TAMP
Explaining TAMPs, or turnkey asset management platforms, to clients can be awkward, says Stich.
“Essentially, you’re stuck explaining to them that technology is doing the job that they thought you were doing for them,” says Stich. “Even explaining something like a fund or an ETF can turn an advisor down that road. These discussions should be had in the context of an advisor’s value proposition.”
VOLATILITY
“The first time I heard the term volatility, I thought immediately that the market had dropped,” says Stich. “Probably best to avoid technical descriptions of volatility like standard deviation. Terms like ‘correction,’ ‘plummet,’ and ‘drop’ don’t do us any favors, either -- when does a drop become a plummet? Do clients know the difference?”
Volatility is too often taken to mean declines in the value of an investment or an asset class, says Stich, when more accurately it refers to both positive and negative price fluctuations within a specifc perod of time.
RISK
“Especially when we’re talking about risk-related claims, they can be very confusing to clients if we’re not providing quantitative comparisons between investment choices,” says Williams. “Help the investor hone in on specific risks that count most for them, put it in context for the individual investor, and then the conversation becomes healthier for all involved.”
Anderson says that advisors should delineate between risk and volatility -- risk being the chance that an investment doesn’t perform as expected over an entire investing timeframe, while volatility refers to the intermittent up-and-down movement of an investment’s value.