19th October 2020
Financial Service firms love their acronyms, as in they love them! Maybe it’s an insecurity thing, or maybe it’s an attempt to hold onto some semblance of power, but they still today insist on using many convoluted acronyms. Ultimately acronyms are often a barrier for consumers and a protective moat for financial service firms – so it’s time to drain that moat just a little bit more!
To help you develop the knowledge and to prepare you for a conversation with even the worst acronym offenders (AO!), I’m covering each of the main investment and financial acronyms related to financial services in Ireland. Plus, I’ll offer a one-liner on each as to what it really is and why it matters!
I once read that when using acronyms, verbal or written, one should always provide the full term first, and only then offer the acronym. Apparently, showing the full term and then the acronym helps ensure the receiver won’t feel like an uneducated Neanderthal if they happen not to recognise the acronym, before they see the full term! Give the full terms, and then give the acronym. Alas, I’m doing this alphabetically so I must break from my norm. It will be apparent to many that I will have missed some key ones here, so feel free to drop me a note to suggest some additional ones please!
AAA – What a way to start – not really an acronym but the three ‘A’s is the highest rating that can be assigned to an issuers Bonds, reflecting a very high level of credit worthiness and very low risk of default
AER – Annual Equivalent Rate – The rate of interest quoted on a deposit account which indicates what you’d actually get if you invested your cash in a particular deposit account for a particular term
AMC – Annual Management Charge – Not to be trusted nor viewed as the total cost of owning a pension or investment product. Though it may be all they are obliged to state, this is usually only a portion of the overall costs that providers charge you via your insurance-based investment or pension product.
AMRF – Approved Minimum Retirement Fund – When you first retire and take benefits from your pension pot, and do not have a guaranteed income of €12,700, you are obliged to put €63,500 into an Approved Minimum Retirement Fund. It remains until you either have the necessary income, or you reach 75, after which it becomes Approved Retirement Fund (see ARF below!)
APR – Annual Percentage Rate – The only rate to use if comparing loans from different providers. This % rate shows the total cost of borrowing, including additional fees that may apply – whereas the interest rate does not take account of these other costs.
ARF – Approved Retirement Fund – When you first retire and take your 25% tax free from your pension pot, and you decide not to buy an annuity, you’d put the remaining 75% into one of these, and then draw at least 4% per year as taxable income
AVC – Additional Voluntary Contribution – The term given to an employee who is a member of a pension scheme through their employer, putting personal contribution into their pension scheme. Building up the pension pot plus benefiting from tax relief
AVC PRSA – Additional Voluntary Contribution Personal Retirement Savings Account – If you are a member of an occupational scheme with your employer which doesn’t facilitate AVCs, they are obliged to make a PRSA available to you to receive your AVC – resulting in an AVC PRSA!
BOB – Buy Out Bond – A form of pension which is often used to receive proceeds of a previous occupational scheme, and which can be a useful way of trying to ensure that all the cash goes to your loved-ones tax free if you die before taking benefits from it. (Also known as a PRB below)
BTFD – Buy The F####n Dip – Not very ‘PC’ but one I came across recently and I like it, so it’s in here! In other words, be greedy when others are fearful and fearful when others are greedy (Buffett), or see VIX below
CBI – Central Bank of Ireland – Serves the public interest by safeguarding monetary and financial stability and works to ensure the financial system operates in the best interests of consumers and the wider economy.
CCPC – Competition and Consumer Protection Commission – The independent statutory body with a dual role to enforce competition and consumer protection law – I do some presentations for them in workplaces on a voluntary basis (non-Covid times!).
CGT – Capital Gains Tax – For most investors in most investments here in Ireland, gains they make will be taxed under Capital Gains Tax or Exit Tax. Capital Gains Tax can be more favourable but it is not always as straightforward to capitalise on any advantages
CPC – Consumer Protection Code – The code of actions and behaviours that all regulated financial entities in the State are bound to operate by (See the 104 page code in the link above!)
DOW – Stock Market Index that tracks 30 large cap companies based in the USA. DOW isn’t actually an acronym but the first name of Dow Jones, who founded the Wall Street Journal!
EFT – Electronic Funds Transfer – The movement of cash electronically, on-line basically! EFT is not to be confused with ETF below!
EPA – Enduring Power of Attorney – If you for some reason lose the ability to make prudent decisions in the future, an Enduring Power of Attorney can become priceless. It can help ensure your wishes, your loved-ones interests’ and decisions around your assets are aligned.
ETF – Exchange Traded Fund – A unit of investment so called as they are bought and sold on a stock market. Usually made up of a collection of shares in various companies, mirroring an index or sector. Revenue’s Tax & Duty Manual here, and our years-old Blog 42 on it here!
FTSE – Financial Times Stock Exchange – Usually referred to as ‘the footsie’ this is an index of the top 100 companies by market capitalisation listed on the London Stock exchange
HP – Hire Purchase – A contract most usually used to allow you the use of a car, while you pay it off and of which you become the owner when the loan is fully repaid.
ICB – Irish Credit Bureau http://www.icb.ie/ – An electronic library of agreements between lenders and borrowers, owned and run by financial institutions in Ireland
IT – Investment Trust – A form of investment vehicle which is taxed under Capital Gains Tax regime in Ireland – keep an eye out for an upcoming blog on this very topic!
KID – Key Investor Document – Ignore what fee figure is printed in the shiny brochures – look for the KID as this will tell you what you really pay in fees on your investments. Insurance companies not obliged to provide KIDs on pension products so you’ll likely never know what you are really paying if you are invested in insurance-based pensions
NASDAQ – National Association of Securities Dealers Automated Quotations – New York based stock exchange, around since 1971 and second in size only to the New York Stock Exchange (NYSE) whose companies have a value of $30-odd trillion, or 30 million million dollars!
NRA – Normal Retirement Age – Not to be confused with National Rifle Association. This is the proposed age at which you will draw benefits from a pension scheme. It is not binding and can be adjusted in some circumstances if it makes sense for the pension holder or the business.
OAP – Old Age Pensioner – The term that used to be given to someone who was entitled to claim State Pension, and not to mention who was entitled to free travel – what a golden ticket that was! Not a term I hear much these days for whatever reason!
PAO – Pension Adjustment Order – A court enforced order which assigns a portion of the benefits of one party’s pension to the other party when they separate. Depending on how long they have been together and the pension benefits it can amount to a sizeable portion of the final pot – that can be taken as a transfer lump sum to another pension or as an income directly from the original scheme
PHI – Permanent Health Insurance – A form of insurance that one can buy from an insurance company that would pay you up to 75% of your Gross salary if you were unable to work due to accident, illness or injury that prevented you from working, if you had a successful claim of course.
PII – Professional Indemnity Insurance – Your advisor is obliged to have it under Central Bank regulations, make sure yours has it – if they don’t, get going!
PRB – Personal Retirement Bond – see BOB above!
PRSA – Personal Retirement Savings Account – A form of Personal Pension which allows you to save for retirement plus benefit from potentially decent tax relief. If your employer is contributing to a PRSA note that your maximum personal contribution for tax relief purposes is reduced by the amount your employer contributes. Not the case if they are contributing to an Occupational Scheme instead of a PRSA.
PPI – Payment Protection Insurance – An insurance that might help you to repay a particular borrowing, car or mortgage most usually, but you can buy this stuff if you borrow to buy a couch etc
PCP – Personal Contract Plan – Another convoluted lending arrangement devised by motor industry and lenders to ‘help’ people purchase a new car and to repay it over time, kind of (Read our Blog here)
REIT – Real Estate Investment Trust – Property related investment vehicle which is listed on a stock exchange, giving investors more regulated and bite-size access to investing in property
RIY – Reduction In Yield – Forward looking illustration of the total fees and charges of your investment or pension. Should be more comprehensive and all-encompassing than the aforementioned Annual Management Charge!
SFT – Standard Fund Threshold – The max level of pension total pot you can have before you are hit with savage tax bills. The threshold is officially €2m but due to a current tax rule you can go to €2.15m before you reach the actual level. Worth noting that pensions you might abroad, or indeed transfer values which you might transfer in from UK do not go towards your threshold.
SSAS – Small Self Administered Scheme – Occupational Pension scheme which gives you control of how it is invested, usually used by Director-Owners to allow their company contribute to and build revenue approved retirement pots for them
S&P500 – Standard & Poors 500 – An equity Index that tracks the top 500 listed companies in North America. Often used as a barometer of the Global Markets. It is US-specific but approx 40% of revenue of these companies is said to derive from other countries. At end of end of September 2020 the top 10 stocks, or 0.02% of the stocks, accounted for approximately 27.39% of the value of the entire index. You can view that as a good thing or a bad thing, but it sure put’s Pareto’s Principle to shame!
TER – Total Expense Ratio – Backward looking figure to show the actual impact of all fees and charges on your investment or pension. It includes all expenses incurred by an investor within their account; management fees, performance fees, administration costs, trustee fees and trading costs.
UCITS – Undertakings For the Collective Investment in Transferable Securities – This is a regulatory framework that allows for the sale of cross-Europe mutual funds, perceived as some of the safest and best regulated investments and therefore increasingly popular among investors
VIX – Volatility Index – An index which tracks volatility and investor fear. See our recent Blog on the topic – an interesting Index!
WIG – Wildly Important Goal – Not a financial acronym but this concept which I first heard from Stephen Covey is all about identifying what is really important to you and focusing on that. What goal, if you were to achieve nothing else, is hugely important to you? That’s your WIG!
ZZZZ Best – The name of a company that was set up in 80’s America. Marketed as a carpet cleaning equipment company, seven months after being valued at $300m, having a 1000 employees, and a subsequent IPO; it was found to be a ponzi scheme! It’s assets were auctioned off and reached a whopping $64,000! It’s famous as it apparently remains one of the largest ever investment frauds organised by one individual! I was struggling to find a ‘Z’ – what a way to finish!
If you ever find yourself in a table quiz and one of these acronyms happens to be asked as one of the questions I do hope you might recall the answer!!
Paddy Delaney QFA RPA APA
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