How to Decode Your Financial Advisor's Jargon
Susan B. Weiner reads a lot of bad writing.
As a writing coach who specializes in helping financial advisors communicate in plain English, she brings a weed wacker to thickets of jargon, clumps of confusion and tangled thoughts.
"If you're looking up terms when you get home from a visit with your advisor, that's a bad sign," she says.
Investment communication is riddled with confusing terms, big words and complicated concepts. It's your financial advisor's job to translate those ideas and terms into language that is both understandable and relevant to your situation.
[Read: 5 Financial Matters to Put on Your Midyear Checklist.]
Boston-based Weiner, author of "Financial Blogging: How to Write Powerful Posts That Attract Clients," is also a chartered financial analyst, so she know whereof she coaches. She believes advisors fall in love with big words in the process of earning their credentials.
Joe Heider, regional managing principal at the Westlake, Ohio, office of Rehmann Financial, a Midwest accounting and financial services firm, agrees. "When you're in training, you want to impress everyone with how smart you are," he says. "Young advisors tend to glom onto jargon and terms like 'alpha' or 'beta' stocks or mutual funds. Clients feel like they have to go along even though they don't know what you're talking about."
Bonnie Buol Ruszczyk, president of BBR Marketing, an Atlanta-based professional services marketing firm, notes that many advisors revert to industry terms they believe are precise because they are trying to reflect the language of regulators.
Misunderstandings creep in, Heider says, when advisors focus on technical information about returns, goals and performance and overlook how clients feel about the technical discussion. The context for the discussion quickly colors the meaning of financial terms, he says.
"I advise young advisors that what clients really want to know is that you care more about them than about making a quick dollar for yourself," Heider says. "I tell young advisors, 'Don't try to impress new clients with how smart you are. Impress them with how much you care.'"
[See: 7 Things Your Financial Advisor Should Not Tell You.]
What terms are endearing to advisors but endured by clients? They often include acronyms, terms mainly used in industry reports and words advisors use to imply the investment technique is too complex or secret for mere mortals to comprehend. Here's a list of the most reviled terms, according to communication experts and seasoned financial advisors.
"Mitigate" is the word Weiner most loves to hate. "It's a weasel word," she says. "It has several meanings. Advisors should say what they mean. Is that reduce risk? Is it manage risk? Then say that."
Other terms Weiner wishes financial advisors would retire:
-- "Exogenous factors," which means "factors outside the stock market."
-- "Secular trend" has nothing to do with church and everything to do with long-term economic trends.
-- "Organic growth" means a business is growing by selling more of what it currently makes or does, as opposed to growing by buying other businesses (i.e., mergers or acquisitions). It doesn't have anything to do with manure.
"Risk tolerance" means different things to different people, depending on their experience, Heider says. A smart advisor couches discussion about how much you can stand to lose just like that. "Talk about how you felt when the market and your portfolio went down by 10 percent, not what your risk tolerance is," Heider says.
"'Asset allocation' makes people's eyes glaze over," says Jennifer Openshaw, author of "The Socially Savvy Advisor," which will be published in the fall. "It's basically how much of your money is in each investment bucket. And 'time horizon' means 'How long until you need your money?'"
[Read: 10 Financial Buzzwords That Annoy Investors.]
Some advisors try to gin up a sense of mystery and exclusivity by implying that they have access to a special market-beating approach. "The scariest thing I still hear in the industry is advisors say, 'I have found a system' or 'I have found a manager' that consistently outperforms the market," Heider says. "Those are the scariest words of all in the world."
If your advisor is a little too in love with jargon, Weiner suggests those in relationships assign one partner to "jargon patrol" to flag confusing terms. If you take notes during the meeting, you can also ask for clarification on difficult terms as a response to the post-meeting summary most advisors send.
"People don't ask because they don't want to open the floodgate of more things they don't understand," says Angie M. Grainger, a money coach based in Northern California. Experienced advisors say educated clients are often the most hesitant to ask for clarification because they think they are supposed to be "up to speed" on financial jargon.
If you are chronically uncomfortable asking for definitions, that in itself may signal you need to work with a different advisor.
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