ClaroConnect Financial Glossary

Account Aggregation – Service provided by some financial planners, investment advisors, or
online services which consolidate account statements from accounts held at multiple firms to show all holdings or assets on one statement.

Accredited Financial Planning Specialist – A certification for Certified Public Accountants (CPAs) who have passed a financial planning examination.

 Active Management – An approach to investment management which seeks to add extra return
or performance by using judgement to predict future prices. This differs from passive
management which seeks to match the performance of an investment market or benchmark.

ADV Form – The form required by the SEC which lists basic information on Registered
Investment Advisors.

Alternative Investments – Many investments outside of equities (stocks) and fixed income
(bonds and cash) are called alternative investments, often due to the less efficient market for trading alternative investments, such as less price and trade information. Alternative investments often include real estate, private equity, venture capital, and commodities. Some high-end
financial planners and investment advisors can help individuals invest in alternative investments.

Annuity – In general terms, an annuity is a payment received annually. As a product, it is a
contract with an insurance company in which money is invested, either in stocks or in a fixed
-rate contract, and grows tax-deferred, before being withdrawn or converted to an income.
With an immediate annuity, you pay upfront and immediately start receiving income. Your income from an annuity can be taken after age 59 ½ without IRS penalties, and can be in the form of a lump sum, a specified period, or over your lifetime. In the lifetime option, the insurance company guarantees to pay the specified amount each year, no matter how long you live. The lifetime
annuity is valuable in retirement planning since fewer people are retiring with pension plans.

Asset Allocation – A form of investment management for a portfolio which seeks to maximize
return for a given level of risk. Asset allocation accomplishes this by combining different asset classes, such as stocks, bonds, and cash, which each have different expected return and risk characteristics. Since different asset classes may be up while others are down, an investor can increase their return at the same time they reduce their risk by adding more asset classes; this is the essence of what is known as modern portfolio theory. The appropriate asset allocation for
each individual depends on their risk tolerance and time horizon. A financial planner or financial advisor can guide individuals to the appropriate allocation with risk tolerance questionnaires and an analysis of the individual’s goals.

Asset Based Fee – A fee charged by financial planners, financial advisers, or brokers which is charged as a percentage of the assets they are investing. For instance, if you have a $300,000 account and the financial adviser charges a 1% fee for all of their financial advice, the fee will be $3,000. Some people prefer this type of fee because they feel it aligns the adviser’s interest with theirs; the more their portfolio increases in value, the more the adviser makes from the 1% fee.

Beta – A measure of risk, defined as the volatility compared to the Standard & Poor’s 500 stock index. The S&P 500’s beta is defined as 1, so if an investment has a beta of 2, that investment’s returns are twice as volatile as the S&P 500. Therefore, if the S&P 500 index had a positive 5% return (or negative 5% return), the investment with a beta of 2 would be expected to have a
positive 10% return (or negative 10% return).

Bond – A debt security issued by companies and governments. The buyers of a bond are making
a loan to the issuer of the bond. Bonds typically pay a fixed rate of interest, with the promise to pay back the principal at maturity. Bonds are also known as fixed-income investments and often generically refer to all fixed income investments. Technically, bonds are longer-term fixed-income investments with maturities of 10 years or more, while notes have 1-10 year maturities, and bills have maturities less than a year.

Broker – Someone who works for a brokerage firm and places trades for stocks, bonds and mutual funds. Brokers often work for a commission, and increasingly, for asset-based fees Brokers may also incorporate financial planning, including insurance and estate planning.

Capital Gain (Capital Loss) – The difference between the price you paid for an asset and the
price you sold it for. For instance, you bought 100 shares of a $15 stock, paying $1,500 total
(this is your cost basis). You then sold the stock at $20 per share, receiving $2,000 total. The difference is a $500 gain. However, if the price had declined and you sold it at $13 per share,
and received $1,300 total, you would have had a $200 capital loss from your original $1,500 investment. Capital gains and losses apply to any investment, including stock, bonds, mutual funds, and real estate.

Cash Surrender Value – The amount you receive when you cash in or cancel a permanent life insurance policy. The cash surrender value accumulates tax-deferred in your policy from the payment of your premiums minus the policy’s expenses.

Certified Financial Planner (CFP) – A Certified Financial Planner, or CFP, professional is a credential from the Certified Financial Planner Board of Standards. Individuals who have met this credential are required to have 3 years of work experience, complete an education course on a variety of financial planning topics related to personal finances, including investments, insurance and taxes, and complete the 10 hour CFP certification exam.

Chartered Financial Analyst (CFA) – The Chartered Financial Analyst is a designation from the
CFA Institute. Individuals who have met this credential are required to have 3 years of work experience, and pass each of three levels of exams. The exams are given once or twice a year, requiring a minimum of three years to complete the exams before becoming a CFA.

Chartered Financial Consultant (ChFC) – The Chartered Financial Consultant, or ChFC, is a designation for the life insurance industry from the American College. ChFC’s must have 3 years
of experience and pass an exam covering personal financial planning topics.

Chartered Life Underwriter (CLU) – The Chartered Life Underwriter, or CLU, is a designation for the life insurance industry from the American College. CLU’s must have completed courses in several personal financial planning topics.

Commission – A sales charge for the transaction of buying a financial product. Some brokers
and sales agents work on a commission basis in which you pay for each purchase or sale of a financial product through them.

Cost basis – The amount you originally paid for an asset. For financial assets, it is usually the purchase price plus the commission you paid. For instance, you bought 100 shares of a $15
stock, and paid $1,500 total, and then sold the 100 shares at $20 per share, receiving $2,000.
You have a $500 capital gain on your cost basis of $1,500.

Credit Report – A record of your financial history in respect to loans or credit you have had. The 3 major companies which track and produce credit reports are Experian, Equifax and Transunion. Potential lenders will review your credit report to determine whether to give you loans and what interest rate to charge you. If you have a history of late or unpaid bills on your credit report, it will lower your credit score and make it harder for you to get loans in the future.

Credit Score – A number, based on the history in your credit report, which lenders use to
determine whether to give you loans and what interest rate to charge you. A higher credit score is better than a lower score. . If you have a history of late or unpaid bills on your credit report, it will lower your credit score and make it harder for you to get loans in the future.

Deferred Annuity – A contract with a life insurance company, which is invested in either stocks or fixed-income investments, that accumulates tax-deferred earnings. The annuity can be converted
to an income, ranging from a lump-sum payment to a lifetime income guaranteed by the
insurance company. Since there may be penalties from withdrawing money from annuities before age 59 ½, they are appropriate for retirement planning.

Disability Insurance – A contract with an insurance company to replace a portion of your current income should you become disabled and not able to work. Disability insurance can be particularly valuable for younger and higher-income individuals since their future earnings power may be their greatest asset.

Estate Planning – The planning for structuring assets and transfers to minimize the impact of estate taxes and to insure your assets go to the intended people upon your death. At its most basic, everyone should have a will to clarify their wishes. More complex estate planning may involve trusts, life insurance and charitable giving.

Financial Advisor – A financial professional who provides investment advice, and often personal financial planning as well.

Financial Plan – A financial plan is a document which describes your current financial situation, your financial goals, and the strategies for meeting those goals. For instance, one of your
financial goals may be saving for a child’s college education. The financial plan will show your current college savings, how many years you have left to save, and how much additional savings you need during those years. A comprehensive financial plan will incorporate your financial
goals, insurance planning, retirement planning, estate planning, and other life goals you may
have. Many financial professionals can create a financial plan; many also have additional training and certifications to help them create a financial plan.

Financial Planner – A financial professional who works with you to assess your current financial situation, determine your goals, and decide on strategies to meet your goals. Many financial professionals have additional training and certifications to be a financial planner. The most common credentials are Certified Financial Planner (CFP), Chartered Financial Consultant
(ChFC) and Certified Investment Management Analyst (CIMA). Financial planners may charge by the hour, by the plan, by commissions or by asset-based fees.

Employee Benefits – Benefits provided to employees of a company, such as health, life and disability insurance.

Growth Fund, or Growth Stock – A growth stock is one in which the company is experiencing
above-average growth in sales or earnings. A growth fund is a mutual fund in which the mutual fund manager owns growth stocks in the fund.

Health Insurance – A contract with an insurance company to pay for medical expenses. Health insurance policies differ greatly in costs and benefits 

Individual Retirement Account (IRA) – An account which has certain tax advantages to accumulate assets for retirement. Generally, assets grow tax-deferred and can not be taken out of an IRA without penalties before age 59 ½.

Investment Adviser – A financial professional who provides investment advice, and often personal financial planning as well.

Life Insurance – A contract with an insurance company in which the company agrees to pay out a death benefit to your beneficiaries upon your death. A term insurance policy usually has the cheapest initial premiums (or cost to you), but the insurance ends at the end of the term and, because of increasing age and health issues, you may be left with no insurance or extremely
high premiums. A permanent life insurance policy usually has higher initial premiums, but guarantees coverage for as long as you pay the premiums and the amount of the premiums doesn’t usually increase.

Long-Term Care Insurance – A contract with an insurance company which pays for expenses related to the care of an individual who can no longer care for themselves. Long-term care insurance helps pay for care for people with physical disabilities from accidents or illnesses, for those disabled from mental illness, and those who can no longer care for themselves from age-related decline.

Mutual Fund – A professionally managed investment portfolio in which many investors have
pooled their money together to have the mutual fund managers invest in a diversified mix of investments (stocks, bonds, cash). Investors buy shares of mutual funds to gain the professional management and the diversification, since an individual doesn’t have the time, resources, expertise, or amount of money to professionally invest it on their own. All mutual funds charge
fees. Load funds, which charge a sales commission, typically have a lower annual fee than no-load funds. While the no-load funds don’t have any sales fee, they typically have a higher annual fee. A financial planner can help determine which funds are best, depending on the length of time you plan to hold the fund.

Net Worth – Your net worth, or personal balance sheet, is the total of your assets minus your liabilities. Your assets include your investments, cash, property and anything of value. Your liabilities include all loans and debts you are responsible for.

Option – The right, but not obligation, to buy a specific investment for a specified price, during a specified period of time. A call option gives the holder the right to buy, while a put option gives the holder the right to sell the underlying investment.

Passive Management - An approach to investment management which seeks to match the performance of an investment market or benchmark, as opposed to active management which tries to beat the market performance. Advocates of passive management state that it usually outperforms active management due to the higher fees of active managers.

Planning Fee – A fee paid to a financial planner which is charged at a flat rate per hour, per meeting, or per financial plan presented to you. Some people prefer this type of fee because the financial planner does not get paid extra for recommending certain investments to you.

Portfolio Management – The analysis and management of a portfolio of investment assets. Many brokers, and financial advisers will provide portfolio management even if you don’t use them for
full personal financial planning.

Registered Investment Adviser (RIA) – An investment adviser who has registered with, and regulated by, the SEC. RIAs provide investment advice and analysis for specific investments and portfolios and may manage portfolios. Many also provide full service financial planning for individuals.

Retirement Savings – Savings to provide an income in retirement after someone is no longer receiving an income from working. Some retirement savings plans created by the US government provide tax benefits to save, but can’t be withdrawn before age 59 ½ without penalties.

Value Fund, or Value Stock – A value stock refers to stocks trading at a low price compared to some measurement such as earnings or assets. A value fund is a mutual fund in which the mutual fund manager primarily owns value stocks in the fund.

Yield – The rate of income received from an investment. For stocks, the yield is the dividend
divided by the price of the stock. For bonds, the yield is the annual interest, divided by the price
of the bond. For instance, you receive $60 in interest per year from a bond that cost $1,000. The yield is 60/1000 and expressed as a percentage, or 6%.