The do's and don'ts of talking to clients

Getting clients to understand the wealth management industry in simple terms can be daunting and complicated.

While advisors may want to come across as a "know-it-all’ by using industry jargon, this is often a failing factor to keep clients, according to several advisors who spoke to InvestmentNews on the subject. So, how should advisors talk to clients so they fully understand their portfolio or financial plan?

Hank Fox, financial planner at Blue Bell Private Wealth Management believes there is a tendency among advisors to use confusing industry jargon or delve too deeply into specifics.

“I have seen clients become overwhelmed to the point where they stop listening and stop asking questions for fear of appearing uneducated, effectively ending the opportunity to engage in a true dialogue,” he said.

Since financial experience and literacy can vary between people, Fox will start the conversion by keeping the discussion high level and telling clients to ask questions or have him provide more explanation, as needed.

“I also will monitor the client’s attention and periodically ask them if they understood what I have said and if they have any questions. This allows the client to dictate the level of detail they desire or need rather than me making that determination for them.”

Meanwhile, several advisors like to use analogies and stories, breaking down terms and concepts. "[Like] an ETF, exchange traded fund; that doesn't make any sense to anyone. So I'll explain, 'Picture going into Costco with a shopping basket, that's the ETF wrapper. Then you throw in the meats and the produce, and those are the individual holdings within that," says Jon Moore, regional director at EP Wealth.

"No two ETFs are gonna look the same, that basket is going to vary. Part of it is mixing and matching so you get diversification around it. Just simple things like that that clients can get their head around."

Ed Snyder, co-founder of Oaktree Financial Advisors uses an all-star team approach to explain investment diversification. “You've got different players from different teams within one account. Their jobs are all a little bit different from one another and it's for the betterment of the team,” he said.

As a former professor at SMU and University of Dallas, Patrick Dougherty, founder of Dougherty Wealth Management, implored advisors to not use phrases like "standard deviation or coefficient of determination.” Advisors use these words to impress their clients but end up losing them.

“It causes the client to not want to meet with you and being made to feel ignorant. I use common words and break down the complicated conversation to a more casual speaking style,” he said in an email.

Using the right language really is the difference between being an "advisor" and a real advisor, says Marianela Collado, CEO and senior wealth advisor at Tobias Financial.

“Our role shouldn't be to make things so difficult that [clients] have no idea what you are saying,” she said. “My rule of thumb is, how would I explain this if I had to explain it to my mom and dad? Even my 6^th grade son should understand what I'm explaining.

"I like to draw things and make things come to life with pictures and stories. That is key,” she added.

What to do

1. Read the room- not every client has the same underlying knowledge base.
2. “Know the big words but use the small words.” Explain concepts as if you were teaching a beginner or someone in grade school.
3. Use common words, breaking down the complicated conversation to a casual speaking style.
4. Craft a compelling and well communicated vision of the future for clients.

What not to do

1. Use industry jargon and acronyms which some clients may find confusing.
2. Give a lecture. Check in with clients to make sure they're following.
3. Feel like you need to impress clients with all your knowledge.