Semantic Confusion

March 2, 2017

..excerpt from Mo Lidsky's latest book, Partners in Preservation

 

On July 3, 2013, the Egyptian military overthrew the Islamist-run government of Mohamed Morsi. For months, the United States debated whether to term it a coup or a revolution. What hung in the balance of those two words was $1.5 billion in aid, which Egypt would lose if the US government labeled it a coup. This is an extreme example of how important it is that all parties correctly understand the terminology at work, but the basis of all communication is a shared understanding of meaning. Unfortunately, financial services has many terms, such as risk, return, and diversification that are thrown around casually, and investors' understanding of them is extremely subjective and often quite poor. And it is advisor, a term that is most vital to comprehend, that proves to be the most misunderstood term in the financial lexicon. Failure to engage proper investment counsel won't only be costly but may even be catastrophic.

 

Wikipedia unabashedly points out that "according to the U.S. Financial Industry Regulatory Authority (FINRA), terms such as financial advisor and financial planner are general terms or job titles used by investment professionals and do not denote any specific designations. FINRA describes the main groups of investment professionals who may use the term financial advisor to be "brokers, investment advisors, money managers, accountants, lawyers, insurance agents and financial planners."

 

 To make sure this is truly etched into your mind, it is worth repeating again. Anyone, and I mean anyone, can put up the financial advisor shingle. As Wikipedia notes, "There is little regulatory control exercised over the use of the term and, as such, many insurance brokers, insurance agents, securities brokers, financial planners and others identify themselves as financial planners."

 

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