Advisors can lose clients with too much jargon

Advisors often want to speak to the higher level that they think investors will understand. In reality, most clients are just not familiar with the nuances of investment-speak. This is not a problem unique to the financial community. In fact, even federal employees (from a wide variety of agencies and specialties) have formed a group called the Plain Language Action and Information Network (PLAIN), whose lofty goal to is to “promote the use of plain language for all government communications.” They instruct (in clear and precise language, of course) that “using simple and familiar words wherever possible doesn’t insult your readers’ intelligence … [when the message] itself is complex … you want to make sure readers act as you hope or intend” – a solid reminder for advisors as well.

The Power of Alternatives study also found that certain investor-friendly phrases resonated better when explaining alternative strategies to clients:

• Nearly 60 percent of respondents preferred “behaves independently” when describing an investment that does not rise and fall with the markets, versus 18 percent who chose “non-correlated.”
• Simplicity won again when 64 percent of investors favored the phrase “funds that focus on more consistent returns,” greatly overshadowing the portion who preferred “equity funds that give up a little on the upside to get more protection on the downside”(25 percent) and “long-short equity funds” (11 percent).

In addition to showing which words work best with clients, the study also produced a list of toxic terms that should be avoided:

• Derivatives
• Future-proof your portfolio
• Smooth equity returns
• Immediately allocate 20% of your portfolio to alternatives
• Non-traditional investments
• Strategies usually associated with hedge funds
• We can predict that rates will rise in the future
• These are portfolio managers that I have carefully selected
• Arbitrage
• Satellite

At the core of client communication is trust. If they don’t understand you, they may not completely trust the advice you are giving.

Simply, make every word count.