TERMS AND DEFINITIONS
Understanding the Frequently used Terms
SAFEKEEPING OF FINANCIAL ASSETS
Custodians play a crucial role in ensuring the protection of financial assets owned by individuals or institutions. This function is vital, as it guarantees that financial securities are cleared and settled in accordance with numerous regulatory and accounting standards, which can often be intricate and time-consuming for investors or traders to navigate.
Custodians are tasked with executing settlements, documenting receipts, maintaining records, and overseeing custody accounts. Additionally, many custodians provide ancillary services, including account administration, transaction settlements, the collection and distribution of dividends and interest payments, tax assistance, and management of foreign exchange transactions.
Synonyms: Curator, Keeper, Conservator, Protector
A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers. The term broker-dealer is used in U.S. securities regulation parlance to describe stock brokerages because most of them act as both agents and principals.
A brokerage acts as a broker (or agent) when it executes orders on behalf of its clients, whereas it acts as a dealer, or principal when it trades for its own account.
An introducing broker serves as a middleman, advising clients on futures investing and, as needed, referring them to Brokers, Registered Investment Advisors, or Financial Advisors who will manage/execute trades
The role of the Introducing Broker is similar to that of Stockbrokers in the equities market.
The Introducing Broker maintains the relationship with the investor while the commission merchant, or trader, handles the transactions and back-office operations.
Most Introducing Brokers prefer to outsource trading because it frees them of the substantial overhead involved in executing trades, maintaining accounts, and handling financial reporting responsibilities.
Synonyms: Stockbroker, Licensed Broker
A Registered Investment Advisor (RIA) or Financial Advisor (FA) is a financial professional or financial services company that either advise clients on securities investments or may manage clients’ financial portfolios given they comply with the correct regulatory licenses.
Registered Investment Advisors have fiduciary obligations to their clients, which means they have a fundamental duty to always and only provide investment advice that is in the best interests of their clients.
We typically distinguish between:
- Registered Investment Advisor (RIA) → Typically earn their income through management fees, calculated as a percentage of a client’s assets under management by the RIA. In South Africa, this requires an FSCA Cat II license which allows RIAs to manage clients’ funds directly without seeking their approval for each investment decision
- Financial Advisor (FA) → Typically earns their income through advisory, commissions, and admin fees. Offers professional financial advice while seeking the approval for each investment decision
Unlike broker-dealers, RIAs have a fiduciary duty to put the best interests of the client first.
Synonyms: Asset Manager, Advisor, Financial Planner, Wealth Strategist
By ‘insurance wrapper’ we refer to a life insurance policy ‘wrapped’ around the policy owner’s investment portfolio that is owned and controlled by the insurance company until payment in accordance with the terms of the policy.
You have the option to designate beneficiaries for an offshore wrapper provided by a South African insurance company. Consequently, this wrapper will bypass the standard administrative procedures associated with a deceased estate. This eliminates the need for an offshore will or testament, as well as the requirement to secure foreign probate to manage the offshore wrapper, which is typically necessary for personally held assets. Many assets, such as vehicles, tend to depreciate in value as they are utilized and eventually deteriorate over time. Generally, these administrative processes can be both expensive and lengthy. By maintaining investments within the offshore wrapper, you also mitigate the risk of incurring foreign inheritance tax on those assets.
Additionally, the investments within the wrapper can either remain in the names of the beneficiaries or they may choose to receive the investment proceeds from the wrapper upon your passing.
In summary
- It mitigates probate and foreign inheritance tax.
- No executor’s fees.
- It offers tax efficiency.
- Access to the investment or proceeds is immediate.
- It offers protection from creditors.
- Access to global investment opportunities.
Synonyms: Insurance Policy, Pension Plan, Life Wrapper
Small businesses are generally defined in terms of their revenue or number of employees and the criteria for what’s considered small can vary from one industry to another.
Qualifying as a small business can make a company eligible for government contracts and other financial benefits.
Small businesses can structure themselves in a variety of ways for tax and legal purposes, including insulating their owners from financial liability.
A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals (HNWI).
Family offices are different from traditional wealth management shops in that they offer a total solution to managing the financial and investment needs of an affluent individual or family.
For example, in addition to financial planning and investment management, many family offices offer budgeting, insurance, charitable giving, wealth transfer planning, tax services, and more.
White branding allows you to showcase your own logos and company details across our services, including onboarding forms, questionnaires, trading platforms, and reporting systems
Synonyms: White Label
Model portfolios are collections of investments created by Advisors to meet their clients’ goals.
They’re usually comprised of managed investment products like mutual funds or ETFs.
A Model Portfolio can invest in stocks and single-leg positions. The advisor can choose to establish target percentage allocations or to keep them dynamic, investing a portion of clients’ funds into the portfolio and then simply trading the model’s assets. Trades made in a Model Portfolio are automatically allocated as specified among the invested clients’ accounts.
Advisors (RIA / FA) can use Model Portfolios to easily invest some or all of a client’s assets into one or multiple custom-created portfolios, rather than tediously managing individual investments in single instruments. Models allow the advisor to establish target percentage allocations for the custom portfolio, and to rebalance as desired using this technology.
Proprietary trading, which is also known as “prop trading,” occurs when a trading desk at a financial institution, brokerage firm, investment bank, hedge fund, or other liquidity source uses the firm’s capital and balance sheet to conduct self-promoting financial transactions. These trades are usually speculative in nature, executed through a variety of derivatives or other complex investment vehicles.
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
Synonyms: Collective Investment Scheme (CIS), Unit Trust
A hedge fund is a limited partnership of private investors whose money is pooled and managed by professional fund managers. These managers use a wide range of strategies, including leverage (borrowed money) and the trading of nontraditional assets, to earn above-average investment returns.
A hedge fund investment is often considered a risky, alternative investment choice and usually requires a high minimum investment or net worth. Hedge funds typically target wealthy investors.
A fund administrator serves as an external service provider that safeguards the interests of investors by independently assessing the assets and valuation of the fund. By delegating the fund administration responsibilities, fund managers can concentrate on managing the portfolio internally. Generally, fund administration consists of two main components: fund accounting and the functions of a registrar or transfer agent.
An API, or application programming interface, is a set of rules or protocols that enables software applications to communicate with each other to exchange data, features and functionality.
APIs simplify and accelerate application and software development by allowing developers to integrate data, services and capabilities from other applications, instead of developing them from scratch. APIs also give application owners a simple, secure way to make their application data and functions available to departments within their organization. Application owners can also share or market data and functions to business partners or third parties.
APIs allow for the sharing of only the information necessary, keeping other internal system details hidden, which helps with system security. Servers or devices do not have to fully expose data—APIs enable the sharing of small packets of data, relevant to the specific request.
At the most basic level, CRM (Customer Relationship Management) software consolidates customer information and documents it into a single CRM database. This lets business users more easily access and manage that information.
The benefits of CRM systems apply to all types of organizations, ranging from small businesses to large corporations. They include the following:
- Enhanced customer service: Having customer information, such as past purchases and interaction history, easily accessible helps customer support representatives provide better and faster customer service.
- Trend spotting: Collection of and access to customer data let businesses identify trends and insights about their customers through reporting and visualization features.
- Automation: CRM systems can automate menial, but necessary, sales pipeline and customer support tasks.