FSG, SOA, TTR, PE Ratio? Financial services is full of jargon and acronyms. Doctors Wealth Management has produced this guide to help you navigate through the world of financial services.

 

Account Based Pension – An income stream purchased with superannuation money where the income received is set between minimum and maximum levels that are based on the balance at the 30 June each year. Capital withdrawals are also allowed. Income can be varied at any time and is tax free after age 60.

Accumulation Fund – A superannuation fund where the end benefit is determined by what you and/or your employer put in and the investment return of the fund.

AFSL – Australian Financial Services Licence – The licence given by ASIC which allows individuals or companies to carry on a financial services business. This includes giving advice or dealing in financial products

AR – Authorised Representative, this is the individual or company authorised by the AFSL to provide advice and deal in financial products on their behalf.

All Ords – All Ordinaries – A basket of shares that contains the 500 largest listed companies in Australia and accounts for 95% of Australia’s share market.

Allocated pension – An Income stream purchased with superannuation monies – these have been superseded by Account Based Pensions.

Annuity– A contract-based product that is purchased with a lump sum that guarantees to pay a set income. This can be for a set number of years or for life. In some cases there may be a return of capital at the end of the term.

APRA – The Australian Prudential Regulation Authority – the independent statutory authority that supervises institutions in banking, insurance and superannuation.

Asset Allocation – The allocation of your assets across different asset classes like shares, property, fixed interest or cash.

ASIC – Australian Securities and Investment Commission – Independent commission of the Australian Government whose role is to regulate company and financial services and enforce laws to protect Australian consumers, investors and creditors.

ASX – Australian Stock Exchange – The exchange acts as a market operator, clearing house and payment facilitator. Australian shares are traded via this platform and Companies are listed on this exchange.

ASX200 – An index that measures the performance of the 200 largest companies, by market capitalisation, that are listed on the Australian Stock exchange.

Balanced Fund – A fund that invests across a mix of asset classes, that aims to achieve capital growth over the medium to long term and to provide some income. Typically, it will have a balance between growth assets such as shares and property and cash and fixed interest assets.

Balloon Payment – The final lump sum repayment amount, due at the end of a loan period.

BAS – Business Activity Statement – The regular tax statement provided to the tax office to report their tax obligations such as GST and PAYG etc.

Bear Market – A share market where prices are falling.

Beneficiary – The recipient of an asset on the event of the owner’s death. Superannuation fund beneficiaries are the members and their dependents (on the members death)

Binding death benefit nomination – Available in a Superannuation fund, where the funds must be paid to the nominated beneficiary, unless unlawful to do so. The funds in a Superannuation fund with Binding death nomination, do not form part of an estate.

Bull Market – A share market where prices are rising.

Blue Chip Shares – A share in a well-established company. Typically, among the top companies in its sector with a long-term history.

Bonds – An investment issued by a Company or Government, usually to raise funds. The Bond pays a regular, fixed interest amount for the term of the investment. The capital amount is repaid on maturity.

CGT– Capital Gains Tax –A tax paid on the gain made on an asset. Typically, higher if you hold the asset for less than 12 months.

CFP– Certified Financial Planner – The highest professional designation available to Financial Planners in the world. This is achieved with additional professional education.

Co-Contribution– A contribution made by the Government to your Superannuation Fund to reward you for making a personal contribution to Super. If you earn less than $37,697 pa. the co- contribution will be $0.50 for every $1.00 of after-tax super contribution you make. It is capped at $500.00 pa.

Commission – An amount paid to a Financial Adviser or salesperson by an insurance or investment product provider. The amount is often determined by the amount of the investment or insurance premium.

Concessional Contributions– A contribution paid into your Superannuation fund from pre-tax income. This contribution is tax deductible for self-employed people. Your employer’s contribution (Super guarantee (SG) Contributions) are concessional contributions. These contributions are taxed at 15% on entry to the Super fund.

Death benefit – A benefit paid to your beneficiary/ies from Superannuation or Insurance on death.

Defined Benefit Fund – A superannuation fund whose final benefit payable is calculated by a predetermined formula. The benefit is generally a calculation based on your average salary over the few years prior to Retirement. This payment does not rely on market movements.

DII – Disability Income Insurance- Otherwise referred to as Income Protection Insurance. This policy will pay up to 75% of your income in the event of accident or illness that causes you to be unable to work. Each provider will have different definitions as to what a disability may be, so sure to read the fine print in the Product Disclosure Statement. The premium for this cover is tax deductible if the policy is held outside superannuation.

Diversification – Spreading your investments across a range of different types of asset classes in the pursuit of reducing risk and smoothing out returns.

Dividends – A distribution made by a Company in which you are a shareholder. It is a share in the profit made by the Company based on the number of shares held.

Earnings per share – (EPS) Calculated by dividing the Company’s earnings (Profit) by the number of shares on issue. The Higher this ratio the more a share is potentially worth.

Enduring power of attorney (EPOA)-This the same as an ordinary POA. The EPOA allows a nominated person or persons to make property and financial decisions for you. The benefit of an enduring POA is that it will continue in the event of mental incapacitation.

Equities -Another name for shares and are entitled to dividends.

Equity – The value of an asset such as your home less any outstanding monies owed.

ESG – Environmental, social and governance – three measures that are considered when measuring the sustainable and ethical impact of a business or company.

ETF -Exchange Traded Fund – A managed fund that is listed and therefore can be traded on a stock exchange such as ASX. Some ETFs’ will invest in indexes such as ASX 200.

Ethical investment – An investment that will avoid investments that it considers unethical such as chemicals, tobacco etc. Each fund will apply its own filter to determine what it considers ethical. Can also be known as socially responsible.

FBT – Fringe Benefits Tax – A tax levied on non-cash benefits provided by an employer to an employee in respect of their employment. The tax is levied on the employer, not the employee and will also apply even if the benefit is paid to an associate of the employee. A company car is a good example of an FBT item.

Fee for service – A fee that is agreed with your Financial Planner for the service that will be provided.

Financial plan – Now known as a Statement of Advice, this is the document provided by a Financial Planner that sets out the basis for the advice provided, the advice and recommendations relevant to an individual’s personal circumstances and the costs and risks associated with the implementation of the advice.

FSG– Financial Services Guide – A legal document that provides information about who is providing you advice, the services that can be offered, the fees that may be charged and finally what to do if you have a complaint.

FDS– Fee Disclosure Statement – A Statement that is provided to a Financial Advisers client each year to detail the services provided, and the fee paid by the client.

Franked dividends – A distribution of profit by a Company to its shareholders with a credit for the tax that the company has already paid.

Gearing – Another way of saying borrowing money to invest. This includes buying your home.

Hedged – A strategy used to offset the impact of currency on international investments.

Hedge fund – A managed/investment fund that uses strategies designed to reduce the chance of loss. May use complex strategies including short selling, contracts, leveraging.

Imputation Credit – The credit applicable to a dividend that has been paid by a company to shareholders for the tax paid by the Company – also known as a Franking credit.

Income protection insurance – Cover for up to 75% of your income in case you can’t work due to accident or illness. The premium for this cover if taken outside of superannuation is tax deductible. Each provider will have different definitions to meet to determine eligibility for payment, so it is important to read the fine print in the Product Disclosure Statement.

Index – An index is a way of measuring the performance or price movement on just about anything. They are created to track assets such as bonds, shares or perhaps the consumer prices (Consumer Price Index)

Index fund – A managed fund that has a portfolio that matches or tracks the return of a specific market index, such as ASX 200.

Industry fund – A superannuation fund that was created to service a specific industry. Most are now available to the public now.

Insurance bond – A tax effective managed fund that pools investors’ money and then invests according to the option chosen such as balanced. The proceeds from the Insurance Bond are tax free after 10 years and have tax advantages in the shorter term. They are an insurance-based product and beneficiaries can be nominated.

Intestate – When someone dies without a Will. The state in which the person has passed will distribute the estate assets according to the intestacy law in that state.

Investment – Any asset that is purchased with the aim of growth and/or income.

IPO – Initial Public Offer – This is the first offer made to the public by a Company to purchase shares in the Company.

Lease – A contractual agreement where the user(lessee) pays the owner (lessor)for the use of an asset. Commonly, property, cars and equipment. Repayments can be tax deductible in some circumstances. Somewhat like a rental agreement.

Loan – refers to the lending of money by an individual or other party (borrower) from a financial institution for a set repayment over a set period. There is usually an interest rate applicable.

Life insurance – An amount payable under an insurance policy on the death of the insured to the beneficiaries of the insured.

LVR – Loan to Value Ration – Calculated by dividing the loan amount by the value of the asset it was borrowed for.

MDA – Managed Discretionary Account – An investment account that can hold a range of investments such as shares or units in a managed fund. Authority is given, usually to your Financial Adviser to buy and sell investments within this portfolio on your behalf.

Managed Investment/Fund – An investment account that pools investors’ money and provides them with units and then invests these funds according to the selected investment option. The investments are managed by the Fund Manager who make the day-to-day decisions on what to buy/sell or hold in the fund. The manager also performs all the administration duties of the fund.

Margin loan – An investment loan where the underlying investment is used as the security for the loan. You may be required to make additional repayments called Margin Calls if the Value of the investment falls below a set amount.

Money Market – This is the marketplace for short term securities. If you have a money market account, you deposit the funds and receive interest for them and in turn the financial institution may lend those funds on and receive interest themselves for this.

Negative Gearing – Where you have borrowed funds to invest and the return from the investment is less than the cost of borrowing the funds. A classic example is buying a rental property where the rent is less than the loan interest repayment.

Non-binding nomination – A beneficiary nomination made on a superannuation account where the trustee is still able to exercise their discretion as to whether to distribute the funds to the nominated person.

Non-concessional contribution – A contribution to Superannuation with funds on which you have already paid tax. These contributions are not taxed on entry or exit from the Superannuation fund. There are caps that apply to these contributions.

Option – A financial instrument (derivative). Usually, an options contract offers the buyer of the option the opportunity to buy/sell the underlying asset at a set price on or before a particular date.

OSF – Ongoing Service Fee – This is a fee agreed with your Financial Adviser for ongoing service and advice. It is disclosed annually in a fee disclosure statement and is agreed in advance.

POA -Power of Attorney – A person who has been given the authority to act on your behalf in business or financial decisions. Unlike an Enduring Power of Authority, this is only valid whilst the person giving authority is of sound mind. The POA can also be given for a specific time frame only.

PDS – Product Disclosure Statement – A document that sets out all the relevant features, benefits and costs of a financial product or insurance product.

Pension – An income stream that makes ongoing payments. Examples would include the government age pension or an account-based pension or annuity.

Platform – An administrative service that can hold and administer investments. This will include providing reports to the investor.

Portfolio – A collection of assets, may include shares, property, cash etc

Premium – The cost payable for an insurance product.

Preservation Age – The age at which you can usually access your superannuation benefits. This age will depend on your date of birth. If born after 30 June 1964 this age is 60 years.

Probate – The process by which a Will is validated. A document is issued by the court and then the executor will be authorised to administer the estate as per the provisions of the Will.

Retirement savings account – A simple, low cost, low return account offered by financial institutions to allow you to save for retirement.

Reverse mortgage – A loan taken against your home to allow you to access the equity in the home without the need to sell. The amount that can be borrowed will depend on the age of the person and the value of the home. There are no repayments required but the interest accrues and is added to the loan amount. It is due to be repaid when the borrower moves out of the home or the house is sold.

Risk – The chance that your investment may fall in value or return less than expected.

Risk Profile – How you feel about the day-to-day movements in your investment and the possibility of receiving a negative return.

ROA – Record of Advice – The document you receive when you get ongoing advice from your Financial Planner to confirm the conversation and any actions taken.

Rollover – When superannuation moves from one superannuation fund to another or to an Account Based Pension fund.

S&P 500 – A stock market index that measures the performance of the 500 largest companies by market capitalisation on the American stock exchange.

Salary Sacrifice – Where you and your employer agree to redirect some of your pre-tax salary to other agreed benefits. An example is to make extra contributions to your superannuation fund.

Salary packaging – An ATO Approved way of receiving benefits such as cars, self- education expenses, and many more by way of a pre- tax deduction from your salary.

SGC – Superannuation Guarantee Contributions – The mandatory contribution to superannuation made by your employer. The current rate is 10%.

Share – A part ownership of a Company, also known as equities or stock. In the same manner as equities the shareholder is entitled to dividends.

SMSF – Self Managed Superannuation Fund – A private superannuation fund that can be established and managed by yourself. It can have up to 4 members. All members must be trustees of the fund. This is a flexible fund where the trustees make the investment decisions. SMSF’s are regulated by the ATO. The sole aim of the fund is to provide for retirement.

SOA – Statement of Advice – A Financial Plan that is provided to you by your Financial Adviser. This document sets out your goals and objectives any recommendations that your financial adviser is making and details of products, fees and services that will be provided to you.

Spouse Contribution – A contribution made by you to your spouse’s superannuation account on their behalf or that they make to your superannuation account.

Superannuation – A tax effective fund with the sole purpose of saving for your retirement. The employer and individual and their spouse can make contributions to this fund.

Super Surcharge -An additional tax on an individual for certain contributions made to a superannuation fund after 20 August 1996 and before 1 July 2005.

Tax deduction – A deduction that reduces an individuals or companies tax liability by lowering their taxable income. Typically, deductions are for expenses incurred in the pursuit of income.

TPD – Total and Permanent Disability – A type of insurance that is paid to an individual that has been assessed as totally and permanently disabled. All insurers have different definition as to what is considered to be permanently disabled therefore it is essential to read the PDS fine print to understand what your policy will cover.

TPB – Tax Practitioner Board – The TPB is a national government body that is responsible for the registration and regulation of tax agents, BAS Agents and tax (financial) adviser.

TTR – Transition to Retirement – This is an arrangement whereby you can access your superannuation as income to supplement any reduction in employment income to allow for part time work as you head towards retirement. The maximum that can be accessed per year is 10% of the balance on 30 June.

Trustee – An Individual or Company that holds or administers assets for the benefit of someone else.

Unit trust – A trust where the rights of the beneficiaries (unit holders) to income and capital are fixed. It is a legal structure that holds the assets for the benefits of the unit holders.

Volatility – Fluctuation of returns on an asset over time. The more short-term fluctuation the higher the risk.

Will – A legal document that expresses how you want to distribute your assets when you die.

Wrap account – Similar to a platform this is a single account that holds all your investments for convenience of reporting and administration.

Yield – The rate of return on an investment.

The material contained in this publication is of general nature only. It is not, nor is intended to be legal, accounting, tax or financial advice. Doctors Financial Services Pty Ltd (DFS) and its related entities have not considered your individual objectives, financial situation and needs in providing this information. If you wish to take any action based on the content of this publication we recommend that you seek appropriate professional advice. While we endeavour to ensure that this information is as current as possible at the time of publication, we take no responsibility for matters arising from changed circumstances, information or material. DFS and its related entities will not be liable for any loss or damage, however caused (including through negligence), that may be directly or indirectly suffered by you or anyone else in connection with the use of information provided. Doctors Wealth Management is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328, AFSL 487758. Doctors Wealth Management Financial Advisers are Authorised Representatives of DFS.
Β© Doctors Financial Services Pty Limited 2021

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Important disclaimer: The material contained in this publication is of general nature only. It is not, nor is intended to be legal, accounting, tax or financial advice. Doctors Financial Services Pty Ltd (DFS) and its related entities have not considered your individual objectives, financial situation and needs in providing this information. If you wish to take any action based on the content of this publication we recommend that you seek appropriate professional advice. While we endeavour to ensure that this information is as current as possible at the time of publication, we take no responsibility for matters arising from changed circumstances, information or material. DFS and its related entities will not be liable for any loss or damage, however caused (including through negligence), that may be directly or indirectly suffered by you or anyone else in connection with the use of information provided. Doctors Wealth Management is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328, AFSL 487758. Doctors Wealth Management Financial Advisers are Authorised Representatives of DFS.

Β© Doctors Financial Services Pty Limited 2020