Don’t Let Financial Advisor Speak Confuse You

April 29, 2016

“You have to get off the plane. I have the feeling that something is wrong with the left phalange”… “Oh my GOD…there’s NO phalange!”

That was Phoebe from Friends talking about her fear right before a plane took off. She had no idea what the parts of the plane were called and picked a fun word to say. Having broken a few phalanges in my life, I learned that word was a fun one in my youth. But what’s not so fun is having a professional, in any profession, talk to you in words you may not fully understand. When I’ve busted up parts of my body, I’ve asked the orthopedic surgeon to “dumb it down” a bit for me and explain the surgery in clear and simple terms.

When it’s your health or your money at stake, don’t be afraid to ask for an explanation of terms in real English, not industry jargon, so that you can make informed decisions. Recently, I had my kids (17 & 14) listen to a webcast about the “basics of investing” given by a local financial advisor. Here are some terms that the advisor dropped during the webcast that he thought everyone on the webcast would understand, but instead they had him lose kids who hear their dad and his coworkers talk about financial planning on a fairly regular basis:

Asset Allocation: This advisor must have used this term about 20 times and spoke of it as though everyone in the room would understand it. A few people did, but at one point a participant asked him what that meant and my kids said “Thank you!” very quietly. They have gone to my office and heard my end of work-related phone calls since birth, but they were confused by this one. The advisor believed it was universally understood. Asset allocation is simply how your money is divided between different types of investments like stocks, bonds, cash, real estate, etc. .

Diversification: This one goes hand-in-hand with asset allocation. Diversification simply means not having your eggs all in one basket. What diversification ISN’T is owning 6 different CDs at 6 different banks or 5 different S&P 500 (is that jargon, too?) index funds.

ROI: The advisor talked a few times about meeting with your advisor (who he hoped would be him!) to review your ROI frequently. My kids didn’t realize it was a 3 letter acronym. One thought it was something like “Ahroweye” and they had never encountered that word before. ROI, for those who aren’t sure, is “return on investment” or in English – “how much money did I make?”

Fiduciary: The advisor mentioned that he always acts as a fiduciary for his clients. That made me smile, but I know what that means. He talked about being a fiduciary about a dozen times, but never took it a step further to explain what that meant. After the formal presentation, one of the participants asked what that meant because he had said it so often. Sadly, most of the participants dropped off before he explained that a fiduciary MUST legally put his clients’ interests first, rather than his own.

It’s sad that this concept has a term that requires it to be done. Most clients of financial advisors would be shocked to know that the advisor isn’t required to put their interests first in most client/advisor relationships. That’s the way the world should work, but that’s not the way it actually works…unless the advisor is acting as a fiduciary. This is a very important term that the advisor simply assumed that the audience would understand.

There are a whole lot more terms that I hear advisors use with regularity that the general public wouldn’t understand initially. I will throw some more of them out there in a future blog post. Whether you’re talking about phalanges, uvulas, or hedge funds, the key is to make sure that the professional having this conversation with you slows down and makes sure you understand and don’t allow yourself to say “yes” to a surgery or an investment until you are completely confident that you have all the information you need to make the best decision possible.