Financial terms and professional roles

FINANCIAL TERMS

Common financial planning terms

These terms appear in financial assessments and in conversations with professionals.

Adjusted gross income (AGI)

Gross income after permitted adjustments and before itemized or standard deductions; it is used in many tax calculations.

Amortization

The scheduled reduction of a loan balance through payments of principal and interest over time.

Annuity

A contract, generally issued by an insurance company, designed to accumulate value or provide a stream of income subject to its terms, charges, and guarantees.

Asset allocation

The distribution of investments among categories such as cash, stocks, bonds, real estate, and other assets.

Beneficiary

A person, trust, estate, or organization designated to receive an account, policy benefit, or other property.

Capital gain or loss

The difference between an asset's adjusted tax basis and the amount received when it is sold or otherwise disposed of.

Cash flow

Money received and money paid during a stated period, including income, operating expenses, debt service, taxes, savings, and distributions.

Cost basis

The tax value assigned to an asset, generally reflecting purchase cost and permitted adjustments, used to calculate gain or loss.

Credit utilization

The percentage of available revolving credit currently used; it can affect credit evaluation.

Deductible

The amount a policyholder generally pays before an insurance plan begins paying covered costs, subject to policy terms.

Deferred compensation

Compensation earned now but scheduled for payment later under an employer or individual arrangement.

Diversification

Spreading assets or exposures among investments, institutions, industries, or strategies to reduce concentration risk; it does not ensure a profit or prevent loss.

Emergency reserve

Liquid funds designated for unexpected expenses, income interruption, or other short-term contingencies.

Equity

The value of an ownership interest after subtracting related liabilities; examples include home equity and business equity.

Estate

The property, rights, obligations, and interests owned or controlled by a person at death, subject to applicable law.

Fiduciary

A person or organization legally required, within the scope of the relationship, to act in another party's interests and follow applicable duties.

Gross income

Income before taxes, deductions, contributions, expenses, or other reductions.

Liquidity

The ability to convert an asset to cash promptly and with limited loss of value or penalty.

Net worth

Total assets minus total liabilities at a stated point in time.

Required minimum distribution (RMD)

A minimum amount that generally must be withdrawn from certain tax-advantaged retirement accounts under federal tax rules.

Risk tolerance

A person's willingness and emotional capacity to accept uncertainty and investment loss; it differs from financial capacity to bear loss.

Roth account

A retirement account or plan feature funded with after-tax dollars in which qualified distributions may be federally income-tax free.

Sequence-of-returns risk

The risk that poor investment returns early in a withdrawal period may disproportionately reduce portfolio sustainability.

Tax-deferred

A treatment under which current tax may be postponed until a later event, commonly a distribution or sale.

Taxable income

The portion of income subject to tax after applicable adjustments and deductions.

Term life insurance

Life insurance intended to provide a death benefit during a stated coverage period, generally without permanent cash value.

Traditional retirement account

A retirement account that may receive pre-tax or deductible contributions and generally subjects distributions to ordinary income tax.

Umbrella liability coverage

Additional personal liability insurance designed to apply above specified underlying policy limits, subject to exclusions and contract terms.

Vesting

The process by which an individual earns nonforfeitable rights to employer contributions, benefits, or ownership interests.

Withdrawal rate

The amount withdrawn from a portfolio during a period, usually expressed as a percentage of portfolio value.

PROFESSIONAL ROLES AND STANDARDS

Who can advise on what

Titles alone do not establish authority, competence, or a duty to provide every type of advice. Verify credentials, licenses, registrations, experience, compensation, conflicts, and the written scope of any engagement.

Financial professional

A broad, non-regulatory description. A person's authority depends on licenses, registrations, credentials, firm affiliation, and the services actually being provided.

Investment adviser

A person or firm that provides securities-related advice for compensation and is subject to applicable federal or state registration, disclosure, and fiduciary requirements.

Broker-dealer / registered representative

A firm or associated person that effects securities transactions and is subject to applicable licensing, suitability, best-interest, and supervisory requirements.

Insurance producer

A person licensed by a state to solicit, sell, or negotiate specified insurance products; authority depends on active licenses and appointments.

Certified Public Accountant (CPA)

A state-licensed accounting professional. Tax, audit, valuation, and advisory authority depends on competence, engagement scope, and applicable professional standards.

Tax professional

A preparer, enrolled agent, CPA, attorney, or other qualified practitioner whose authority and duties vary by credential and engagement.

Attorney

A lawyer licensed in an applicable jurisdiction to provide legal advice and prepare or review legal documents within the scope of representation.

Medicare or health-benefits professional

A licensed agent, benefits specialist, or authorized counselor who can explain plan eligibility, enrollment, coverage, costs, and limitations within applicable rules.

Lender or mortgage professional

A licensed or authorized professional who evaluates and arranges credit; approval, pricing, disclosures, and duties depend on the product and jurisdiction.

Valuation professional

A qualified appraiser, valuation analyst, or other specialist who estimates value using an identified standard, method, effective date, and evidence set.

Fiduciary duty

A legal duty arising in defined relationships. It should not be assumed merely from a title; confirm when it applies, to whom it is owed, and the scope of the engagement.

Professional dependency

An assessment finding that requires confirmation or implementation by an appropriately licensed, registered, credentialed, or otherwise qualified professional.

Any insurance, annuity, investment, tax, lending, valuation, accounting, or legal recommendation must be reviewed under the appropriate suitability, compliance, licensing, fiduciary, and professional standards.