Glossary
Definitions for the vocabulary of independent wealth management — what each term means, and what it does not.
Plain definitions for the terms that come up in independent wealth management. Written to be read once and understood, not to rank for anything.
Every entry states what the term means, where it is commonly misused, and what it does not cover. None of it is advice, and none of it makes any claim about investment results.
37 terms
An advisory fee is the compensation a client pays an investment adviser, most commonly as an annual percentage of assets under management, billed quarterly and usually deducted directly from the account..
Assets under advisement is the value of assets a firm advises on without holding discretionary authority over them — for example, assets following a model portfolio the firm publishes but does not itself trade..
Assets under management is the total market value of client assets a firm manages with discretionary authority.
Behavioural risk is the gap between what an investor says they will do and what they actually do when markets move.
A book of business is the set of client relationships an adviser serves, together with the revenue those relationships generate.
Books and records are the documents an investment adviser is required by rule to create and retain — advice given, communications sent, advertisements published, and the basis for recommendations — available for regulatory examination..
A breakaway adviser is one who leaves a wirehouse, bank, or large broker-dealer to join or start an independent registered investment adviser..
A broker-dealer is a firm registered to buy and sell securities, either for customers or for its own account.
A custodian is the regulated institution that holds client assets, settles trades, and produces the official account statements.
Direct indexing means owning the individual securities that make up an index directly in a client account, rather than holding a fund that tracks it — which allows tax management and customisation at the position level..
Discretionary authority is written permission from a client allowing an adviser to make and execute investment decisions in the account without seeking approval for each transaction..
A drawdown is the decline from a portfolio's peak value to its subsequent trough, usually expressed as a percentage.
An exchange-traded fund is a pooled investment vehicle whose shares trade on a stock exchange throughout the day, rather than being priced once daily like a mutual fund..
A fee-only adviser is compensated exclusively by fees paid by clients, and receives no commissions, revenue sharing, or other third-party compensation tied to the products a client buys..
Fiduciary duty is the legal obligation to act in another party's best interest.
Form ADV is the disclosure document every registered investment adviser files with regulators and delivers to clients.
Held-away assets are client assets an adviser can see and advise on but does not custody or directly manage — most commonly workplace retirement accounts such as a 401(k)..
An investment policy statement is a written document setting out a client's objectives, constraints, target allocation, and the rules that govern how the portfolio is managed and reviewed..
A model portfolio is a defined target allocation that an adviser applies across many client accounts at once, rather than constructing each account individually..
Performance reporting is the calculation and presentation of investment returns for a client account over a period, including how returns are computed, what fees are deducted, and what they are compared against..
Rebalancing is the process of returning a portfolio to its target allocation after market movement has pulled it away — selling what has grown as a share of the portfolio and buying what has shrunk..
Regulation Best Interest, adopted by the SEC in 2019, requires broker-dealers and their representatives to act in a retail customer's best interest when making a recommendation, and not to place their own interests ahead of the customer's..
A registered investment adviser is a firm registered with the SEC or a state securities regulator to provide investment advice for compensation, and it owes a fiduciary duty to its clients..
Risk capacity is the amount of loss a financial plan can absorb before the plan stops working.
Risk tolerance is how much investment volatility a person is psychologically willing to accept.
The SEC Marketing Rule, Rule 206(4)-1 under the Investment Advisers Act, governs how registered investment advisers may advertise — including testimonials, endorsements, third-party ratings, and any presentation of performance..
A separately managed account is a portfolio managed to a specific strategy in which the client owns the underlying securities directly, rather than owning shares of a pooled fund..
Sequence-of-returns risk is the risk that the order in which investment returns occur damages a portfolio that is being drawn down, even when the average return over the whole period is unchanged..
Standard deviation measures how widely a set of returns is dispersed around its average.
Succession planning is the arrangement for what happens to an advisory firm and its clients when the principal retires, becomes unable to work, or dies — covering both the planned transition and the sudden one..
Suitability is the requirement that a recommendation be appropriate for the specific client, based on their circumstances, objectives, and risk profile — and that the basis for that judgement be documented..
Systematic investing applies a defined, repeatable set of rules to investment decisions rather than relying on discretionary judgement at each decision point..
A TAMP is an outsourced platform that handles the investment management and operational work of an advisory firm — portfolio management, trading, rebalancing, reporting, and billing — while the adviser keeps the client relationship..
Tax-loss harvesting is selling an investment at a loss to realise that loss for tax purposes, while maintaining comparable market exposure — deferring tax rather than eliminating it..
Time horizon is the length of time before an investor needs to draw on the money.
A unified managed account holds several investment strategies — models, separately managed accounts, and funds — inside a single client account with one set of statements and coordinated management across the whole thing..
Wirehouse is industry shorthand for the largest full-service brokerage firms — national institutions with employee advisers, in-house products, and centralised infrastructure..