One of the biggest problems financial advisors encounter is talking about complex concepts like tax strategies, market volatility, estate planning, asset allocation, among others, to their clients.

Even more challenging is presenting these ideas in a way that keeps clients engaged rather than overwhelmed.

Such instances lead to a dilemma where advisors are forced to consider whether to oversimplify in the hopes of ensuring clients aren’t bombarded with complex information that’s hard to process mentally.

So, how do you prevent yourself from falling into this trap?

Well, the answer is simple: Master the art of explanation!

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Chris Anderson, the chairman of popular nonprofit organization TED, defines explanation as “the act that consciously adds a new element to someone’s mental model or reorders existing elements in a more satisfying way.”

Anderson notes that many of the best communicators achieve their impact through masterful explanation. It’s through this ability that they get their listeners to truly understand what they’re saying, rather than just nodding along.

While this sounds simple and straightforward, helping a client understand complex financial concepts through masterful explanation isn’t easy to pull off.

This is because everyone suffers from a cognitive bias that economist Robin Hogarth called the “curse of knowledge.”

This so-called curse leads people, including financial advisors, to incorrectly assume that everyone around them knows as much as they do about a given topic.

Basically, once you know a concept well, it becomes difficult to imagine what it’s like to not know it.

It becomes difficult to explain financial concepts clearly, because the advisor doesn’t fully understand where the client’s knowledge starts and stops.

So how can you, as an advisor, overcome the curse of knowledge?

One of the first things you can do is have friends or colleagues outside your area of expertise review a talk track, client letter, or a presentation you prepared.

By doing this, you can identify, through their feedback, which parts of your explanation make sense and which parts don’t, then adjust accordingly.

In connection with this step, you also have to conduct a jargon check.

Doing this allows you to filter out technical terms or acronyms that may be unfamiliar to your clients. If you absolutely need to use them, make sure you dedicate enough time to explain what they mean in plain language.

You don’t need to oversimplify your message. You just need to say enough to help your clients genuinely grasp what you’re trying to convey.

Beyond these steps, make sure the ideas you present are structured in a hierarchical manner.

In his words:

“A major finding of cognitive psychology is that long-term memory depends on coherent hierarchical organization of content—chunks within chunks within chunks. A speaker’s challenge is to use the fundamentally one-dimensional medium of speech (one word after another) to convey a multidimensional (hierarchical and cross-linking) structure. A speaker begins with a web of ideas in his head, and by the very nature of language he has to convert it into a string of words.”

This means each sentence you say has to relate logically to the one before it, whether that relationship is similarity, contrast, elaboration, generalization, or cause and effect.

That’s why it’s important to make sure each point you make connects clearly to the next so your clients don’t get lost or confused, especially when you’re walking them through something as layered as a financial plan.

This also means being precise about the order in which you present your ideas, since the right sequence allows your client’s understanding to build naturally, one concept at a time.

Remember: You can’t expect a client to understand and stay engaged when you’re walking them through complex concepts.

That’s why as a financial advisor, it’s important that you master the art of explanation.

This way, regardless of how complex or nuanced your client calls or letters become, you’ll be able to ensure your clients understand everything you’re telling them.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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