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Dollars & Sense: Learning New Financial Terminology

By Roberta L. Nestor

Every industry is riddled with their own jargon and acronyms. The financial services industry is no different, only it can be frustrating when you are trying to understand your own investment portfolio. Like every industry, most of the change in terminology stems from the growth of technology. Technology has allowed investing to go beyond “passive” or “active” management. We now work with portfolios that are quant managed (quantitative computerized formulas) or qualitative (human input). For most investors it is the bottom line with their investment returns, however, you should understand what formulas, human or computerized are driving your portfolios.

Quantitative and passive management are the forces that support “Robo Advisors”. A Robo Advisor is an online wealth or investment management service that provides automated, algorithm-based portfolio management advice without the use of a human financial advisor. Algorithm-based portfolio management is a process or set of rules to be followed in calculations or other problem-solving operations. Most of the largest investment firms offer Robo Advisors and a simplified process to establish investment accounts. You respond to perhaps a dozen questions (age, risk tolerance, time horizon, etc.) and based on your responses the Robo Advisor will determine a very low-cost portfolio based on your criteria.

Robo Advisors are likely to become more and more popular, especially with Millennials who are somewhat averse to sitting down with a professional as they are of a generation that prefers to have stream-lined, on-line services. Time will tell. Who will they call when the market crashes? Who will advise them on taxes, distributions and personal changes that may affect the models they have been placed in? If Robo Advisors become a rising alternative for investment advice, you may see more and more financial advisors emphasizing other non-investment services such as the best way to pay off college loans or which types of retirement accounts are the best to focus your savings on. They may become more specialized in income planning, or planning for long term care. All of this falls into new regulations that advisors face as a result of the DOL “Fiduciary Rule” that goes into effect in April of 2017.

Technology has expanded a new type of asset class that clearly goes beyond traditional assets such as investments, our homes, retirement accounts, and life insurance. Today, we all have digital assets. Digital assets would include your own website, a blog, photos, videos, music and writing. Digital assets would also include point and reward programs such as Marriott or even Stop & Shop gas points. The growth of digital assets is fast-paced and as a result, we now have Digital Estate Planning as a part of the overall estate planning process. Who will delete and control your digital assets for you? Who will you appoint to have access to your passwords, online banking and other websites? Presently, most estate planning documents (wills, trusts, etc.) already include provisions so that you can name a “Digital Executor”. This is the person you give control of your digital assets to at your death who will follow your instructions, be it dispersing those assets or deleting them so that they are not in the cloud waiting for identity theft.

One of the best on line resources for investment terminology, new and old is from Investopedia (http://www.investopedia.com/dictionary). However they also had some new, not so well known acronyms such as BRIC and FANG. See if you can figure these out. To give you a clue, BRIC represents 4 emerging market countries and FANG represents some of our largest technology socks. Email me and I will post next time.

Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice . You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or roberta@nestorfinancial.com.

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