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Morgan Housel

Financial Planning > Behavioral Finance

Drop Complex Lingo With Clients, Tell Stories Instead, Morgan Housel Suggests

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What You Need to Know

  • Financial advisors tend to use data and lingo that's over their clients' heads.
  • Many clients, however, don't want to tell their advisor that they don't understand what they're saying.
  • Advisors should remove the technical aspect of finance and tell stories about how people deal with risk.

Financial advisors should consider dropping technical jargon from talks with clients and instead tell stories about people dealing with risk, uncertainty and rocky markets, says Morgan Housel, best-selling author and partner at the venture capital firm Collaborative Fund.

“There’s a thing in psychology called the curse of knowledge, which is that experts from almost every field underestimate how little other people who are not in the field understand what they’re talking about,” he said recently on Morningstar’s The Long View podcast. “And we see this all the time in finance. It happens in medicine a lot, too.”

Many financial advisors innocently use “data and lingo,” expecting clients to understand information that’s really over their heads, Housel said on the podcast, posted Tuesday and hosted by Christine Benz, Morningstar’s personal finance director, and Jeffrey Ptak, chief ratings officer for Morningstar Research Services.

Clients, however, often don’t want to stop the advisor to say they don’t get it, and instead they “sit there and nod their head because they don’t want to feel like the dummy in the room who’s supposed to know what the yield curve means even if they don’t know what it means,” Housel, who wrote “The Psychology of Money” (Harriman House, 2020), added, according to the podcast transcript.

Advisors might talk about the yield curve and expectations for the federal funds rate and have no clue that “ the client on the other side of the table has no idea what they’re talking about. It’s a foreign language to them.”

Financial advisors can solve this problem by removing “the technical aspect of finance and just tell stories about how people deal with risk,” Housel said.

“Let’s not talk about the capital asset pricing model or the yield curve or any of that stuff — tell a story about how humans deal with risk and uncertainty and how they feel when the market falls 20%. Don’t forecast that the market is going to fall 20%. That’s a tough thing to do. Talk about how people feel when it might fall 20%,” he said.

“That’s something that I think your clients can empathize with and again, that will stick with them,” Housel said. “It’s talking at their level … and also, speaking to them in a way that they are going to remember and be able to contextualize within their own life.”

Financial advisors also may innocently avoid giving simple advice because they’re generally very smart, well educated and highly paid and want to justify their fees, Housel said.

“I think it is very difficult to feel like you are justifying your fee if you are talking in simple words, using short sentences and giving simple advice. To justify your fee, you often want to say, ‘I’m doing this very complicated complex thing for you.’ And I think there are a lot of clients too that feel the same way,” who want the advisor “‘to do something fancy … to make it feel like I’m getting something for my money,’” he said.

A similar phenomenon happens in medicine, where physicians may prefer to talk to patients about complicated medical research rather than simple steps patients can take involving better diet, exercise and sleep to prevent or treat conditions, Housel noted.

“That irony also exists in finance where there are things that are so basic and so boring, but they’re very effective — save more money, dollar-cost average, spend less money than you make — the really simple basic stuff is not intellectually stimulating for a smart advisor to actually want to bring to their clients even if it works very well.”

By the same token, he said on the podcast, very intelligent, successful people in other fields often believe they’ll naturally succeed at investing on their own but are “very humbled” by the experience. “Understanding the boundaries of your intelligence is very important.”


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