Cut To The Chase: Simplifying Financial Jargon

By Richard Dobson

Global markets and economies are off to a tumultuous start in 2020, with U.S. oil contracts dropping into the negatives and unemployment numbers approaching those of the Great Depression.

While advisors may be entrenched in the market news and watching the world’s central banks more closely than ever, it can be easy to forget that our clients may not be watching with as much scrutiny.

During times of market instability, clients look to their advisors for guidance and clarity. The best way to provide this is by communicating with language they can easily understand, rather than the financial jargon we might use with colleagues.

From Jargon To Understandable Examples

When discussing the complexities of current markets with your clients, make sure you don’t fall victim to the “curse of explaining.” Clients should always leave a meeting more informed than when they arrived, but this doesn’t mean you need to expound upon every background detail of the markets.

Clients are more interested in the bigger picture of what your knowledge means for them. Using complex financial rhetoric will only cause further confusion and anxiety, leaving a negative perception of the meeting. Leave out references to correlation coefficients, mean reversion, beta and other such academic references and your message will go more smoothly.

This is even more crucial during times of uncertainty, as technical information coming from sources like Federal Reserve Chair Jerome Powell can be overwhelming for clients to process and they may not even know the reality of what’s being shared.

For example, when the COVID-19 crisis was just beginning to impact the markets, Powell announced a half-percent interest rate cut. While financial professionals saw this as shocking and indicative of a crisis more financially harmful than previously believed, our clients likely didn’t realize the implications of this drop, as most folks likely lack the in-depth context by which to frame it.

Moments like these provide the opportunity to simplify the complex and put markets and the economy into a context that clients will comprehend. When sharing complex information with clients, use examples they can conceptualize and language the average person understands.

Remember you’re not talking to a colleague who shares your level of expertise on the subject. By meeting clients at their financial knowledge level, they’ll be more engaged in the conversation and feel more in control of their financial situation.

I like to borrow one of my favorite simplified explanations of market fluctuations from financial expert Nick Murray: Imagine your family consumes tuna frequently and you buy it at the same price every week.

If, one day, you went shopping and discovered it was now five times the cost, you would not be eager to purchase at this high price. Then a few weeks later, you check and tuna is now five cans for a dollar- you would likely stock up and buy at the low price, knowing you’ll need it in the future (check the date!). I point to the stock price page and tell them it’s all tuna fish.

Why do we view stocks as “high price good, low price bad” and stay reluctant to embrace low prices in stocks? This re-framing of equity prices helps clients realize opportunity when it presents itself.

Putting complicated financial rhetoric into these simplified terms helps clients understand that investments work just the same: a low price is good for investors, so long as the timeline and risk factors fit your client. Find comparisons and simplified examples that work well for you and each individual client.

Participant-Centered Learning

Different clients may respond best to different explanations, as everyone has varying communication methods and levels of financial knowledge. Clients who come from certain educational backgrounds or professions may understand industry jargon more readily than others.

Knowing each client’s level of understanding will help tailor your approach.
Establish your communication approach by asking your clients questions, both personal and financial, to obtain a broader context of both their financial and communication needs. Using the “participant-centered learning” method of asking questions can quickly provide you with this information.

A recent MDRT study shows 83% of Americans consider an advisor’s ability to exhibit emotional intelligence crucial to establishing a quality relationship with their clients. This includes being able to clearly communicate, actively listen and show that you care about their personal needs - so consider asking about their kids, spouse, career and personal goals.

Exhibiting your own emotional intelligence may also help clients access this within themselves, as they may feel anxious over the current climate and look to you to help them work through it.

After establishing this personal connection, switch your questions to those that are financially specific to help gauge their understanding of technical language. Consider preparing a list of questions in advance to have as a resource to return focus to your conversation.

If you leave a meeting without knowing more about your client, you were talking too much, and they were likely not listening closely. Clients will be more likely to retain information from an open discussion than a lecture.

Leaving clients with understandable metaphors and memorable conversations will make them feel more confident in your financial advice than providing them every detail of your knowledge. Put your clients at ease knowing they have an advisor who understands them and looks out for their best interests.

About the Author
H. Richard Dobson, Jr., CFP, is an 18-year MDRT member. He is President of American Financial Management, an RIA firm, and is also an officer of American Financial Securities, a Broker/Dealer. Richard has served on numerous MDRT committees, including service as Past President of the MDRT Foundation (2017) and MDRT Finance Committee Chair (DVP, Finance 2015). A member of NAIFA since 1984, Richard has served NAIFA–Iowa on various committees, the board of directors and as an officer. Richard lives in Cedar Falls, Iowa.