Positive wording can have an impact

The study, conducted in collaboration with Maslansky Luntz + Partners, a language-strategy consultancy firm with offices in New York and Washington, involved focus groups and surveys of 800 investors across Canada.

A key lesson from the research is that the financial services industry needs to work on using more positive language. Says Rob Kochel, vice president, national accounts, with Invesco in Toronto: “The language that we typically use in the financial services industry tends to be negative.”

For instance, he points out, when it comes to saving for retirement, Canadians are often told: “You’ll never be able to afford it unless you start right now.” As Kochel notes: “It’s always based on this fear, this negative emotion.”

This type of negative language doesn’t work well with clients, Invesco’s research shows. For instance, when asked to choose between an investment that maximizes gains and one that minimizes losses, 69% of respondents chose the first option while only 31% chose the second, indicating the broader appeal of an investment when it’s framed in a more positive way.

The word “risk” also elicits negative emotions among clients – even in the context of controlling or minimizing risk. When survey respondents were asked if they were interested in “managing market risk,” only 24% agreed. However, when the wording was changed to a more positive statement – “Making sure you can participate in the gains while reducing your downside risk” – 76% of respondents expressed interest.

The study revealed similarly negative connotations with the terms “managing longevity risk” and “managing inflation risk,” suggesting that these terms, which are commonly used by the financial services industry, may not be having the intended effect on clients.

“We found that the word ‘risk’ has a very negative halo to it,” Kochel says. So, by expressing the concept of risk using less negative words, he says, “the reaction is going to be that much more positive.”

The research also revealed that the financial services industry has plenty of room for improvement when communicating the costs associated with investing.

Although the term “fees” is regularly used in the financial services business to convey the costs of owning investment funds and the cost of an advisor’s services (among fee-based financial planners, in particular), the study’s results found that investors simply don’t like the term.

Among the words used to describe the expenses associated with investing, “fees” was the least popular, with 44% of survey respondents indicating that they least like paying fees. In comparison, 30% said they least like paying “commissions,” 18% least like “charges” and 8% least like “costs.”

Clients dislike the term “fees,” Kochel says, because it reminds them of airline baggage fees, roaming fees and other types of fees that are generally considered unfair and excessively high.

In contrast, clients are less averse to pa ying for a service when it’s framed as a cost.

“The word ‘fee’ is a very negative word,” Kochel says. “You need to be mindful of that when you’re talking about being a fee-based brokerage.” Specifically, he urges fee-based advisors to emphasize that the amount they’re charging is the cost of their services.

Another key finding is that investors dislike unrealistic or implausible language. Terms such as “dream retirement” and “financial freedom” don’t resonate well with investors, the research shows, as few believe there’s a realistic possibility they’ll be living a lavish lifestyle in retirement. Instead, investors prefer to talk about a “comfortable retirement” or “financial security” – concepts they consider more plausible.

Not surprising, jargon doesn’t resonate well with clients, either. Some advisors regularly use terms such as “alpha,” “beta” and “open architecture” in an effort to impress clients with their knowledge, Kochel says: “[But] they don’t understand you.”

Only 19% of investors surveyed said they were interested in “dollar-cost averaging.” However, when the name of the strategy was renamed “regular interval investing” and “automatic monthly investments,” 43% and 38%, respectively, were interested. Thus, Kochel urges you to use plain language whenever possible.

The term “investment solutions” is also unpopular among investors. When asked what they most want to hear about from their advisor, only 16% chose “investment solutions” while 41% chose “investment strategies.” The word “solution,” Kochel points out, implies that the client has a problem.

Kochel acknowledges that advisors can’t control the language used in formal disclosure documents, which tend to be full of legal jargon. However, he adds, you can relax your language when talking to clients.

“You’re never going to change some of the legal language that has to be in compliance documentation, but you could certainly soften it,” he says. “It makes you sound more human, and more in tune to what their needs are.“

© 2012 Investment Executive. All rights reserved.