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Use Metaphors, Not Jargon, When Talking With Clients

By R.A. Monroe December 29, 2015

Advisors often find themselves explaining complicated financial concepts to clients. Jargon, complicated charts and wordy definitions can be alienating to those who don’t have much experience with finance. Instead, some advisors turn to metaphors and analogies in order to translate these difficult topics for a lay audience.

“The world of finance is so complex, with lots of different moving parts,” says Jason Silverberg, vice president of financial planning at Financial Advantage Associates, a Rockville, Md.-based company that manages over $125 million. “And because they don’t teach this stuff in school, many people don’t understand even basic financial concepts.” Like many advisors, Silverberg has found that explaining difficult-to-understand ideas through metaphors and analogies helps him avoid alienating clients with finance jargon.

For instance, after witnessing several clients struggle with the concept of dollar-cost averaging, Silverberg tried out a new way of introducing the topic.

“I compare dollar-cost averaging to going grocery shopping,” he says. “If you have $10 in your budget to buy pasta and each box is typically $1, most weeks you’ll come home from the store with 10 boxes. But if pasta is on sale for half-price one week, you’ll get 20 boxes that week.”

The comparison to supermarket sales, a concept his clients are all familiar with, helps them better understand why they might benefit from buying more of a stock when its price point is lower.

Jason Silverberg

Concrete examples help clients get a grip on math

The more mathematical details of finance can be particularly tricky for some clients to conceptualize. Gene Lanton, CEO of San Francisco-based Lantern Investments, which manages $1.2 billion, relies on a metaphor to explain zero coupon bonds.

“I explain that the bond is like an elevator. If the price is 40, it’s like entering the elevator on the 40th floor,” he says. “As long as the bond is in good standing, you know that at maturity you’ll be getting off the elevator on the 100th floor.”

Lanton goes on to explain to clients that if they sell the bond before it reaches maturity, there’s no guarantee what floor they will be on. But with each passing day, he says the probability increases that the elevator will be on a higher floor than the floor you started on. Lanton has used this explanation with dozens of clients.

“It clarifies the concept so well that I’ve been using it as an example for 30 years,” he says.

Find a way to be memorable

Stephen Rischall, co-founder of Los Angeles-based 1080 Financial Group, draws metaphors from his own life. Since his clients know he enjoys mountain biking, Rischall makes the risk-reward dynamic more visceral and tangible for clients by discussing investing in terms of riding down a trail.

“The faster I go, the more exciting it is to ride — but that comes with an added risk,” he says. “Additionally, I’m more likely to pedal faster down trails that I’m familiar with and ride more slowly on new trails I don’t know, even if it’s an easier trail. The same goes for investing.”

Using the biking analogy helps Rischall make a point about how human behavior impacts financial decisions. It helps reinforce the idea that investing, like mountain biking, always involves taking on some level of risk. But there’s a more nuanced point to be made as well.

“When we invest in things we’re more comfortable with, such as real estate or a specific stock, we’re more likely to invest more,” he says.

Conversely, investors tend to avoid investing in things with which they aren’t as familiar, even if it entails less risk. Using this analogy has helped Rischall explain to clients the importance of spreading out risk and not just relying on one area of investments.