Wealth terminology guide aims to ‘counteract the BS’ for investors

Introduction to the Wealthesaurus

A leading advisory group to the wealth management industry has launched a crowdsourced list of wealth terms it hopes will reduce confusion and marketing hype. The Ultra High Net Worth Institute, a nonprofit focused on improving services to wealthy families and investors, recently unveiled its "Wealthesaurus" — a list of over 80 terms commonly used and abused in the wealth management business.

The Need for a Credible Wealth Wikipedia

The need for a credible wealth Wikipedia follows an explosion of gimmicks, false labels, and misleading hype in the business of managing the fortunes of the wealthy. In 2024, households worth $5 million or more controlled an estimated $49 trillion in financial wealth, more than half of the nation’s total, according to Cerulli Associates. With assets growing fastest at the top of the wealth ladder, the competition for ultra-wealthy investors and family offices has grown fierce among private banks, wirehouses, registered investment advisors, private equity firms, and boutiques.

Confusion in the Industry

Terms like "family office services," "holistic advice," and "assets under advisement" are used indiscriminately, making it harder than ever for clients to navigate an industry already impenetrable for nonfinancial experts. One of the most egregious violations is the term "multifamily office." Traditionally, a multifamily office is a single family office that’s expanded to serve a small number of outside families or family members. Today, dozens of RIAs, boutique managers, and even large advisory firms call themselves multifamily offices, trading off the exclusivity and bespoke services implied by a true family office.

The Wealthesaurus Definition

To comply with the Wealthesaurus definition, multifamily offices need four specific attributes, from certain clients (at least 10 complex, multigenerational families with a median net worth of at least $30 million) to specific services, service delivery (no conflicts of interest) and experience. Another contentious term is "assets under advisement." Firms often toss around asset terms to appear to manage more client money than they actually do. Some firms use "assets under management (AUM)," while others say "assets under advisement (AUA)" and others tout "assets under administration (AUAdmin)." Clients rarely know the difference.

Reducing Confusion

The Wealthesaurus gives highly specific definitions of each, with the focus for assets under advisement being firms that serve as fiduciaries (another debated term). It says clients should ask wealth managers specifically how they break out assets under management and assets under advisement. "Some firms include AUM in their calculation of AUA without making it clear they are doing so, while others report AUM and AUA separately," according to the Wealthesaurus. "To address this problem if these amounts are being evaluated, firms should be asked to explain how they calculate their AUA."

The Creation of the Wealthesaurus

The idea for the Wealthesaurus started with an unexpected problem at the Ultra High Net Worth Institute. The Institute was founded in 2019 by Steve Prostano, a longtime advisory to wealthy families and private business owners, who felt that clients needed unbiased help understanding and navigating the industry. Two years ago, the Institute started developing what it calls the Integrated Family Wealth Management Initiative, looking at the sweeping changes in the industry in recent years and how it could better serve clients. The group’s discussions hit a problem: They often couldn’t agree on certain words.

Expansion and Use

They considered calling it Wealthipedia, but the name was taken so they arrived at Wealthesaurus and added a dinosaur mascot. The Institute welcomes suggested terms and definitions from other wealth management experts and clients in hopes of expanding its use. Engagement has been high — with new users spending an average of over seven minutes on the recently launched site. "They’re clicking from term to term and really using the resource," said Tara Kehoe, the Institute’s library manager.

Conclusion

The Wealthesaurus is a valuable resource for clients and firms in the wealth management industry. By providing clear and concise definitions of commonly used terms, it helps to reduce confusion and marketing hype. As the business of advising wealthy families increasingly cuts across industries, the Wealthesaurus can also be a bridge between disciplines. With its crowdsourced list of wealth terms, the Wealthesaurus aims to create accepted standards for communicating with clients and promoting best practices in the industry.

FAQs

Q: What is the Wealthesaurus?
A: The Wealthesaurus is a crowdsourced list of over 80 terms commonly used and abused in the wealth management business.
Q: Why was the Wealthesaurus created?
A: The Wealthesaurus was created to reduce confusion and marketing hype in the wealth management industry.
Q: How does the Wealthesaurus define "multifamily office"?
A: The Wealthesaurus defines "multifamily office" as a single family office that’s expanded to serve a small number of outside families or family members, with specific attributes such as certain clients, services, service delivery, and experience.
Q: What is the difference between "assets under management" and "assets under advisement"?
A: The Wealthesaurus gives highly specific definitions of each, with the focus for assets under advisement being firms that serve as fiduciaries.
Q: How can clients use the Wealthesaurus?
A: Clients can use the Wealthesaurus to ask wealth managers specific questions about their services and fees, and to better understand the terms used in the industry.