MONEY financial advice

Why Financial Advisers Have a Failure to Communicate

tin can toy telephone
James Porter / Alamy

Investment pros try to impress their clients with jargon, but the message isn't getting through.

Here’s a little quiz:

With each pair of phrases below, which do you think resonates more positively with everyday people? Which of the two sounds better to a client sitting across the desk from a financial adviser?

  1. Investment Strategies | Investment Solutions
  2. Straightforward Fees | Transparent Fees
  3. Financial Security | Financial Freedom.

I’ll get to the answers below.

I took this quiz myself recently at a presentation by Gary DeMoss from Invesco Consulting, a subsidiary of the money-management firm Invesco. The subject of the presentation: How financial advisers can better connect with clients by using the right words. The takeaway: We financial advisers are so familiar with investing jargon that we assume our clients understand it. But many don’t.

One study DeMoss’s group did with investors was to give them dials connected to a monitoring system and then have them listen to pre-recorded explanations of various financial and market topics. As the investors listened they moved their dials one way or another to rate if they liked what was being said or not. The consultants could then see which words made people react more positively or more negatively.

At one point in the presentation to this group of very experienced financial advisers, we were given a small deck of cards with words on the front and back. We were asked to guess which side we thought had resonated more positively with the investors tested.

Most of the advisers sitting around me — and me, too — got more wrong than right.

As for the three pairs of investment terms above, the first of each rated higher.

As DeMoss pointed out, it’s is not what we advisers say that matters, but what the client hears. I think many of us are guilty of trying to impress clients with our knowledge. We don’t realize that we need to speak in clearer, simpler terms. The specific words that we use make a difference.

We have to choose our words carefully and use less investing jargon. We should encourage clients to stop us whenever they don’t understand what we’re saying.

This will help us get our information across in a less intimidating manner — and serve our clients better.

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Raymond Mignone has been a certified financial planner and fee-only investment adviser since 1989, with offices in Boynton Beach, Fla., and Little Neck, N.Y. He is the author of the book RINKs – Retired, Independent, No Kids. His website is www.RayMignone.com.

 

MONEY financial advisers

A 90-Year-Old Woman’s Tough Decision

Is it in someone's best interests to give up control over her own money? A financial adviser struggles with the question.

How do you ask a 90-year-old client to give up total control of her assets?

Recently I had a meeting with a long-term client (let’s call her Susan) and her out-of-state nephew in which the nephew and I asked her to resign as the trustee of her own revocable trust.

This is a tough conversation to have. In effect, we were asking her to transfer control of all of her money to her nephew. Susan agreed to do this, but only because she trusts my advice. Talk about responsibility.

Let me provide a little background. Susan hired me as her financial adviser just after the dot-com bust. She was recently widowed. Her husband had put their investments 100% in stocks. Her stocks were dropping in value a lot, she was scared, and she didn’t know what to do. She has no children and wanted most of her money to go to charity when she passed. (Susan was one of the inspirations for a book I wrote: RINKs — Retired, Independent, No Kids.)

We created charitable remainder trusts for Susan, which established annuities for her and helped diversify her portfolio tax-efficiently. We set up a revocable trust for the rest of her assets. With no children, she made one of her nephews a successor trustee for her trusts.

Susan’s investments have grown nicely over the years, and running out of money was never an issue. The issue was her declining health. She moved to a very nice assisted living residence, and we made sure most of her bills were automatically paid because she was becoming confused about money and forgetting to pay some bills. Her tax attorney had been suggesting to me and her nephew that it was time Susan stepped down and let someone else control her finances. I was resistant. I pushed back. My biggest concern: Would Susan be taken advantage of?

Yes, we financial planners go to seminars and meetings discussing estate planning and asset transfers. But nothing can actually prepare you for helping a client make such an important, irreversible decision. How can you advise a client to trust a distant relative when you don’t understand that relative’s own history or motivations about money? How can you explain this to someone, who may not really understand why this will be for her own benefit?

I think you have to rely on your best judgment of the individuals involved. You have to ask a lot of questions. And you have to respect the reasoning why the client, when originally creating the estate documents, would choose this individual over all other possible candidates to be the successor trustee. And that’s what I did in Susan’s case.

Yes, we make the big bucks managing money, and that’s what most people see. But the emotionally hard and more important work is helping clients make the really tough life decisions.

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Raymond Mignone has been a certified financial planner and fee-only investment adviser since 1989, with offices in Boynton Beach, Fla., and Little Neck, N.Y. He is the author of the book RINKs – Retired, Independent, No Kids. His website is www.RayMignone.com.

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