Female advisor meeting with male client at hotel lobby

I am often struck by how, across the industry, we continue to focus on “product” with our clients. Of course, we need to have good investments for clients to buy. We need to send clients the required disclosure documents. And advisors have to meet their “know your product” obligations. But we often seem intent on having detailed conversations with clients about their investments, rather than discussing their goals.

Clients don’t think of investments as “products.” To most people, investments are relatively complex, opaque things that will help them meet their financial goals. They rely on their advisor to understand the details and make appropriate recommendations.

Years ago, it became clear that the vast majority of clients never read the old simplified prospectus. It was often the size of a phone book (for those of us who remember what those looked like!).

So the Fund Facts was developed, to allow a client to focus on key information about the fund. To ensure clients get the information they need, regulators have called out specific disclosures – for example, they require that fees be disclosed to a client before a trade can be placed.

It is also clear that not all clients even read the Fund Facts, never mind understand all the information in them. I expect they continue to be somewhat intimidated by the terminology, the long lists of numbers – even the small font.

This is where advisors can help educate clients about their investments. Here are some client conversation tips.

  1. Less is more. Avoid information overload in your conversations with clients. The disclosure documents contain all the information they are required to get. If you try to discuss all the details with clients, they tend to get overwhelmed and often won’t understand any of it. Instead, focus your discussions on three or four key pieces of information.
  2. Discuss what’s important. To start educating your clients and laying the groundwork for better conversations in the future, just focus on three to four important points: for example, the types of securities a fund holds, its performance over the longer term, how it fits into your client’s investment strategy, and, importantly, the fees your client will pay. You can use the Fund Facts as a prop for these conversations at the point of sale.
  3. Use plain language. Be sure to use terminology that your clients are going to understand. No matter how sophisticated the client, they are not necessarily familiar with the terminology and acronyms on which we rely in this industry. Explain things in a way that will be relevant to clients and not just to industry insiders.
  4. Focus more on the client. Instead of focusing only on the details of various investments, use that time to have a conversation with your client about their life objectives, and how those investments could help them achieve their goals.

By presenting key information in an understandable way, you increase the likelihood that clients will appreciate why you are recommending specific investments. This will do much more than tick the regulatory box. It will also position you to reinforce this information when you review your client’s investments with them in the future. All of this will allow you to better engage your client – and who doesn’t want a more engaged client?