Jargon Watch: 9 Buzzwords to Avoid
We asked a few advisors to add the buzzwords that they thought confused clients -- and to offer us alternative phrasings where possible. Click through to see their list, or read Foss full column here. -- Kayan Lim
<b>Volatility</b>
Volatility has a negative connotation and probably does not mean much to a client,says Steven Geri, a financial advisor for Savant Capital Management and head of eSavant Advisor, based in the San Francisco area. He prefers to say
the inevitable ups and downs of the market.
<b>Equities</b>
'Equities' tends to confuse people,says Andrew Todd, an advisor with Asset Management & Planning in Columbia, S.C.
I prefer [to use the word] 'stocks' for most clients because that's a term they have grown up with and can understand.
<b>Active & Passive Management</b>
If I asked a prospect with little financial background whether she would prefer active or passive investment management, shed likely choose active,Foss writes.
Why? The word active implies that the investment manager is positively engaged with the portfolio, working for you, while passive suggests a manager who is disinterested and perhaps even lazy.
But the truth, Foss notes, is that active managers often fail to beat their benchmarks -- and then take extra fees for doing it. Rather than skipping the terms altogether, she says,
I go to the data here, reviewing historical active versus passive performance.
<b>Cap</b>
overused, not always understood, and makes us sound like we are selling and fitting hats,he says. Better to clearly explain the measure -- the number of a company's outstanding shares multiplied by the share price -- and simply explain that it's a way to classify companies by size, Taddei says.
<b>Mutual Funds & ETFs</b>
For many investors, we also take the time to explain that mutual funds and ETFs aren't investments per se but just vehicles with which to access multiple stocks at one time,he explains.
<b>Correlation</b>
We invest in a variety of different funds that tend to do well at different times.It's not as specific, Geri concedes, but it emphasizes an approach that avoids putting all of a client's eggs in one basket.
<b>SIMPLE IRA & 401(k)</b>
They do not follow same guidelines as an IRA, nor do they follow the guidelines as a 401(k). Not simple!
<b>Standard Deviation</b>
risk,Geri suggests.
Although people can likely understand that less is better, standard deviation is a fairly abstract concept,he says.
[I] prefer to either show the percentage of quarters with a negative return -- what clients generally worry about -- or a distribution of quarterly returns so the client can see graphically what historical returns have been.
<b>IRA, REIT, RIA, ETFs, etc. </b>
the advisor's alphabet soup.
To the novice, it must all look like an eye chart,he says. Rather than falling into the acronym trap, he says, explain what each stands for at the outset of a conversation.