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Jargon Watch: 9 Buzzwords to Avoid

In order to be more transparent, financial advisors should strive to eliminate jargon when conversing with clients, argued Kimberly Foss, founder and president of Empyrion Wealth Management in Roseville, Calif., in a recent Financial Planning column. Among the offenders she cited: adding alpha, yield curves, basis points and efficient frontiers.


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

Volatility Volatility

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.

Equities Equities

'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.

Active & Passive Management Active & Passive Management

The notions of active and passive management tend to confuse clients, Foss finds. If I asked a prospect with little financial background whether she would prefer active or passive investment management, she’d 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.

Cap Cap

Advisors tend to throw around terms like large-cap, mid-cap and small-cap without explaining the basic principle of market capitalization, says Matthew Taddei, President of Taddei, Ludwig & Associates in San Rafael, Calif. It's 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.

Mutual Funds & ETFs Mutual Funds & ETFs

Even though these terms are becoming more commonplace, some clients don't quite understand the concept, says Todd. 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.

Correlation Correlation

This word can cause confusion, especially in the context of references to non-correlated asset classes, Geri says. His alternative phrasing? 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.

SIMPLE IRA & 401(k) SIMPLE IRA & 401(k)

This one is not so much jargon as a misnomer: These two are anything but simple, says Rosalyn Davis, another advisor at Taddei, Ludwig & Associates. They do not follow same guidelines as an IRA, nor do they follow the guidelines as a 401(k). Not simple!

Standard Deviation Standard Deviation

You may be better off just referring to 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.

IRA, REIT, RIA, ETFs, etc. IRA, REIT, RIA, ETFs, etc.

The industry is rife with acronyms that can fall into what Taddei calls 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.

We asked advisors to share the buzzwords that they thought confused clients -- and to offer us alternative phrasings where possible. Click through to see their list.

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Comments (4)
This doesn't apply to article per se, rather to the way in which it is presented on the web. Your mode of presentation using a new screen for every point is annoying. It involves more time and should one want to keep a copy of the article it is an archaic process to cut and paste to assemble and keep a copy?
Posted by ROBERT S | Tuesday, April 22 2014 at 10:33AM ET
I smiled as I read the List of Ten, thinking immediately of the second section of my new book, COVERING YOUR ASSets- A Complete Guide to Wealth Preservation and Asset Protection. The section is titled, "Terms, Terminologies and Other Confusing Things Meant to Impress You." Way too often we are guilty of throwing out terms and/or terminology without a second thought, leaving the client confused and bewildered. The section covers 58 of these and there probably should have been more! Over the years I have used a lead-in phrase that puts clients and even attorneys and CPAs at ease- "Now, I tend to be real basic, so please don't be offended." Virtually 100% of the time there is a visible sign and sigh of relief.
Posted by Leonard C | Tuesday, April 22 2014 at 3:37PM ET
@Robert S I made a very similar comment to FP about this 6 months ago and got an email stating this is very a popular feature. Like you I find it tedious and annoying. The editor told me they get a ton of hits from these slide shows. Me thinkest clicking on all these slides are the cause of the quantity of hits. ;-)
Posted by John M | Tuesday, May 06 2014 at 11:33AM ET
I'm in agreement with Robert S and John M - and just because it's annoying doesn't mean one is not interested in reading the article. You will still get hits.
Posted by R G | Thursday, June 05 2014 at 9:20AM ET
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