Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Alternative Investments

Advisors can lose clients with too much jargon

Your article was successfully shared with the contacts you provided.

Watch your language.

A phrase that dates back to many of our childhoods still applies to us today, according to the 2015 Power of Alternatives study by Invesco Consulting and Maslansky + Partners, which bills itself as a “research-driven language strategy firm.” The research project aimed to find what language “works when talking to clients about alternative investments.” It collected data over the course of a year via advisor interviews and focus group dial sessions, as well as a national survey of 800 investors.

What emerged was that investors are often turned off by the buzzwords and commonplace jargon that advisors use. It’s not just that investors don’t like the word choices of advisors, it’s also that they don’t always understand that there are different terms for similar products. For example, the study found that 80 percent of investors “would rather invest in alternative mutual funds bought and sold like any other fund than liquid alternatives, yet they are the same thing. This demonstrates that investors do not have a good understanding of liquid alternatives,” according to Scott West, head of Invesco Consulting.

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.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.