Decoding the acronym soup

NAV (Net Asset Value) is the per-share value of a fund: total assets minus liabilities, divided by shares outstanding. A mutual fund strikes one NAV per day, usually after market close. When you buy a fund at "NAV," you pay exactly what the underlying holdings are worth, no more.

The NAV is where fees quietly bite, which brings us to the cost cluster.

The cost acronyms: TER, OCF, and bps

bps (basis points) is the unit everyone quotes fees in. One basis point = 0.01%. So 100 bps = 1%. A fee of "50 bps" means 0.50% per year. Professionals say "bips" out loud.

TER (Total Expense Ratio) is the all-in annual cost of running a fund, expressed as a percentage of assets: management fee plus admin, custody, audit, and other operating costs. In Europe you will more often see OCF (Ongoing Charges Figure), which is essentially the modern, standardized version of the TER under EU fund-disclosure rules. Treat them as near-synonyms for practical purposes; OCF is the term you will find on a European KID (Key Information Document), the mandatory one-page cost-and-risk summary for retail funds.

A worked calculation

You invest $100,000 in a fund with an OCF of 75 bps (0.75%).

• Annual cost = $100,000 x 0.0075 = $750 per year.

Now compare a passive equivalent at 8 bps (0.08%):

• Annual cost = $100,000 x 0.0008 = $80 per year.

Same market exposure, a $670 annual difference. Over 20 years, compounding that gap, the cheaper fund can leave you tens of thousands of dollars ahead. This single calculation explains the entire multi-decade shift toward passive investing.

The vehicle acronyms: ETF, CIT, SMA

These describe the *wrapper*, the legal container your money sits in. The wrapper changes cost, tax, and who can access it.

ETF (Exchange-Traded Fund): a fund that trades on an exchange like a stock, priced continuously through the day rather than once at NAV. ETFs are usually cheap, tax-efficient in the US, and can be passive (tracking an index) or active. US ETF assets are estimated in the $10 trillion-plus range (2024 year-end estimates); Europe's ETF market is large and growing fast but materially smaller.

CIT (Collective Investment Trust): a pooled vehicle available only inside US employer retirement plans (like 401(kkThe average number of new users each existing user generates through referrals. Above 1.0, growth compounds on itself and becomes exponential.View full definition →)s), run by a bank or trust company. CITs are not registered like mutual funds, carry lighter disclosure requirements, and are often cheaper. That is why the manager in our opening scene quoted the CIT at 32 bps versus 40 bps for the SMA: same strategy, cheaper wrapper.

SMA (Separately Managed Account): the client owns the individual securities directly in their own account, rather than owning shares of a pooled fund. SMAs allow customization (tax-loss harvesting, excluding certain stocks) and are common for wealthier clients.

The strategy acronyms: LDI and TDF

These name *what the money is trying to do*.

TDF (Target-Date Fund): a single fund that automatically shifts from stocks toward bonds as a target retirement year approaches. A "2050 fund" holds more equities today and de-risks over time. The path of that shift is called the glidepath. TDFs are the default option in most US 401(kkThe average number of new users each existing user generates through referrals. Above 1.0, growth compounds on itself and becomes exponential.View full definition →) plans and hold trillions in assets. They are the reason "set and forget" retirement saving works for millions of people.

LDI (Liability-Driven Investing): a strategy, mostly used by pension funds, that matches investments to future payout obligations (the liabilities) rather than chasing maximum return. LDI made global headlines in 2022 when a sharp rise in UK government bond yields forced LDI-using pension funds into a scramble for cash, promptingpromptingPrompt engineering is the practice of designing and refining text inputs to guide large language models toward accurate, relevant, and reliable outputs.View full definition → emergency Bank of England intervention. It is a useful reminder that even "safe," matching strategies carry mechanics worth understanding. The Bank of England's own explainer on the 2022 gilt market episode is a solid free primer.

The client-segment acronyms: HNW and UHNW

HNW (High Net Worth): commonly defined as individuals with at least $1 million in investable assets (excluding primary residence). UHNW (Ultra High Net Worth): the standard industry threshold is $30 million-plus in investable assets. These segmentssegmentsDividing a market into distinct groups of customers who share similar needs, characteristics or behaviours, so each group can be served with a tailored approach.View full definition → are the core of the private wealth and private banking business, where SMAs and bespoke solutions dominate over off-the-shelf funds.

Reading a fact sheet like a pro

Put it together. When a fund fact sheet or pitch deck lands, run this checklist:

1. Assets: AUM or AUA? Discretionary management or just servicing?

2. Wrapper: ETF, mutual fund, CIT, or SMA? This drives cost, access, and tax.

3. Cost: what's the OCF/TER in bps? Convert to dollars on the client's actual balance. A 75 bps fund on $500,000 is $3,750 a year.

4. Strategy: active or passive? TDF, LDI, or plain index? Know what the money is actually doing.

5. Benchmark and tracking: for a passive fund, how closely does NAV track its index (the "tracking difference")? For an active fund, does performance justify the fee gap versus a cheap index alternative?

The active-versus-passive fee math

This is the calculation professionals run constantly. An active US equity fund charges 65 bps; a comparable index ETF charges 5 bps. The active manager must beat the index by 60 bps per year, after costs, just to break even with the cheap option. Most do not, consistently, over long periods. Free sources like the S&P SPIVA scorecards track exactly how many active funds underperform their benchmark, and the numbers are sobering. That data, more than any argument, explains the passive tide.

Due-diligence checks worth running

When you operate in this sector, a few practical checks separate the fluent from the fooled:

• Confirm the fee is all-in. Ask whether the quoted number is the management fee only or the full OCF/TER. Trading costs and performance fees can sit outside the headline.
• Match the wrapper to the client. A UHNW client may want an SMA for tax control; a 401(kkThe average number of new users each existing user generates through referrals. Above 1.0, growth compounds on itself and becomes exponential.View full definition →) participant is best served by a low-cost CIT or TDF.
• Check the NAV strike frequency. Daily for mutual funds, continuous for ETFs. It matters for how quickly a client can transact.
• Verify the benchmark is honest. A fund that quietly compares itself to a flattering index is a red flag.

Key Takeaways

• AUM is managed money (earns fees); AUA is serviced money (earns thinner fees). Always ask which one a big "assets" number refers to.
• Fees live in basis points and bite through the NAV. 100 bps = 1%. Convert every fee to real dollars on the client's balance: a 70 bps gap on $100,000 is $700 a year, every year.
• The wrapper (ETF, CIT, SMA, mutual fund) changes cost, tax, and access even when the underlying strategy is identical. The CIT at 32 bps and SMA at 40 bps can hold the same thing.
• TDFs default-drive US retirement saving via a glidepath; LDI matches pension assets to liabilities and can break under stress, as 2022 showed.
• Run the break-even math on active versus passive every time: an active fund must beat its index by its full fee gap just to match a cheap ETF, and SPIVA data shows most do not.