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We believe a glossary is key for any client trying to navigate through the range of complex terms and jargon in our industry.

Our most frequently defined terms are defined below but if there's something you think we should add, please contact us.



Failure to meet an obligation such as timely payment of interest or principal.


The difference between the present value of assets and the net present value of the projected liabilities they are due to cover. A deficit is the amount that the assets are under the required value to meet the liabilities. See also funding gap.

Defined benefit (DB)

A type of pension scheme where the benefits payable to members at retirement are clearly specified, usually as a percentage of salary at or near retirement. The employer’s contributions that are required to ensure that this commitment can be met will vary depending on the scheme’s experience (investments, mortality and leavers) and the benefits to be provided. See also final salary scheme.

Defined Contribution (DC)

A type of pension scheme where the rate of contribution paid by the employer and or the employee is defined (usually as a percentage of salary). The benefits paid to members will depend on the contributions paid into the scheme on behalf of the members, the investment return earned on those contributions and the terms available for converting the fund into a pension at retirement. Also known as a money purchase scheme.


A financial contract whose value is derived from a stock, commodity, interest rate, currency or market index. A stock option, for example, is a derivative security whose value depends on the price of the underlying stock. Derivatives can be used by investors as a speculative tool, or to protect assets against changes in value. See also forward contract, futures contract, call option, put option and swap.

Discounted Cash Flows (DCF)

The process by which future cash flows (for example, dividends or interest payments) are adjusted to allow for the time value of money to arrive at a value in today’s terms.


A way of reducing risk by spreading investments among a number of different assets and strategies that are not perfectly correlated so that losses in any one asset class may be offset by gains in another.


Payment from earnings by companies to their shareholders. The level of dividend payments is decided upon by company management.


A negative change in the rating of a security. This situation occurs when analysts feel that the future prospects for the security have weakened from the original recommendation, usually due to a material and fundamental change in the company’s operations, future outlook or industry.

Due diligence

A detailed examination of information, not all publicly available, prior to a transaction. For example an acquisition of one company by another.


Average time weighted life of the payment streams from a bond or stream of liability cash flows taking into account the present value of each payment. In practice, duration is a measure of interest rate sensitivity, the longer the duration the more sensitive the present value of the bond or liability to changes in interest rates. See also Macaulay duration.