The “ACBs” of the investment industry – Part 2

Continuing from a previous posting, let’s examine more commonly used acronyms in the investment industry.

ACB – The adjusted cost base (ACB) is needed for tax purposes to calculate the capital gain or loss of an investment. An investment’s ACB includes the purchase price and any eligible expenses, like commissions, associated with the acquisition.

AUA – AUA refers to assets under administration. Financial institutions hold assets on behalf of the beneficial owner (i.e., clients) and perform various administrative functions for them, including facilitating the purchase and sale of securities and performing recordkeeping tasks.

AUM – Assets under management (AUM) denotes the market value of securities managed by a financial organization or professional such as an investment manager or advisor on behalf of clients. These clients receive active investment management and/or advice. A financial institution’s AUM can also be part of their AUA.

DSC – Deferred sales charges (DSC) are redemption charges that decline the longer an investor owns units or shares of an investment fund. The fund will have a fee schedule that illustrates the cost to an investor if the investment fund were to be redeemed. The fees are highest at the beginning of the holding period and can decline to zero if the investor holds the fund for the requisite amount of time specified.

KYC – Know-your-client (KYC) is the foundation on which the client-advisor relationship is built. Investment professionals who provide investment advice must understand their clients’ personal situation, financial circumstances and investment needs to ensure the recommendations they propose are appropriate for their clients.

MER – The management expense ratio (MER) expresses the costs of a fund as a percentage of its average net asset value during the fiscal year. To look at it another way, the MER allows an investor to calculate what percentage of each dollar of fund assets is being used to pay for management services.

NAVPS, NAVPU – The net asset value per share (NAVPS), or per unit (NAVPU), represents the price at which shares or units are bought and sold on any particular day. It is calculated based on the value of all the fund’s assets and liabilities, as well as the number of shares or units outstanding at the close of business on each valuation day.

SRO – Self-regulatory organizations (SROs) are recognized by the provincial securities commissions and have the ability to regulate the business activities of its members by creating and enforcing its own set of rules. In Canada, there are three SROs in the securities industry: Mutual Fund Dealers Association of Canada (MFDA), Investment Industry Regulatory Organization of Canada (IIROC), and Chambre de la sécurité financière (CSF).

Check out our other blogs: The “ACBs” of the investment industry – Part I  and By the letter: Insurance industry acronyms – Part 1. Or, you can enroll in our Canadian Investment Funds Course to learn more about the investment industry and terms such as those listed above.