6 minute read
Success as a financial advisor depends on how well you can explain complicated investing concepts to your clients.
See, the world of finance is packed with technical jargon that can be overwhelming. Words like “diversification,” “compound interest,” and “asset allocation” can make clients feel lost or intimidated – and I don’t blame them.
To build trust and properly help clients, you need to simplify these ideas without watering them down.
Let’s take a closer look at some practical ways to break down the jargon and engage clients more effectively.
Why Simplifying Investing Matters for Client Retention
Client retention – as I’ve written to you about before (read here) - is key to long-term success.
In fact, tons of evidence and surveys show us that regular, clear, and personalized communication is crucial to building client confidence.
- For example, according to a 2022 Y-Chart Survey1, financial advisors who get communication right are winning business. Roughly 9 out of 10 clients say how often their advisor reaches out and the style they communicate in plays a huge role in staying loyal and making referrals. Since the 2019 survey, this number has only grown - proving just how crucial strong communication is.
Thus, it isn’t a stretch to say that communicating and connecting with a client or prospect is paramount.
And simplifying financial topics plays a big role in this.
Because when clients are confused, they become anxious or skeptical, and that could push them to seek advice elsewhere. On the flip side, clients who clearly understand their investment strategy are more likely to stick with you.
Breaking down these concepts builds trust. When clients feel confident in their decisions, they see you as a trusted partner for their financial future.
Use Plain Language, But Adapt to Your Client's Needs
So, as I’ve detailed, communicating complex investment strategies in an easy to digest way is key, but how you do it depends on your client’s comfort level.
- For most, plain language and relatable terms work best. For example, instead of "diversifying your portfolio," try saying, "We don’t want all your eggs in one basket, so we’ll spread your investments across different areas."
- However, for clients who prefer a more detailed explanation - such as engineers or analysts - you might say, "Let’s dive into our dynamic asset rebalancing approach. Think of it like maintaining a well-tuned engine, where we regularly adjust your investments to improve performance as market conditions change." This way, they can connect with the process at a more technical level.
Ultimately, the goal is to know who you're speaking to. Tailor your words to match their knowledge, using simple language for clarity or diving deeper when they're looking for details. It’s all about building trust and making sure they feel understood.
Use Relatable Analogies When Explaining Financial Concepts
Taking it a step further is even better – such as using analogies to help make these financial concepts stick.
These can help turn an abstract financial concept into something concrete and familiar.
Here are a few examples:
- Alpha-Generating – Imagine you’re hunting for treasures at a flea market. While most see clutter, you’re hoping to find the gem that’s worth more. Well, in investing, we aim to spot these hidden opportunities to bring you extra returns.
- Compound interest - Think of it like planting a tree. In the beginning, growth is slow, like a sapling. But over time, the tree grows larger and produces fruit (interest). That fruit falls and plants new trees (interest on interest), and soon you have an entire orchard.
- Liquidity - Imagine your investments are like a house. If you need cash quickly, selling your house might take time and effort – hence it’s not very liquid. But having cash is like having water on tap, it’s readily available whenever you need it.
- Risk-Adjusted Return - like driving a car, it’s not just about how fast you get to your destination, but how safely you get there. If you drive too fast (seeking high returns), you risk crashing (higher losses). A well-balanced approach is like driving at a speed that gets you to your destination safely and on time.
Analogies connect investing concepts to real-world experiences - making them easier to digest.
Visual Aids and Simple Charts
For clients who learn better through visuals, charts and graphs can be invaluable tools. Use simple bar charts, pie charts, and line graphs to illustrate how different investment strategies work overtime.
- For example, a line graph showing how compound interest can grow an initial investment much faster than simple interest over time can help clients visualize the benefits.
These visuals break up the conversation and offer clients a break from dense discussions, making the information more digestible.
Encourage Questions and Active Participation
Simplifying financial concepts isn’t just about breaking down terms - it’s about making clients feel comfortable enough to ask questions. Create an atmosphere where clients feel safe asking questions without fear of being judged.
When clients are engaged, they’re more likely to retain the information you provide. It also deepens their trust in you as their advisor - knowing that they’re part of the conversation instead of simply being spoken to.
Offer Recaps and Follow-Ups
After a meeting, send your clients a follow-up email with a written recap or a short video summary of the key points discussed. This allows them to review the information at their own pace and ensures that they retain the most important takeaways.
Written recaps can also reduce misunderstandings and provide clients with a resource to revisit complex topics. Offering educational materials like blog posts or explainer videos gives clients an opportunity to dive deeper into specific subjects on their own time.
Wrapping It Up - Making Finance Accessible
Simplifying investing concepts does more than clarify strategies—it strengthens your client relationships.
By using plain language, relatable analogies, visual aids, and encouraging active participation, you make clients feel more engaged and confident in their financial journey.
However, it's important to tailor your approach. While many clients benefit from a simplified explanation, those with analytical or detail-oriented backgrounds might appreciate a deeper dive into more complex concepts.
Adjusting your communication style can help clients feel more understood, thus strengthening your role as a trusted advisor.
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Disclosures:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.
Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This document is provided for information purposes only and should not be considered as investment advice.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.