Advisor Forum update: Use language carefully in client communications

(December 8, 2004) While there is an enormous amount of investment information available to Canadians, many lack the financial literacy required to understand what they are being told, according to the Investor Education Fund.

“A lot of the information — education and marketing — that’s out there is really focused on product and not the real questions that people are asking when they’re just getting started,” said Terri Williams, president of the Investor Education Fund. She was speaking at a breakout session on Wednesday at Advisor Forum in Toronto.

This is where the advisor can play a crucial role, she says, intrepreting the information into a form the consumer can readily understand.

Williams explains there are five levels of literacy, with level one being the lowest level of comprehension and level five the highest. Level three is regarded as the threshold for being able to cope with the everyday world.

Financial literacy follows the same structure. At level one, the client is able to understand just well enough to avoid pitfalls, while at level two, they are able to follow a plan laid out on how to make safe decisions. At level three, they are able to learn from the information and make their own decisions. Level four sees clients able to understand the implications of their decisions, while at level five they exhibit “integrated learning.”

According to research by the Investor Education Fund, 43% of Canadians fall within level one or two, in regards to financial literacy, while 34% rate as level three. The first step for the advisor trying to help these clients is to simplify the language used in communicating seemingly complex financial products.

For level one and two clients, Williams recommends the advisor drop all jargon and explain choices in the very simplest of terms. These clients respond best to a question and answer format, as well as visual aids such as charts.

At level three comprehension, the client can understand common terms, but these should be defined from the outset. They respond well to case studies and again, charts and graphs can play an important role.

Above this level, investors will understand most of the information that is available, but jargon should still be explained at its first reference. They can understand more complex data, but this should still be explained by the advisor.

But while the advisor can offer assistance it is up to the consumer to seek help.

“Behaviour of investors is very well documented when it comes to making a decision,” she notes. “It’s really at the beginning, when they first have the extra money, when they need to get started thinking about investing, that’s where the lack of information is.”

Williams said consumers usually only start thinking about more complex financial matters after an event which affects their net worth, such as an inheritance, discharge of a mortgage, or the sale of a business.

Advisors — and marketers, for that matter — would do well to recognize that clients view investing from a different perspective, added Williams. Advisors should focus on the basics, including the features of a product, since clients do not spend their professional lives focussed on financial data.

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The 2004 Advisor Forum series wraps up Thursday in Toronto. For details of the schedule, check the Advisor Forum website.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com