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A dictionary for financial advisor terminology

The Financial Urban Dictionary: A Financial Planning Glossary to Help You Speak with Your Advisor

Decoding Financial Advisor Language the Fun Way

Anyone with the Internet has probably heard of Urban Dictionary, the crowdsourced, online dictionary for slang words and phrases that contains plenty of “NSFW” content. Have you ever wanted something like an Urban Dictionary education to help you better understand financial advisor language thrown at you while refining your portfolio?

If so, you are in luck, as the following is a list of commonly used terms with some slightly tongue-in-cheek layman’s definitions for your education and enjoyment:

The Layman’s Financial Planning Glossary

Advisor – A person who tells you what to do. This is just about where the common definition ends. That person could be angling for a sales commission, simply airing opinions (like Uncle Bob at Thanksgiving dinner), or really taking your situation seriously. All advisors that you speak to should also be a fiduciary.

Fiduciary – A person who is charged by law to put your financial interests ahead of his own. Wouldn’t that be all advisors? Sadly, no. You can’t be sure an advisor has put your best interests first unless you verify their fiduciary status. In fact, in 2018, an entire Washington, D.C. lobby tried to prevent a fiduciary standard for stockbrokers, who are not fiduciaries and who often call themselves advisors. In 2019, the SEC adopted a new standard for brokers who must act in the best interest of retail customers, but critics state that the rule would be “letting the brokerage industry market itself as always doing the right thing for customers, while potentially watering down the more rigorous fiduciary standard” that is put on investment advisors.

And, to make matters worse, a 2020 proposal by the DOL, which comes after its 2018 proposal, would provide an exemption for investment advice fiduciaries to provide retirement advice (including advice on IRA rollovers) that can affect their compensation.

Financial Plan – A bunch of colorful charts proclaiming confidently that you can breathe easy by investing with your advisor; it may make use of Monte Carlo analysis (see below). A financial plan changes every year and is never accurate. The quality of your financial plan depends on how well your advisor understands you and the assumptions he or she takes to the planning process. Be sure you understand everything and don’t get lulled into false confidence by a slick presentation and fancy financial advisor language. Since it is a living document and not a “once-and-done” report, make sure it is updated often.

Life Plan – Please tell me if you figure this one out. The phrase seems to refer to building a list of priorities, and it may furnish an excuse for the creation of that industry called “life coaching.” Seriously, though, some people can benefit from having a third party help them clarify and prioritize values. In my opinion, a faith community, good friendships or a well-chosen book can do much the same thing and for a lot less money.

Mind Map – A graphical representation of your messy stream of consciousness. Programs like Mindjet, Xmind and MindMeister—or good old paper-and-pencil—can give you the tools to create a diagram that connects your goals, plans, hobbies, best friends and what you ate for breakfast. If it helps you identify relationships you didn’t notice, then it’s working. But if you start acting like a third-rate investigator in a movie with newspaper clippings, yarn and thumbtacks all over your wall, and a wild expression in your eyes, you’re overdoing it.

Monte Carlo Analysis – This is decoded financial advisor language for a total wild guess with a bunch of numbers attached. Monte Carlo (MC) analysis introduces “randomness” to outcomes, so you can see how your plan might hold up under stress. But MC was not designed for financial outcomes, is not truly random, and takes a lot of work to create. It carries the same risk of false confidence and is better used for stress-testing than projections.

Top Financial Advisor (as named by whatever magazine) – Typically means having more money under management than others in the same region. These awards usually don’t reflect performance, unless you mean the asset gatherer’s performance. Make sure you read the methodology and any disclosures before getting too excited about a “No. 1 advisor.”

Volatility – The market went down; you lost money. Somehow it just feels better to talk about “recent volatility” than to say, “Oh, boy, did you take a beating!” (No advisor I have met ever uses the term volatility to refer to a sudden gain.)

But, for Real Though…

All joking aside, choosing an advisor you trust to guide your financial plan is a very serious matter. While an Urban Dictionary education would be nice, it’s not really enough to be able to speak in financial advisor language. The wrong person could be underqualified, a poor listener, or captive to a perverse commission structure. Some advisors are even engaged in fraudulent activity. Where do you turn for help to make a good decision?

First and foremost, know yourself. Are you impulsive? Easily led? Ignorant of financial matters? In crisis? Emotionally needy?

All the above can get you into trouble financially. It may be best to start your search within your own support network to find someone you can trust. Lacking that, do some online research. The CFP Board and CFA Institute both publish some excellent materials on how to select a planner or advisor.

From there, my basic advice would be to organize your financial details to the extent possible, ask competent professionals for a referral (e.g., your attorney or CPA can be useful, because they risk their own reputations in making the referral) and shop around.

Here is some additional, practical advice:

  • Don’t hire the first advisor who calls you by name, looks you in the eye and touches your arm affirmingly.
  • Don’t let someone browbeat you with jargon.
  • Insist on being heard and understood.
  • Ask your planner if he or she is a fiduciary.

There are so many professionals in our line of work; there is no reason to settle for less. Interestingly enough, your Urban Dictionary education would begin with their own motto: “Define Your World.” I hope this financial planning glossary goes a long way in helping you “Define Your (Financial) World.”

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Basic Investment Principles 101 – From Asset Allocations to Zero Coupon Bonds and All About Asset Allocation. This is an updated version of an article originally published on April 19, 2018.]

©All Rights Reserved. October , 2020.  DailyDACTM, LLC d/b/a/ Financial PoiseTM

About Peter Eickelberg

CIO | CCO | RIA | Portfolio Manager | Operations | Compliance | Private Equity | Consultant Strong background in client service, investment research and management, client communications, operations and compliance within the registered investment advisor (RIA) space. Six years registered representative with a major brokerage. Six years leading investment department of a major financial…

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