Terms to Know
Walk into your first meeting with confidence. These key words might come up during your first conversation with a CFP® professional.
Annual Return
The profit or loss on an investment over a one-year period.
Asset
An asset is something with value. Financial assets include securities, insurance products, real estate, bank instruments, commodities contracts, derivative contracts, collectibles or other financial products.
Beneficiary
The person or entity legally designated to receive the benefits from your financial products or estate.
Budget
A plan for income and expenses over a specific period of time.
Discretionary Expenses
Expenses that are not required or essential.
Engagement
An oral or written agreement, arrangement or understanding. “Scope of engagement” refers to the professional services to be provided pursuant to an engagement.
Estate Planning
The process of arranging the management of your financial situation in the event of incapacitation or death.
Fiduciary Duty
An obligation to act as a trusted party, serving the interests of the person or entity to whom one owes the fiduciary duty. CFP Board’s Code of Ethics and Standards of Conduct states, “At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.”
Fixed Expenses
Expenses, like bills, that must be paid on a regular basis and generally cost the same amount.
Form ADV
Form ADV is used by investment adviser firms to register with both the U.S. Securities and Exchange Commission (SEC) and state securities authorities. It includes information about the firm, including its business practices, fee structure, other business activities, and disciplinary history, among other things. These forms are publicly available on the SEC's Investment Adviser Public Disclosure (IAPD) website.
Form U4
Form U4 is used by employees of broker-dealers to register with the appropriate regulators. It includes information about employment history and disciplinary history, among other things. Information from these forms is publicly available on FINRA’s BrokerCheck website.
Gross Income
Total pay before taxes and other deductions are taken out.
Interest
A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts. “Compound interest” is when you earns interest on both the money saved and the interest earned.
Liability
Debts or obligations owed to someone else. Financial liabilities include mortgages, student loans and credit card debt, among other things.
Liquidity
A measure of the ability and ease with which you can access and use your money. Assets that are not liquid are called “illiquid” and include those that are not easy to sell or that have other barriers to access, such as early surrender fees.
Net Income
The amount of money received after taxes and other deductions are taken out. Also known as “take-home” income.
Net Worth
A "snapshot" of your financial situation calculated by subtracting the amount of your debts (liabilities) from the fair market value of your assets.
Opportunity Cost
The potential benefits you lose when choosing one action or thing rather than an alternative option.
Principal
In the context of borrowing, it is the amount of money that a borrower originally receives from a lender and agrees to pay back on the loan with interest. In the context of investing, it is the amount of money one contributes with the expectation of receiving income.
Prospectus
A document that contains important information about an investment product, such as its objectives, expenses and fees, historical performance, purchase and redemption policies.
Securities
Financial securities are contracts that represent a tradeable financial asset. Common types of financial securities include stocks, bonds, mutual funds and exchange-traded funds.