When we communicate verbally with one another, we string together words to express our thoughts, opinions, and expressions. When we combine the right words in the right way, we can use storytelling to educate our clients and inspire them into action. But are there words advisors should avoid using with clients? In our industry, there is a wide vocabulary of terms and acronyms we use casually with our peers and other financial professionals (alpha and beta are a couple that come to mind). But do our clients understand these terms? Most don’t, and we shouldn’t expect them too. We need to use relatable words with which to communicate with clients.
This vantage point is more important than you may consciously realize. As an advisor, you are responsible for helping your clients avoid the pitfalls inherent in the financial decision-making process. How you talk with them goes a long way in helping them understand when to go with the flow and when it might be time to worry.
So, let’s do a little jargon check. Included here is a list of words that take on a different meaning from their traditional dictionary definition when used in the financial services industry. I’ve also included my recommendations on whether and when it’s okay to use these words with clients.
an·i·mal spir·its | \ænəməl spɪɹɪts\
The traditional definition of “animal spirits” has to do with nervous energy, physical sensation, and movement. In the investment world, though, it’s a term used by the economist John Maynard Keynes in his 1936 publication, The General Theory of Employment, Interest, and Money, to describe how the power of human emotion (both positive and negative) can drive behavior and ultimately affect the markets.
Should you use it in a client conversation? No. This is a term used to describe how human behavior affects decision making. Avoid the word and focus on educating your client on what’s happening to help them make informed decisions.
fac·tor | \fæktəɹ\
Hearing the word “factor,” you may think of external influences that produce certain outcomes. You may also have flashbacks to grade school when you learned about factors in math. When the word is used in a financial services context, however, it’s typically tied to an investment strategy. Factor investing, or a factor-based approach, is a method analysts and economists use to look for certain attributes in securities or external forces in hopes of higher returns. These attributes could include macroeconomic factors, style factors, or risk factors. Analysts will use these factors to tilt portfolios to better manage risk and improve returns.
Should you use it in a client conversation? This word’s okay, as long as you put it in the appropriate context, so that clients understand what it means.
li·on’s share | \laɪənz ʃɛr\
The “lion’s share” relates to having the largest portion of something. You’ll hear the term used to indicate owning a majority of something, such as shares of a security. For example, you may have heard that a small number of technology stocks were responsible for the lion’s share of gains in the S&P 500.
Should you use it in a client conversation? This word isn’t so much jargon as it is cliché. You’re better off just saying “most.”
mo·sa·ic | \mozeɪk\
“Mosaic” refers to the mosaic theory. It’s the method security analysts use to gather and analyze information about a corporation. According to Investopedia, “the mosaic theory involves collecting public, non-public, and non-material information about a company to determine the underlying value of its securities and to enable the analyst to make recommendations to clients based on that information.”
Should you use it in a client conversation? I wouldn’t—unless your client is an analyst. In most cases, your conversations with clients involve sharing an analyst’s recommendations, not describing the technical method used to perform the analysis.
port·fo·li·o en·gi·neer·ing | \pɔrtfolio ɛndʒənɪrɪŋ\
“Portfolio engineering” is the science of portfolio construction. It’s a marriage of computational finance and portfolio theory that seeks to improve upon the market’s rate of return. By combining mathematical techniques with asset allocation models, analysts design methodologies to build portfolios that enhance yield.
Should you use it in a client conversation? If this concept comes up, it’s okay to have a high-level conversation. There is a method to the madness. I wouldn’t use it, however, unless you feel confident that the client needs the information or wants to understand the process.
scut·tle·butt | \skʌtəlbʌt\
“Scuttlebutt” refers to rumors or gossip, and in the 20th century, it referred to water cooler talk. As it relates to investing, you’ll hear Warren Buffett refer to the scuttlebutt method, which was coined by Philip Fisher in his 1958 book, Common Stocks and Uncommon Profits. Essentially, it means having boots on the ground—going out and asking consumers about products and services to find out how they really feel.
Should you use it in a client conversation? Clients may know of the word in general terms, but they’re not likely to be familiar with Fisher’s method. If you use the term with clients in an investing context, be sure to define it first—it’s simple enough to understand after a brief explanation.
Supporting Clients Through Conversation
Knowing the meaning of these kinds of words in all contexts—not just in terms of the financial industry—can help you better communicate with clients. Put yourself in your clients’ shoes. Would you understand what you’re saying without your industry background? By taking a moment to consider words that will add value to your conversations—as well as words advisors should avoid using with clients in any context—you can ensure that each interaction is positive and supportive of your clients’ needs. When in doubt, keep it simple!
How do you communicate with clients to ensure that you’re supporting their needs? Can you think of other words advisors should avoid using with clients? Please share your thoughts with us below!