Welcome to Financial Advisor IQ

Bring Investment Explanations Back to Basics

December 9, 2016

This time we hear from Justin Curtis, a financial advisor at Franklin, Tenn.-based Curtis Financial Group. He recalls how a meeting with a young client taught him the value of explaining complex ideas in simple terms.

A few years ago I met with a young woman who was an atypical client for our firm in that she was only 15 years old.

Her parents had been working with us for a while. They understood the value of working with a financial advisor and wanted to get their daughter started on the right track. She had just started her first job, and her school wasn’t providing the kind of basic financial literacy her parents wanted to instill in her.

I knew this would be a unique situation, but what I didn’t realize was the impact it would have on the way I interacted with our other clients.

We have a typical process we go through with new clients, which is predicated on the idea that they are familiar with the financial basics. So in my first meeting with this young client I started talking about dividends, mutual funds versus stocks, and all the different vehicles and products we offered. But as soon as I began to speak in technical terms I could see she wasn’t following along. As a 15-year-old, she had very little understanding of these topics. I realized I would have to reconsider my approach.

The basic lesson her parents wanted me to help instill in her was the value of saving.

During our conversation, it became clear she knew saving money was good, but didn’t know why. She had never really conceptualized the fact that the money she saved and invested had the potential to grow — that her money could be making more money for her, in effect. In some ways, this is the most basic financial principle, the one on which so many of our decisions are founded. I decided the best way to explain it to her was in the most simple terms.

I pulled out a dollar bill and asked her what she saw. “A dollar,” she said. “You’re right,” I replied. “It is a dollar. But it also represents opportunity.”

I explained that when she spent that dollar buying a soda, that dollar was gone; she’d have no further opportunity to do anything with that money. But if she saved it, assuming she earned an eight percent return, every nine years that money would double. That’s an example of leveraging opportunity, I explained. That one dollar would turn into two, which would turn into four, which would turn into sixteen.

Justin Curtis

“When you look at this dollar bill, you see $1,” I said. “But when I look at it, I see $16.” A pair of earrings with a $10 price tag could also represent an opportunity loss of $160, if you look at it that way, I pointed out.

It was a very basic explanation but it connected with her. Instead of just being told she should save her money because it was a good thing to do, she finally understood the payoff that delayed gratification can bring.

That explanation clarified things for this young woman in such a helpful way that I began using a similar strategy with other clients. When they were considering buying a $1,000 big screen television I’d explain how, from a different perspective, that one purchase could also represent $16,000 in opportunity loss. I’ve had clients thank me for explaining things in these terms; they had never thought about spending in this way before.

As advisors, we need to learn to communicate using terms our clients connect with. Sometimes that means bringing things back to the basics.

My experience with this young woman also helped me realize how important it is to explain the “why” behind our advice. Most people’s concept of saving and investing money is not all that different from that of this 15-year-old girl: They know they should put money away, but they also want to go buy stuff now.

By explaining the value of delayed gratification in simple, concrete terms, we shift the discussion. Instead of emphasizing how clients need to give up something today, you’re helping them really see the long-term payoff.