considerations and trust and foundation management.


Leverage

The use of financial instruments or borrowed funds to amplify performance. In an upward- or downward-trending market, a leveraged investment that is on the correct side of the trend will see magnified gains, while one on the wrong side of the trend will see magnified losses.


LGBTQ Planning

Advisors with the necessary experience in addressing the unique financial planning needs and challenges that confront same sex couples and people who identify as LGBTQ.


Liquidity

A stock is said to be liquid if it can be easily bought or sold. Liquidity is closely related to the volume of shares that trades on a daily basis – a liquid stock has a high volume of shares that trade on a daily basis and a narrow spread between the bid and ask prices.


Living Will

A document that specifies in advance of an illness or injury the medical treatments that may be applied or withheld.


Locked In RRSP/Locked In Retirement Account (LRSP/LIRA)

Accounts specifically designed to hold pension funds that originated in an employer sponsored registered pension plan. If an employee is terminated from membership in a company RPP before retirement holders must transfer these funds to a LIRA or a LRSP to be held until retirement. These accounts share the tax shelter benefits of a RRSP, however funds cannot be withdrawn or “unlocked” until retirement. Holders of these accounts cannot make further contributions.


Locked-In Retirement Accounts (LRSP, LIRA, LIF, LRIF)

Accounts specifically intended to hold pension funds that originated in an employer sponsored Registered Pension Plan (RPP). Employees terminated from membership in a RPP before retirement have the option of transferring these funds to either a LIRA or a LRSP (The LIRA and LRSP serve the same function, however a LIRA is registered under provincial registration and LRSPs are registered federally). These accounts share the same features and benefits as RRSPs, the primary difference being; additional contributions are not permitted and withdrawals cannot be made until retirement.


London Inter Bank Offer Rate (LIBOR)

The interest rates banks charge each other for short-term loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.


Longevity Risk

The risk that an investor will outlive his or her money.


Low Load (LSC)

A type of mutual fund sales charge which operates in a similar way as deferred sales charge (DSC) funds. The difference being that the sales charge when these funds are purchased is lower (around 3%) and the redemption fee is lower (up to 3%) when they are sold. If units are held to maturity (typically 3 years) there is no penalty when selling.


M

Management Expense Ratio (MER)

This is the total management fee charged by a mutual fund company to manage a specific mutual fund. The MER is expressed as a percentage of the funds average assets. The MER is the total of the Management Fee [See “Management Fee”] plus the fund’s daily operating expenses such as legal, audit, reporting and record keeping and provincial and federal taxes. The MER does not include the Trading Expense Ratio [TER].


Management Fee (mutual fund)

The amount of money paid to an mutual fund manager, expressed as a percentage of the fund’s average assets. The management fee includes the trailer fee (if any) that is paid to the advisor’s firm that sold the fund. The management fee is distinct from the management expense ratio which is the sum of the management fee plus the funds day to day operating expenses.


Margin Accounts

An investment account that allows an investor to borrow money to buy securities.


Market Breadth

Proportion of stocks that are participating in either a stock market advance or a decline. Positive market breadth occurs when there are more stocks advancing than declining whereas negative market breadth occurs when more stocks are declining than advancing.


Market Capitalization

The market value of a public company. The market capitalization is calculated by multiplying the number of shares outstanding by the price per share.


Market Maker

This can be either an individual or a firm that provides market liquidity in specified stocks placing buy and sell orders at specified prices.


Market Order

A type of order made when buying a stock. When a market order is placed the order is sent to the exchange and transacted at the prevailing quoted price. When selling this would be at the current “Bid” and when buying a stock would be purchased at the current “Ask” price.


Maturity

The date specified in a note or bond on which the debt is due and payable.


MFDA (Mutual Fund Dealers Association)

Provides regulatory oversight to dealers that distribute mutual funds and certain exempt fixed Income products (ie: GICs) in Canada. Advisors who are registered with the MFDA are only permitted to recommend the purchase and sale of mutual funds. MFDA registered advisors are not permitted to provide clients with advice on or transact in the purchase and sale of stocks.


Mid-Cap Stocks

The market capitalization of the stocks of companies with market values between $3 to $10 billion.


Momentum Investing

An investment strategy that is based on the concept that prevailing trend in the price of a stock is more likely to continue than reverse. A momentum investor will follow the prevailing trend.


Montreal Exchange (MX)

The MX is a financial derivatives exchange listing equity options, options on Exchange Traded Funds, options on currencies, index derivatives and interest rate derivatives.


MTI® Estate and Trust Pratitioner (MTI®)

A designation granted by the Canadian Securities Institute. The course of study is intended to enhance knowledge of the holder in the administration, protection and distribution of client assets as well as identifying the risks in estate and trust management.


Mutual Fund

A mutual fund is an investment product. Mutual Funds hold a diverse portfolio of stocks, bonds, or other investment instruments – managed by professional money managers who actively trade the portfolio in an attempt to produce either capital gains or income for investors.


Mutual Funds

An investment product that holds a diverse portfolio of stocks, bonds, or other investment instruments – managed by professional money managers who actively trade the portfolio with the goal of producing capital gains and or income for the Mutual Fund’s investors.


N

NASDAQ (National Association of Securities Dealers Automated Quotations)

An American stock exchange owned and operated by the National Association of Securities Dealers. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities.


Navigating Divorce

Advisors who have specialized training in pre and post divorce financial planning. This may include advice relating to tax considerations, division of property, spousal and child support, valuing and dividing property and estate planning and insurance issues.


New Issue

A security (stock, bond, preferred share) that is being sold to the public for the first time. A new issue does not necessarily refer to an initial public offering (IPO), but can also include the issuance of additional shares by a company that already has shares trading on an exchange.


No Load

Refers to a class of mutual funds that do not charge a fee when the fund is bought or sold.


O

Odd Lot

A number of shares that is less than a board lot. If a board lot is 100 shares - 90 shares would be considered an odd lot.


Ombudsman for Banking and Investment Services (OBSI)

A national, independent, not-for-profit organization that helps resolve disputes between consumers and financial services firms when they can't come to a resolution on their own.


Ontario Securities Commission (OSC)

An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster confidence in fair and efficient capital markets.


P

Passive Management

An investment strategy that involves very little trading in a portfolio. Frequently the goal of a passive manager is to replicate the performance of a specific benchmark.


Past Performance

This refers to the track record of either a fund or a portfolio manager. Past performance is usually measured by showing the return or loss on a specified amount of money invested over time.


Pension Adjustment

This is the amount that you might contribute annually to a registered pension plan. This can be an amount paid by you (usually as a payroll deduction) or your employer.


Personal Financial Planner (PFP®)

A designation issued by the Canadian Securities Institute that qualifies the designee to develop and manage comprehensive financial plans.


Phishing

A type of fraud where a stranger poses as a trustworthy person or business to obtain your private information, such as passwords, bank account numbers or credit card numbers. Phishing frequently involves emails with links to websites that appear to be credible and authentic.


Ponzi Scheme

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi. In the 1920s, Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons. Ponzi used funds from new investors to pay fake “returns” to earlier investors. Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and may steal some of the money for themselves. With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.


Portfolio Management Association of Canada (PMAC)

An industry association consisting of independent portfolio management firms across Canada. PMAC has over 250 members who collectively manage over $1.8 trillion on behalf of institutions, endowments, corporations, and individual investors.


Portfolio Review (Second Opinion)

A complimentary service offered to prospective clients who are uncertain their needs are being met by their current advisor and are seeking an objective opinion regarding their investments. This may include concerns relating to performance, strategy, diversification, risk, fees and product type.


Power of Attorney

A legal document that grants one person authority to act for another person in specific legal or financial matters.


Preferred Shares

One of the two types of classes of share ownership in a public company - the other being common shares. Preferred shares differ in that they are senior to common shares in a companies capital structure. This means that dividends on preferred shares must be paid before those of common shares. Preferred shares often have complex features and while they have a more secure dividend than common shares they do not offer the same opportunity for capital appreciation.


Principal

The total amount of money that you invest, or the total amount of money you owe on a debt.


Principal Agent Model

An operating model that allows an Advisor to establish an Agency under the supervision of an investment dealer (the principal). The Agency is responsible for its own operating expenses in exchange for a higher percentage payout on total revenue generated from fees, commissions, etc.


Private Equity

Ownership interest in a company or portion of a company that is not publicly owned, quoted or traded on a stock exchange. From an investment perspective, private equity generally refers to equity-related finance (pools of capital formed through funds or private investors) designed to bring about some sort of change in a private company, such as helping to grow a new business, bringing about operational change, taking a public company private or financing an acquisition.


Probate

Fees to settle your estate after your death. The probate process includes reviewing your will to ensure it's valid. Probate fees vary from province to province.


Pump and Dump

In a pump and dump scheme, fraudsters typically spread false or misleading information to create a buying frenzy that will “pump” up the price of a stock and then “dump” shares of the stock by selling their own shares at the inflated price. Once the fraudsters dump their shares and stop hyping the stock, the stock price typically falls and investors lose money.


Q

Qualified Investment

A term used for an investment that is eligible to be held in an RRSP or RRIF or other registered investment plan.


Québec Pension Plan (QPP)

The Québec Pension Plan is a compulsory public insurance plan for workers age 18 and over whose annual employment income is over $3500. Its purpose is to provide people who work in Québec (or have worked in Québec) and their families with basic financial protection in the event of retirement, death or disability.


R

R Squared

Measures how closely a portfolio's returns correlate to a benchmark index. If an R squared is 1.00 this means the portfolio performance is perfectly corelated with the index. A portfolio with a low R squared (around 70% or less) suggests that the portfolio is not correlated with the index.


Random Walk Theory

The theory that stock prices follow a path that is unpredictable where past price movements cannot be used to predict future price movements.


Real Estate Investment Trust (REIT)

A company that invests in and operates income producing real estate such as apartment buildings, shopping centres, industrial property or commercial property. REITs trade on stock exchanges and typically offer attractive yields (dividends) and the potential for capital appreciation or losses.


Real Return

The return on a given investment or portfolio after accounting for the impact of inflation over a specific period. For example: if an investment grew by 8% in a year and the rate of inflation is 3%, the real return would be 5%.


Rebalancing

Rebalancing brings a portfolio back to its original asset allocation mix. This is necessary because over time, some investments will grow faster than others, and holdings may become out of alignment with investment goals.


Recession

A downturn in economic activity, defined by economists as at least two consecutive quarters of decline in a country's gross domestic product.


Registered Account

Refers to any type of tax sheltered investment account registered with CRA. For example: RRSP, TFSA, RRIF, RESP, RDSP.


Registered Disability Savings Plan (RDSP)

A savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC). Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59. Contributions that are withdrawn are not included as income to the beneficiary when they are paid out of an RDSP. However, the Canada disability savings grant, the Canada disability savings bond, investment income earned in the plan, and the proceeds from rollovers are included in the beneficiary's income for tax purposes when they are paid out of the RDSP.


Registered Education Savings Plans (RESP)

An investment savings account which allows Canadian parents to save for their children’s post secondary education. The primary benefit of the RESP is two-fold; dividends, interest and capital gains on investments are tax sheltered, and; the government of Canada will contribute 20% of the first $2500.00 that participants (the subscriber) contribute to the plan annually. This government contribution is referred to as the Canada Education Savings Grant (CESG).


Registered Financial Planner™ (RFP®)

A designation issued by the Institute of Advanced Financial Planners – offing a course of study that prepares students to provide financial planning advice to consumers.


Registered Retirement Consultant® (RRC®)

A designation offered through the Canadian Institute of Financial Planning (CIFP). This might be considered more of a certificate program than a designation – a stepping stone towards the CFP® designation.


Registered Retirement Income Funds (RRIF)

The holder of an RRSP account is given the option to convert their RRSP account into a RRIF account on or before the end of the year they turn 71. Contributions are not permitted in RRIF accounts instead holders must withdrawal a minimum amount every year (there is no maximum withdrawal limit). Withdrawals are taxed as earned income. Eligible investments are similar to those that can be held in an RRSP - stocks, mutual funds, ETFs, etc.


Registered Retirement Savings Plans (RRSP)

The primary retirement savings account for Canadians. An RRSP can hold mutual funds, stocks, exchange traded funds (ETFs), bonds, hedge funds, preferred shares and certain types of option contracts. RRSPs offer two primary advantages to retirement savers: contributions are tax deductible and taxes on dividends, interest and capital gains are deferred to when withdrawals are made.


Reporting Issuer

A public company that has issued and outstanding shares listed on a stock exchange and held by the public. Reporting Issuers are subject to the continuous disclosure requirements of securities administrators.


Retirement Planning

The process of planning life after paid work ends. This may include both lifestyle and financial considerations. Retirement planning includes considerations such as savings targets, income and cash flow planning, tax planning, insurance and estate planning.


Retracement

When the price of a stock or other security moves in the opposite direction of the previous trend.


Risk Tolerance

The amount of volatility or potential loss an investor is willing to accept in their investment accounts. An investors risk tolerance might be categorized as either speculative (very high risk), moderate, conservative, capital preservation (very low risk) – risk tolerance can be account specific, where an individual may have differing risk tolerances depending on the account under consideration.


Robo Advisor

The term “robo-adviser” generally refers to an automated digital investment advisory program. In most cases, the robo-adviser collects information regarding your financial goals, investment horizon, income and other assets, and risk tolerance by asking you to complete an online questionnaire. Based on that information, it creates and manages an investment portfolio for you. Robo-advisers often seek to offer investment advice for lower costs and fees than traditional advisory programs, and in some cases require lower account minimums than traditional investment advisers. The services provided, approaches to investing, and features of robo-advisers vary widely.


Rule of 40

A rule of thumb developed by pension actuary Malcolm Hamilton to describe the long term impact of fees on investment performance. The calculation allows mutual fund investors to estimate the number of years it will take for mutual fund fees (the Management Expense Ratio (MER)) to consume a third of their initial investment. By dividing a funds MER into 40 the result is the number of years it will take for the original investment to be lost to fees – a fund with a 2% MER, for example will take 20 years (40/2).


Rule of 72

A rule of thumb that estimates how long it will take for an investment to double in value, assuming a fixed annual rate of interest and the reinvestment of this interest into the original investment. For Example: interest paid at 6% per year, reinvested each year would see the investment double in 12 years (72/6). The rule of 72 demonstrates how compounding of returns positively impacts investment returns over time.


S

Secondary Market

Markets where securities are bought and sold.


Securities and Exchange Commission (SEC)

The US federal agency created by the Securities and Exchange Act of 1934 that administers the laws governing the securities industry, including the registration and distribution of mutual fund shares.


Segregated Fund

Sometimes called a Seg Fund. An insurance product with many of the features of a mutual fund with an added layer of insurance protection - guaranteeing 75 – 100% principal protection (provided the fund is held for a set time, up to 10 years). Seg funds also typically provide certain tax benefits on death as well as creditor protection. Seg funds typically have high fees, as much as 3.25% annually, they are locked in until they maturity and if withdrawn early the investor loses the guarantee and can face punitive withdrawal penalties.


Separately Managed Accounts

Sometimes referred to as a SMA Account. This is an investment account (either registered or non- registered) managed by a professional investment management firm – these managers are external, third party entities typically operating independently of an advisors dealer. SMA accounts are subject to minimum investment amounts and operate on a fee based compensation model. There is a growing trend for advisors to use SMA accounts as part of their practice where the advisor selects and recommends an external manager – effectively outsourcing investment selection to a team of professional portfolio managers. In an SMA account each stock position and transaction in the portfolio appears in the clients account and the fees attached to the account are fully transparent.


Series 63

This is an investment licence that is specific to advisors dealing with US residents. Advisors in the US must acquire both the Series 7 and the Series 63 licences in order to solicit orders to purchase stocks, mutual funds and other investment products.


Series 7

Also known as the General Securities Representative Qualification Exam (GS) – this is the equivalent to the Canadian Securities Course in the US. Anyone wishing to become licensed to trade in the US must first pass this exam and obtain the series 7 license.


Severance and Pension Transfer Strategies

Advice relating to the efficient transfer of severance packages and pensions, including considerations regarding taxation, benefits and investments.


Sharpe Ratio

A risk-adjusted measure that measures reward per unit of risk. The higher the sharpe ratio, the better. The numerator is the difference between the Fund's annualized return and the annualized return of the risk-free instrument (T-Bills).


Short Selling

An investment strategy used when a speculator believes the price of a stock will fall she will borrow the stock and sell it immediately. The account will show a negative share position. When (if) the stock drops the investor can purchase the shares back at the lower price, the difference the selling price and the buying price being the investors profit. This is a high risk investment strategy as losses accrue if the stock sold short rises in value above the price at which it is sold. The risk in short selling is theoretically unlimited.


Small - Cap Stock

The market capitalization of the stocks of companies with market values less than $3 billion.


Small Investor Protection Association (SIPA)

A Canadian non-profit organization which advocates for the interests of investors by encouraging the improvement of industry regulation and enforcement and enhancing public awareness and understanding of how the industry operates.


Smart Beta ETFs

An investment strategy typically associated with a new breed of Exchange Traded Funds (ETFs). This investment methodology combines a passive investment strategy with an active strategy. These ETFs track an underlying index (such as the S&P 500) but attempt to optimize the portfolio by weighting the portfolio according to a rules based selection methodology. There is no standard smart beta strategy. These portfolios may weight securities based on factors such as momentum, value, size, volatility, etc.


Socially Responsible Investing

Sometimes referred to as sustainable or ethical investing – an investment methodology where the selection of investments is focused on companies that have corporate practices that encourage environmental protection, diversity, human rights, consumer protection, etc. Socially responsible investors will generally avoid companies involved in the production of fossil fuels, weapons, gambling, alcohol, tobacco and pornography.


Solicited Order

A recommendation made by a financial advisor to his or her client to either buy or sell an investment.


Spousal RRSP

A type of investment account where a higher-income earning spouse is permitted to make contributions to the other spouse's RRSP. The contributor gets the tax deduction, but the money is held in the lower income spouses account. When the money is withdrawn from the spousal RRSP, it's taxed at the lower-income spouse's rate. This is effectively a form of income-splitting.


Spread

The difference in price between the bid and ask prices on a specific stock, currency, commodity, ETF, etc.


Standard & Poors 500 Index (S&P500)

Broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks commonly known as the Standard & Poor's 500 or S&P 500.


Standard Deviation

A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.


Stocks

A generic term for 'shares' or common equity. Representing fractional ownership in an company.


Subscriber (RESP)

A subscriber to an RESP is the person(s) who contributes money to an RESP. The subscribers name appears on the RESP account - this can be a parent, grandparent, aunt, uncle, sibling or friend of the beneficiary (child). Joint subscribers must be either spouses or common law partners according to the Canada Revenue Agency (CRA).


Suitability Rule

The requirement that Financial Advisors make recommendations to clients that are 'suitable' based on the clients age, their investment time horizon, their financial means and their investment objectives. Canadian regulators do not require Financial Advisors to make recommendations that are in their clients best interests, instead they are only required to make recommendations which are 'suitable'.


T

Tax Free Savings Account (TFSA)

A savings account for Canadian residents 18 years or older. Unlike a RRSP, contributions are not tax deductible. However, dividends, interest, and capital gains are not subject to income tax and withdrawals of contributions and investment income are not taxed. Eligible investments include stocks, bonds, mutual funds, ETFs, GICs, preferred shares, hedge funds and certain types of option contracts.


Tax Planning

Evaluating an individuals financial situation and taking the necessary steps to ensure the elements of a client or households financial plan work in the most tax efficient manner possible.


Tax Preparation

Services related to the preparation of income tax returns.


Taxable Investment Accounts

An investment account that is fully taxable.


Technical Analysis

A method of analysing the price action of a stock, commodity, currency, market index, etc. to identify patterns and trends that could suggest future price action. Market technicians study stock charts taking into consideration such things as price, volume and historical conditions.


Time Horizon

The amount of time money can remain invested or otherwise held in an investment account before it must be accessed. Time horizon may be expressed in days, months, years or decades.


Toronto Stock Exchange (TSX)

Canada's largest stock exchange. The TSX is North America's third largest stock exchange (after the New York Stock Exchange and the Nasdaq), and the twelfth largest stock exchange in the world.


Trading Expense Ratio (TER)

A cost associated with the management of a mutual fund that is not included in the Management Expense Ratio (MER) [See: Management Expense Ratio]. The TER is the total cost of trading in a particular mutual fund and is expressed as a percentage of the average assets held in the fund over a year.


Trailing Commission

Some advisors receive compensation directly from the manufacturers of products (mutual funds) that they sell to their clients. Most classes of mutual funds, for example, pay advisors an ongoing ‘trailer fee’ based on their holdings in particular funds. No money exchanges hands between the advisor and the client rather the fee is embedded in the total cost of the mutual fund.


Treasury Bill (T-Bill)

A government issued (provincial or federal) short term debt instrument. T-bills are offered with maturities of 91, 182 or 364 days with face values of $1,000, $5,000, $25,000, $100,000. T-bills are also very liquid and may be sold for cash at any time. They are the safest investment available, the interest paid on T-bills is referred to as the "risk free rate of return".


Trust Accounts

An account that is considered a separate legal entity that holds property for the benefit of an individual, group or organization (the beneficiary).


Trust and Estate Practitioner (TEP)

A designation granted through the Society of Trust and Estate Practitioners. An advisor holding this designation has expertise in planning, creating and managing trusts and estates.


TSX Venture Exchange (TSXV)

The Canadian national venture capital market place for emerging companies. The TSXV is a subsidiary of the TSX Group.


U

Unassisted Contributions (RESP)

Contributions to a Registered Education Savings Plan that do not receive the Canada Education Savings Grant.


Underlying Security

Shares in a company on which a derivative instrument such as an option or futures contract is based.


Underperformance

Many mutual funds or investment portfolios have their performance compared to a benchmark index - such as the Standard & Poors 500. The mutual fund is compared to this benchmark letting the investor know if the fund is under or overperforming the market.


Unlisted

Refers to a shares in a company that do not trade on a recognized stock exchange. Instead these shares trade on the 'over the counter' market, or OTC Market. All buying and selling passes through an intermediary known as a market maker.


Unrealized Gain

An investment that if sold would result in a profit – but because the investment hasn’t been sold the gain is not realized.


Unsolicited Order

An order that is accepted by a financial advisor from his or her client that wasn’t the result of the advisor or his or her firm’s recommendation.


US Based Investors

Advisors who are registered with the US Securities and Exchange Commission (SEC) and able to offer wealth management services to US residents (any one residing in the USA for >182 days per year), as well as specialized services to US citizens residing in Canada.


US$ Registered Plans

Registered Accounts (RRSPs, TFSAs, etc.) that allow investors to hold US dollars inside a registered plan. This avoids costly currency conversion when buying or selling investments denominated in US currency.


V

Valuation

An estimate of the value or worth of a company; the price investors assign to an individual stock.


Value Investing

A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.


Value Stock

The shares in a company which are thought to be trading at a price that is lower than where the fundamental factors suggest they should be trading.


Venture Capital

Funding provided by investors to start-up companies with less access to capital markets but a high potential for growth. Typically, venture capital investments have a high risk profile but also the potential for above-average returns.


Volatility

The rate at which the price of a security or market index increases or decreases over time. High volatility suggests that a security's value can swings wildly over a short time period in either direction. Low volatility means that a security's price does not move higher or lower dramatically, but trades within a narrow range.


W

Warrant

A certificate giving the holder the right to purchase shares in a particular company at a stipulated price within a specified time limit. Warrants are frequently issued along with a new issue of securities. Warrants can be bought and sold on stock exchanges.


Wealth Transfer Planning

Services intended to prepare clients and their heirs for inheritance. Services may include methods and timing of transfer, direct gifts, use of trusts and specialized investments products.


Weighterd Average Market Cap

Most indexes are constructed by weighting the market capitalization of each stock on the index. In such an index, larger companies account for a greater portion of the index. An example is the S&P 500 Index.


Y

Yield

The annual return on an investment. The yield refers to the income (dividends, interest, etc.) paid on the investment. If a stock trades at $100 and pays an annual dividend of $3, the stock has a yield of 3%. If the stock declines in value the yield will rise.


Yield to Call

The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price.


Yield to Maturity

The percentage rate of return paid on a bond, note or other fixed income security if you buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.


Z

Zero Coupon Bonds

A type of bond that does not pay interest - instead they are sold at a discount to their par value and mature at their par value. For example, these bonds might be sold for $97.00 and mature at $100.00.


Zero Sum Game

In game theory, a situation where one persons gain is the equivalent of another persons loss, with the net benefit of 'zero'.