Glossary
Securities & Financial Planning Glossary
Plain-English definitions for every term tested on the SIE, Series 7, Series 65, Series 66, CFP®, and IRS EA exams — with the exams that test each concept.
A
ABLE Account (529A)
Tax-advantaged savings account for eligible individuals with disabilities to cover disability-related expenses.
Accredited Investor
Individual or entity meeting SEC wealth or income thresholds, eligible to invest in unregistered offerings.
Agency Security
A debt security issued by a U.S. government agency or government-sponsored enterprise to finance specific government-sponsored activities such as housing and agriculture
Alpha
Risk-adjusted excess return of an investment above what would be predicted by its beta (CAPM).
Alternative Minimum Tax (AMT)
A parallel tax system designed to ensure high-income taxpayers pay a minimum level of federal income tax.
American Depositary Receipt (ADR)
A negotiable certificate issued by a U.S. bank representing ownership of shares in a foreign company that trades on U.S. exchanges in U.S. dollars
Annual Gift Exclusion
The amount ($19,000 in 2025) a donor may give to any individual per year without incurring gift tax.
Annuitization
Converting an annuity's accumulated value into a stream of periodic payments, either for life or a fixed period.
Anti-Money Laundering (AML)
Regulatory programs requiring financial firms to detect, prevent, and report suspected money laundering activity.
Asset Allocation
The strategy of dividing a portfolio among different asset classes to balance risk and return.
B
Bank Secrecy Act (BSA)
1970 law requiring financial institutions to assist government agencies in detecting money laundering.
Best Interest Standard
The obligation under Reg BI for broker-dealers to put customers' interests first when making recommendations.
Beta
A measure of a security's volatility relative to the overall market (benchmark = 1.0).
Blue-Sky Laws
State securities laws requiring registration and disclosure for securities offerings within each state.
C
Call Option
A contract giving the buyer the right, but not the obligation, to purchase an underlying security at a specified strike price before or at expiration
Capital Gains Tax
Tax on the profit from the sale of a capital asset; rate depends on how long the asset was held.
Cash Account
Brokerage account where customers must pay in full for securities by the settlement date.
Churning
The unethical practice of excessive trading in a customer's account to generate commissions.
Circular 230
Treasury Department regulations governing the practice of attorneys, CPAs, and enrolled agents before the IRS.
Closed-End Fund
A registered investment company that issues a fixed number of shares through an IPO and whose shares subsequently trade on an exchange at market prices
Collateralized Mortgage Obligation (CMO)
A type of mortgage-backed security that divides pools of mortgages into tranches with different maturities, prepayment risks, and yields
Collection Due Process (CDP)
IRS hearing right allowing taxpayers to challenge a proposed federal tax lien or levy before the IRS Appeals Office.
Common Stock
An equity security representing an ownership interest in a corporation that carries voting rights and a residual claim on assets and earnings
Conflicts of Interest
Situations where a financial professional's personal interests or incentives may interfere with their duty to act in a client's best interest.
Convertible Bond
A corporate bond that gives the holder the right to exchange the bond for a predetermined number of common shares of the issuing company
Convexity
The curvature of the bond price-yield relationship; a correction factor for duration's linear approximation.
Corporate Bond
A debt security issued by a corporation to raise capital, obligating the issuer to pay periodic interest and repay principal at maturity
Correlation
Statistical measure (−1 to +1) of how two securities' returns move in relation to each other.
Cost Basis
The original purchase price of an asset, used to calculate taxable gain or loss when the asset is sold.
Coverdell Education Savings Account (ESA)
Tax-advantaged education savings account with a $2,000 annual contribution limit and income restrictions.
Currency Transaction Report (CTR)
A required report filed when a customer conducts a cash transaction exceeding $10,000 in a single day.
Current Yield
Annual coupon income divided by current market price; a simple (imperfect) yield measure.
Currently Not Collectible (CNC)
IRS status temporarily suspending collection action when a taxpayer cannot afford to pay or meet basic living expenses.
Custodial Account (UGMA/UTMA)
Account managed by a custodian for a minor, with assets transferring irrevocably to the minor at age of majority.
D
Debt Security
A financial instrument representing a loan made by an investor to a borrower, creating an obligation for the issuer to pay interest and repay principal
Defined Benefit Plan
Employer-sponsored retirement plan promising a specific monthly benefit at retirement, based on salary and years of service.
Defined Contribution Plan
Retirement plan where contributions are defined but the ultimate benefit depends on investment performance.
Discretionary Account
Account where the broker or adviser has authority to make trading decisions without client approval for each trade.
Dodd-Frank Wall Street Reform Act
2010 law enacted after the financial crisis, expanding financial regulation and creating the CFPB.
Dollar-Cost Averaging (DCA)
Investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of volatility.
Duration
A measure of a bond's price sensitivity to interest rate changes, expressed in years.
E
Earnings Per Share (EPS)
A company's net profit divided by the number of outstanding shares; the denominator of the P/E ratio.
Enrolled Agent (EA)
A federally licensed tax practitioner authorized to represent taxpayers before the IRS; highest IRS credential.
Equity
An ownership interest in a company represented by stock, entitling the holder to a proportional share of assets, earnings, and voting rights
ERISA
Employee Retirement Income Security Act — federal law governing private-sector retirement plans.
Estate Tax
Federal tax on the transfer of a deceased person's estate above the exemption threshold.
Exchange-Traded Fund (ETF)
A pooled investment fund that holds a basket of securities and trades on a stock exchange throughout the day at market prices
Exchange-Traded Note (ETN)
An unsecured debt security issued by a financial institution that tracks an index or benchmark and trades on an exchange like a stock
F
Federal Tax Levy
The IRS seizure of a taxpayer's property or rights to property to satisfy an unpaid tax debt.
Federal Tax Lien
The government's legal claim against all of a taxpayer's property when they fail to pay a tax debt.
Fiduciary Duty
The highest legal standard of care — an obligation to act entirely in the client's best interest with loyalty and prudence.
FINRA
Financial Industry Regulatory Authority — the primary SRO overseeing broker-dealers in the U.S.
Fixed Annuity
An insurance contract that credits a guaranteed minimum interest rate to the contract value and provides fixed income payments during the payout phase
Fixed Annuity
Insurance contract guaranteeing a fixed rate of return during accumulation and fixed payments during distribution.
Form 2848 — Power of Attorney
IRS form granting an authorized representative (EA, CPA, or attorney) the authority to represent a taxpayer before the IRS.
Forward Contract
A private, customized agreement between two parties to buy or sell an asset at a specified price on a future date, traded over the counter
Front-Running
The illegal practice of trading in a security ahead of a pending customer order to profit from the anticipated price movement.
Futures Contract
A standardized, exchange-traded agreement to buy or sell an asset at a predetermined price on a specific future date
G
I
Indexed Annuity (Fixed Indexed Annuity)
An insurance contract that credits interest based on the performance of a market index subject to a cap or participation rate, while guaranteeing the principal against loss
Innocent Spouse Relief
IRS relief allowing one spouse to be relieved of joint tax liability when the other spouse understated tax without their knowledge.
Insider Trading
Buying or selling securities based on material, non-public information in breach of a duty — a federal crime.
Insider Trading Rules
SEC rules prohibiting trading on material, non-public information in breach of a duty.
Installment Agreement
IRS payment plan allowing taxpayers to pay their tax debt in monthly installments over time.
Internal Rate of Return (IRR)
The discount rate that makes an investment's NPV equal to zero; accept if IRR exceeds required return.
Investment Advisers Act of 1940
Federal law requiring investment advisers managing $110M+ in assets to register with the SEC.
Investment Company Act of 1940
Federal law regulating mutual funds, closed-end funds, and other pooled investment vehicles.
Irrevocable Trust
A trust that cannot be modified or revoked by the grantor; assets removed from grantor's taxable estate.
IRS Audit / Examination
IRS review of a taxpayer's accounts and financial information to verify that tax laws were followed.
J
K
M
Margin Account
Brokerage account allowing customers to borrow money from their broker to purchase securities.
Marital Deduction
Unlimited deduction allowing transfers of assets between spouses free of gift and estate tax.
Material, Non-Public Information (MNPI)
Information about a company that would affect a reasonable investor's decision and has not been publicly disclosed.
Money Market Fund
A mutual fund that invests in high-quality, short-term debt instruments and seeks to maintain a stable net asset value of $1.00 per share
Municipal Bond
A debt security issued by a state, city, or other local government entity whose interest income is typically exempt from federal income tax
Municipal Securities Rulemaking Board (MSRB)
SRO that writes rules for municipal securities broker-dealers and advisors; rules enforced by FINRA and SEC.
Mutual Fund
A pooled investment vehicle registered under the Investment Company Act of 1940 that continuously issues and redeems shares at net asset value
N
Net Asset Value (NAV)
The per-share value of a mutual fund, calculated as total assets minus liabilities divided by outstanding shares.
Net Present Value (NPV)
The sum of present values of all cash flows from an investment minus the initial cost; positive NPV = value-creating.
Net Unrealized Appreciation (NUA)
Tax strategy allowing employer stock in a 401(k) to be distributed and taxed at lower capital gains rates.
Nominal Yield (Coupon Rate)
The stated annual interest rate on a bond, expressed as a percentage of par value.
O
Offer in Compromise (OIC)
An agreement allowing eligible taxpayers to settle their IRS tax debt for less than the full amount owed.
Options Account
Brokerage account approved for trading options, requiring specific disclosures and suitability review.
Outside Business Activity (OBA)
Employment or business activities outside of a registered rep's primary broker-dealer, requiring prior written notice.
P
Passive Activity Rules
IRS rules limiting the deduction of losses from passive activities (rental real estate, limited partnerships) against active income.
Penalty Abatement
IRS reduction or elimination of penalties due to reasonable cause, first-time penalty abatement, or statutory exception.
Power of Attorney (Tax)
Legal authorization allowing an appointed representative to act on a taxpayer's behalf before the IRS.
Preferred Stock
A hybrid equity security that pays a fixed dividend and has priority over common stock in liquidation but typically lacks voting rights
Price-to-Earnings Ratio (P/E)
Stock valuation metric comparing share price to earnings per share; indicates how much investors pay per dollar of earnings.
Prospectus
Legal disclosure document provided to investors in a registered securities offering containing material information.
Put Option
A contract giving the buyer the right, but not the obligation, to sell an underlying security at a specified strike price before or at expiration
R
R-Squared
Statistical measure (0–100) of how much of a portfolio's movements are explained by the benchmark index.
Real Estate Investment Trust (REIT)
A company that owns, operates, or finances income-producing real estate and must distribute at least 90% of taxable income to shareholders as dividends
Registration by Filing (Notice Filing)
State securities registration method for covered securities — state only receives notice and a fee.
Regulation A+
SEC exemption allowing small companies to raise up to $75M publicly without full SEC registration.
Regulation Best Interest (Reg BI)
SEC rule requiring broker-dealers to act in customers' best interest when recommending securities.
Regulation D
SEC rule providing exemptions from registration for private placements sold to accredited investors.
Regulation T
Federal Reserve rule setting initial margin requirements for broker-dealer credit to customers.
Required Minimum Distribution (RMD)
The minimum amount that must be withdrawn from tax-deferred retirement accounts annually beginning at age 73.
Revenue Bond
A municipal bond whose principal and interest are payable solely from the revenues generated by a specific project or enterprise financed by the bond
Revocable Trust
A trust the grantor can modify or revoke during their lifetime; assets remain in the grantor's estate for tax purposes.
Rights Offering
A short-term privilege granted to existing shareholders to purchase additional shares of a company's stock at a discount to the market price before shares are offered to the public
Roth IRA
Individual retirement account with after-tax contributions and tax-free qualified withdrawals.
Rule 10b-5
The SEC's primary anti-fraud rule, prohibiting material misstatements and deceptive practices in securities transactions.
Rule 144
SEC rule governing resale of restricted and control securities by insiders and affiliates.
S
Sarbanes-Oxley Act (SOX)
2002 law enacted after Enron scandal, strengthening corporate governance and financial disclosure.
Securities Act of 1933
Federal law requiring registration and disclosure for new securities offerings to the public.
Securities and Exchange Commission (SEC)
The primary U.S. federal regulator of securities markets, created by the Securities Exchange Act of 1934.
Securities Exchange Act of 1934
Federal law governing the secondary market, broker-dealers, and creating the SEC.
Securities Investor Protection Act (SIPA)
1970 law creating SIPC to protect customer assets if a broker-dealer fails.
Self-Employment (SE) Tax
Tax covering Social Security and Medicare contributions for self-employed individuals (15.3% on net SE income).
Selling Away
When a registered representative sells securities outside the scope of their broker-dealer's approved product list without firm approval.
SEP-IRA
Simplified Employee Pension IRA — a high-contribution retirement plan for self-employed individuals and small businesses.
Sharpe Ratio
Risk-adjusted return metric measuring excess return per unit of total risk (standard deviation).
Short Selling
Selling borrowed securities with the expectation of buying them back at a lower price to profit from a price decline.
Short-Term Capital Gain
Profit from selling an asset held 12 months or less, taxed at ordinary income rates.
Soft Dollars
Arrangements where an investment adviser directs client brokerage commissions to a broker in exchange for research or other services.
Standard Deviation
A statistical measure of the dispersion of returns around the mean; used to quantify total investment risk.
Statute of Limitations (Tax)
The time period within which the IRS can assess additional tax or a taxpayer can claim a refund.
Stepped-Up Basis
The reset of a deceased person's asset cost basis to fair market value at date of death, eliminating pre-death capital gains.
Suitability
The standard requiring broker-dealers to only recommend investments that are appropriate for a customer's individual financial situation.
Suspicious Activity Report (SAR)
A report filed with FinCEN when a financial institution detects suspicious transactions of $5,000 or more.
Swap
An OTC derivative contract in which two parties agree to exchange cash flows based on different financial instruments or rates over a specified period
T
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains and reduce current tax liability.
Time Value of Money (TVM)
The concept that a dollar today is worth more than a dollar in the future due to earning potential.
Traditional IRA
Individual retirement account with potential tax-deductible contributions and tax-deferred growth.
Treasury Bill (T-Bill)
A short-term U.S. government debt obligation with maturities of one year or less that is issued at a discount and pays no coupon
Treasury Bond (T-Bond)
A long-term U.S. government debt security with maturities of 20 or 30 years that pays semiannual coupon interest
Treasury Inflation-Protected Securities (TIPS)
U.S. Treasury securities whose principal adjusts with the Consumer Price Index, providing investors with protection against inflation
Treasury Note (T-Note)
A medium-term U.S. government debt security with maturities of two to ten years that pays semiannual coupon interest
Treynor Ratio
Risk-adjusted return metric measuring excess return per unit of systematic risk (beta).
Trust Account
Account holding assets managed by a trustee for the benefit of one or more beneficiaries.
Trust Fund Recovery Penalty (TFRP)
A 100% IRS penalty assessed against responsible persons who willfully fail to collect and pay over payroll taxes.
U
Uniform Securities Act (USA)
Model state securities law adopted (with variations) by most U.S. states, governing state-level regulation.
Unit Investment Trust (UIT)
A registered investment company that holds a fixed, unmanaged portfolio of securities and issues redeemable units to investors
USA PATRIOT Act
2001 anti-terrorism law strengthening AML rules and requiring Customer Identification Programs at broker-dealers.
V
Variable Annuity
An insurance contract whose accumulation value and income payments fluctuate based on the performance of underlying investment subaccounts chosen by the contract holder
Variable Annuity
Insurance/investment product with sub-accounts invested in securities; payout varies with investment performance.
W
Warrant
A long-term option issued by a corporation giving the holder the right to purchase company stock at a fixed price, typically for several years
Wash Sale Rule
IRS rule disallowing a capital loss deduction if you buy a substantially identical security within 30 days before or after the sale.
Wrap Account
Investment account bundling advisory, brokerage, and management services for a single all-inclusive fee.
Y
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