Like many sectors, the financial services industry is known for our acronyms. They are used routinely by investors and professionals who work in the space. This week, we discussed our “top ten” acronyms and have described them below.

ACB – Adjusted Cost Base

An investment’s ACB is it’s cost, which accounts for factors such as purchase price, expenses to acquire it, and adjustments thereafter. It is used in the calculation of capital gains or losses. With equities and investment funds, the adjusted cost base is re-calculated as shares are bought, sold, capital is returned and dividends are received.

AMT – Alternative Minimum Tax

AMT is the “floor on the percentage of taxes that a filer must pay to the government”. AMT has become a larger topic of conversation in 2024, as the 2023 Federal Budget proposed amendments to it’s calculation – to better target high-income individuals.

FX – Foreign Exchange

FX is the trade of global currencies. This includes a whole host of acronyms – Canadian Dollar (CAD), United States Dollar (USD), Japanese Yen (JPY), Euro (EUR), Australian Dollar (AUD), Swiss Franc (CHF), and Mexican Peso (MXN), amongst many others!

HISA – High Interest Savings Account

A HISA is a cash-equivalent that provides a higher interest rate than a normal bank account.

MER – Management Expense Ratio

The cost of investing in a traditional mutual fund is it’s MER. It is expressed as a percentage, and calculated by dividing a fund’s total annual expenses by its assets. We discussed this topic at length in our blog, unpacking MERs.

PA – Pension Adjustment

An individual’s PA in a given year helps determine the amount that can be contributed to a Registered Retirement Savings Plan (RRSP). It is an “aggregate of all annual individual and employer pension credits”, and calculates the amount your contribution must be reduced by. It’s calculation varies based on if you have a defined contribution (DC) or defined benefit (DB) pension plan.

POA – Power of Attorney

A POA is a legal document that gives one or more individuals the authority to make decisions on your behalf, in the event you are unable to. You are able to name a POA for both your property and your personal care.

RRIF – Registered Retirement Income Fund

By the end of the calendar year in which a Canadian turns 71-years old, they must convert their Registered Retirement Savings Plan (RRSP) to a RRIF. RRIFs allow for continued tax-deferred investment growth until funds must be withdrawn, and are taxed as income. Following the year of account opening, individuals must withdraw a minimum amount from their RRIF each year.

SMA – Separately Managed Account

SMAs are discretionary investment accounts that are managed by professional investment firms. They differ from mutual funds as individual investors own the strategies’ individual securities in their own name. This allows for greater customization and flexibility.

TWR – Time-Weighted Net Return

TWR is our preferred method of calculating investment return. It is “a measure of the compound rate of growth in a portfolio”, and accounts for the inflows and outflows of money in a portfolio, to ensure they do not distort it’s rate of return.

In conclusion

We hope that you can benefit from our explanations of our “top ten” acronyms. We have touched on a variety of different topics, which range from investment returns to estate planning, and are always here to discuss, as appropriate.

Lastly, our favourite acronym is SFFG – Smith Falconer Financial Group!