Every advisory firm that retains us to write content and redesign their webpage has this request:  We want to make it clear we give our clients ‘peace of mind.’

In my experience, many of you create far more anxiety than you realize.  Here’s how you do it.

Insider jargon

Smart beta
Yield curve
Regression analysis
Hedging currency risk
Alternative funds
Absolute return
Reinsurance Funds
Linear [anything]
Factor based investing
Tilting portfolios
Bond ladders

Monte Carlo analysis
Yield
Derivatives
Short selling
Tax loss harvesting
Rebalancing
Value stocks
Growth stocks
Small cap stocks
Global diversification
Efficient frontier

Trusts
Annuities
Reverse mortgages
Imputed interest
Active management
Passive management
Index funds
Term insurance
Any kind of cash value life insurance
Market cap
Fundamental analysis
Equal weighting

You love insider jargon.  I suspect it’s because it makes you seem knowledgeable.  Do you really believe most clients understand these terms?

I’m sure there are others.

If you are using these terms, without a simple explanation, you’re making your clients feel stupid …and anxious.

Complex portfolios

There are many good reasons for complex portfolios.  By “complex,” I’m referring to including separate asset classes and also allocating to alternative funds, often REITS, commodities, reinsurance and absolute return funds.

There may well be credible support that portfolios structured in this manner have higher expected returns and other benefits.

But few investors understand them.

When we don’t understand something important (like how our money is invested), it creates anxiety.

I have an advisor/client who manages over $1 billion.  He puts most of his clients in a single core fund.  He’s well aware the portfolio could be structured in a more tax efficient manner. He explains the disadvantages to his clients.

He told me their overwhelming response is how much peace of mind they experience from having a portfolio that has one holding.  They tell him it’s the first time they ever understood their monthly statements.

If “peace of mind” is so valuable (and it is), shouldn’t you let your clients decide whether they would trade higher expected returns of a complex portfolio for a less complicated one they could quickly grasp?

Just asking that question would reduce anxiety.

Resource of the week

This article in USA Today discusses the anxiety inherent in the advisor/client relationship.