Welcome to Financial Advisor IQ

When Words Fail, Start Sketching

By R.A. Monroe July 1, 2016

This week we talked with Tony Madsen, founder and president of NewLeaf Financial Guidance in Redwood Falls, Minn. Madsen recalls the client interaction that helped him realize the limits of explaining concepts with words.

Last spring, I was working with a widowed client who had recently reached retirement age. Between her pension and her Social Security benefits she had enough to cover her expenses — she didn’t need any of the few million dollars she held in an IRA, which she hoped to pass on to her children. She approached me for help figuring out how best to transfer this wealth to the next generation.

After looking over the situation, I came to the conclusion that the most tax-efficient approach would involve her withdrawing as much as she could from the IRA each year while still keeping a low tax liability, and then putting those assets into a life insurance policy that could be passed on to her children in tax-free dollars.

As I explained this strategy during our initial meeting, I could tell that I’d lost her. Her body language told me she was no longer following the explanation as closely as I’d hoped, and I sensed I may have lost her in the details. That didn’t surprise me; it was a fairly complex scenario. So I took another tack, providing her with examples from a spreadsheet I’d made — but that didn’t seem to help much, either.

Before our next meeting, I tried to think of how else I could get my message across. I thought of various ways to explain the strategy using words and spreadsheets and charts. I couldn’t figure out how to give her enough detail so she would feel confident in the plan while still keeping the conversation at a high enough level to avoid getting lost in the weeds.

Tony Madsen

Then I decided to try a different approach. I created a quick illustration with circles that showed the impact of various options, whether she gifted the IRA as it was now versus if she took the income out over time and used it to purchase a life insurance policy.

I think we would have ended up moving forward with the strategy either way, but this way she was able to be fully on board. I believe that if we were to call her today, she’d be able to explain to you clearly this is what we’re doing, and this is why it works.

The illustration also helped her explain the strategy to her children — because she got it, she was able to transfer that knowledge to them.

It’s not surprising that an illustration helped when words had failed. Many of us are now used to seeing information presented online in the form of infographics. I consider myself a visual thinker, so I can relate.

You’re seeing this showing up more and more in financial planning software, too — increasingly, it's using illustrations to show various strategies and outcomes visually.

Some advisors might feel tempted to use software programs to create a computer-generated illustration. While that might be appropriate in some cases, I think it can backfire. In my experience, the more informal the drawing, the more the clients enjoy them. Clients aren’t as engaged if you’re clicking through professional-looking PowerPoint slides as they are when you whip out your pen and just sketch it out for them.

It also gives you more interaction with your client. Sometimes they’ll point to something you’re sketching out and start asking questions: What’s that? Why does it work that way? I’ve even had clients who grabbed the pen out of my hand — I always just roll with it. If they can’t formulate a question with words, sometimes they can sketch out their confusion. So the conversation really works both ways.