Glossary
The terms most often used in independent financial advice, explained simply.
Clear language for better decisions.
The definitions are for general information only and do not replace the official documentation of instruments and services.
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Asset allocation
The split of wealth across different asset classes (for example cash, bonds, equities) according to objectives, time horizon and risk tolerance. It is the choice with the greatest influence on long-term results.
Benchmark
An index or reference basket against which the performance of an investment or portfolio is compared, to assess its results and risks.
Asset class
A group of instruments with similar risk and return characteristics, such as cash, bonds, equities, real estate or commodities.
Conflict of interest
A situation in which the person giving advice has a financial interest that may differ from the client’s, for example because they are paid according to the products they sell.
Independent advice
Investment advice provided by a firm or adviser who receives no inducements from third parties and is paid only by the client, assessing a broad and diversified range of instruments, as required by MiFID II.
Ongoing charges (TER)
The annual costs borne by a fund or ETF, expressed as a percentage of the assets invested. They come on top of any entry, exit and transaction costs.
Diversification
Spreading wealth across investments that do not all move in the same way, to reduce the impact of any single adverse event. It is not the same as the number of products held.
Duration
A measure, expressed in years, of how sensitive a bond’s price is to changes in interest rates: the higher it is, the more the price reacts to a move in rates.
ETF
Exchange Traded Fund: a fund listed on a stock exchange that usually tracks an index. It generally has low ongoing charges and a transparent composition.
Inflation
The general rise in prices over time, which reduces the purchasing power of money. An investment keeps its real value only if it returns at least as much as inflation.
Compound interest
The mechanism by which returns earned generate further returns in turn. Over long horizons it makes both time and costs very significant.
KID
Key Information Document: a document setting out the key information about an investment product, including objectives, risks, performance scenarios and costs. It must be provided before subscription.
MiFID II
The European directive governing investment services, including advice. Among other things, it regulates cost transparency, suitability assessments and the conditions for describing oneself as an independent adviser.
OCF
The Italian supervisory body that keeps the Single Register of Financial Advisers and supervises financial advisers, including independent advisers and financial advisory firms.
Time horizon
The period of time within which the invested money is expected to be used. Different horizons call for different investment choices.
Regular savings plan
A way of investing through periodic contributions, usually monthly, that builds capital over time and spreads market entry points.
Advisory fee
The fee the client pays directly to the independent adviser for the advisory service. It is agreed in writing and is the adviser’s only form of remuneration.
Generational transfer
The set of decisions through which the transfer of family or business wealth to the next generations is organised in an orderly way, in line with the owner’s wishes.
Risk profile
A summary of a person’s capacity and willingness to bear fluctuations and temporary losses in their wealth. It is based on experience, financial situation and objectives.
Retrocessions (inducements)
The commissions that product providers pay to those who distribute or recommend their instruments. An independent adviser does not receive them.
Rebalancing
Bringing a portfolio back to its intended allocation after market movements have changed it. It helps keep risk under control.
SCF (financial advisory firm)
A company entered in the Italian Single Register of Financial Advisers and supervised by the OCF, which provides investment advice only, without holding clients’ money or securities.
Volatility
A measure of how widely the value of an investment fluctuates over time. Higher volatility means larger swings, in both directions.