You’ve talked to clients about diversification a thousand times, so you’re sure they know what it is. You might be wrong.
Financial planner and coach Rose Raimondo, owner of Calgary-based Raimondo and Associates, routinely needs to break down the concept to ensure clients understand that commonly used piece of jargon.
She knows clients don’t get it when they tell her, “I’m diversified. I deal with five institutions.” She explains that’s complexity, not diversity.
To help them grasp the concept, she draws a chart listing how a portfolio can be diversified. “I say, ‘For example, You can diversify by stocks, bonds and cash. You can diversify by management style. You can diversify by geographic location, or by passive versus active,’ ” she explains. Each individual term is defined first.
Likewise, when clients say they’re sick of investing in mutual funds, and want to invest in stocks instead, she explains how a mutual fund isn’t an investment per se, but a way of investing in the market. It’s a pre-built portfolio.
Terms like “mutual fund” and “diversification”—which advisors use every day—don’t actually mean anything to many clients. So it’s your responsibility to use them sparingly and back them up with explanations. And be alert for cases when clients misunderstand or pick up erroneous definitions of common concepts from mainstream media, says Lenore Davis, a registered financial planner and senior partner at Dixon, Davis and Co. in Victoria, B.C.
Davis constantly monitors the terms she uses to ensure she doesn’t slip into words clients won’t understand. Rather than shelter clients entirely from jargon, she turns technical terms like “capital gain” or “asset allocation” into words they know, like “earnings” and “how your money is invested.”
“They are going to be bombarded with these terms wherever they go, so they need to understand what they mean,” she says.
Write better emails
Not only can jargon taint client meetings, it can also infect your writing. Verbose emails can make you seem cold and inaccessible; worse, clients could misunderstand you. People appreciate plain language, so avoid flowery words.
|See to it|
|Sooner than later|
|At your earliest|
|You are requested to||→ Please|
|In order to||→ To|
|Provided that||→ If|
Put jargon in its place
Instead of talking abstractly about the markets, tell a client what a technical phrase means in the context of his portfolio’s performance, says Davis. For instance, don’t say, “absolute return.” Instead, try “this is how much your account has made.”
One of her favourite analogies helps explain a laddered bond portfolio. She uses the image of a freight train with several boxcars to represent a portfolio made up of bonds of different durations. Opening the boxcars represents cashing in the bond or re-investing in another bond that matures later than the others.
“I talk to them about the fact that the longest period their money is tied up is during the journey of the freight train,” she says.
“When the train comes into the station, you can open the doors and pull out whatever money you need, or you can put more money in, and then you move the boxcar to the back of the train and you wait.”
Likewise, when explaining various types of investment accounts, she draws three boxes—red, green and purple—on her whiteboard to signify RRSP, TFSA and unregistered accounts. Then she and her client discuss what each box can hold, how clients can access money and the merits of each box. To reinforce their meaning, Davis says she often photocopies this diagram for clients to take home.
Raimondo says she keeps charts and diagrams on hand to convey the concepts she’s most commonly asked about, from cash flow to how retirement savings are affected by marginal taxation.
“If I’m talking about the tax rates, I will bring out tax tables and show how it’s progressive,” she says. Her clients tell her seeing the rates clarifies how RRSPs and other deductions work.
Gauge your audience
Assess your client’s knowledge level throughout meetings and adjust your communication style accordingly.
1 “Alpha” can be explained as “how much better your money manager does with an investment than her competitors.”
2 “Asset allocation” can be conveyed as “how and where we’ll invest your money.”
3 “Absolute return” can be recast as “how much money you made.”
4 “Basis points” can be related as “per cent.”
5 “Beta” can be explained as “how market activity pulls up or pushes down the value of your investment.”
6 “Cash flow” can be restated as “how much money you have to spend.”
“It’s a constant evaluation,” adds Davis. She’s discovered that while some clients will be highly sophisticated in one area, such as investing, they’ll know little about another, such as tax.
Visual cues and questions help her to assess which concepts need explanation. This approach helps her avoid patronizing clients. “The first time I use an acronym like TFSA, I look to see whether they understand,” she says. “Then I’ll ask a question about it, which will allow me to judge their level of knowledge.”
On investing, she asks, “Can you tell me how this works in your portfolio?” She also asks, “What do you think is your single biggest expense every year?” She knows an unsophisticated client would say it’s his mortgage, while someone savvy would know it’s tax.
From her base in Calgary, Raimondo travels to northern Alberta to advise highly paid blue-collar oil and gas rig workers.
She finds the range of financial literacy among these workers is just as broad as it is in executive ranks, so she explains concepts to them as she would to white-collar workers.
“I might use a few more colloquial phrases with the labourers, but over the years, I’ve actually tried to be more casual and informal with all my clients,” she says.
She strives to be conversational, respectful and non-judgmental, and makes sure not to base assumptions about someone’s literacy on how much is in his accounts.
Bev Moir, senior wealth advisor at Scotia MacLeod agrees that you can sound patronizing if you explain too much, regardless of the client. But, explain too little and you shirk your duty to communicate clearly.
When reviewing a document with a client, she sits side-by-side. She watches where his eyes go on the page. If they wander, she leans over and says, “This is what I’m talking about, right here.”
She also keeps an ear out for questions or comments that show they understand what’s being discussed.
“I might get somebody looking at me a little blankly and saying, ‘Oh yeah, Bev’ or ‘Whatever you say, Bev.’ They’re just agreeing with me a bit too easily,” she says.
That often means the client doesn’t understand. In those cases, she asks what’s unclear and then re-explains the term that’s causing distress. She finds terms like TFSA and RRIF cause confusion. Like Raimondo and Davis, she says drawing examples helps clients understand.
A quick nod or a frown can also indicate a problem, adds Raimondo. If she thinks the client needs more guidance, she clarifies. “I’ll ask, ‘I see you’re frowning. Are you confused about something we just said? Or are you just thinking?’ ” She adds it helps to check in with a client throughout the meeting, instead of waiting until the end (See “Conversation starters”).
She also suggests clients take their own meeting notes. “It’s a good way for me, at the end of the meeting, to check in with them and say, ‘What are your chief takeaways?’ ” Jargon is a shortcut—a way to get through a conversation quickly—and it’s tempting to slip into shoptalk. But you need to unpack what those words mean to have a productive discussion.
7 “Diversification” can be explained as “how we’ll avoid having too much of your portfolio in one company or investment type.”
8 “Equity and fixed income” can be phrased as “stocks and bonds”
9 “Net salary” can be conveyed as “your take-home pay.”
10 “Liquid assets” means the money is “easy to access.”
11 “Management expense ratio” can be restated as “how the fund company and I are paid.”
12 “Yield” can be explained as “where your portfolio’s gained.”
Davis sits in on her clients’ early meetings with the investment advisors who will help execute their plans. She intervenes when she hears buzzwords and insists they be properly explained. Clients should be comfortable making similar interruptions.
Moir puts clients at ease by telling them about her background in healthcare, and her own learning curve when she became an advisor.
“It can be intimidating for people,” she says. “It’s our responsibility to communicate with them.”
Phrases we’ve banned
In our publications, we’ve chosen not to use certain phrases because advisors have told us they don’t resonate with clients. That means you’re tired of saying (and hearing) them too. Here’s our list:
You just need to have a plan
Without more detail, this phrase is clichéd and meaningless. What are the components of the plan? How will I execute this plan? Give some detail and you’re actually telling clients something.
The trusted advisor
Calling yourself this implies your colleagues aren’t trustworthy—not how you want to portray your profession.
The calm in the storm
What storm, exactly, is creating challenges for your clients? How do you calm clients down? If you explain that, you don’t need the cliché.
If you fail to plan, you plan to fail
Life coaches everywhere are fond of this illogical phrase. Instead, lay out how a financial plan will make your client’s life better.
The 80/20 rule
Economist Vilfredo Pareto developed this mathematical principle in 1906, and would likely be horrified to see how we’ve misused his brainchild. The message to send instead: improve the most effective areas of your life or practice (and explain what they are), rather than the biggest, to get the best results.
There’s no magic bullet
Of course there isn’t. Clients need to hear how you can help them. (Also, a magic bullet solves a problem; a silver bullet kills a werewolf. The two are often confused.)
The big picture
Your client wants to know you understand her, so use examples specific to her life instead of falling back on this cliché.
Think outside the box
Another overused, and therefore meaningless, phrase. What box are you referring to? What are you trying to achieve? What new thinking will you tap into to make a client’s life better? Answer those questions and your client will be ready to change her perspective.
Jessica Bruno is a Toronto-based financial writer.