Explaining Outcomes and Avoiding ‘Geek Speak’

Asset allocation, liquidity, absolute returns—they’re like gears in a watch built for the investor, but they don’t help them understand how to tell time, a source at Russell says.

Investors want to understand how to tell time on the watch; in other words, understand the outcome of their investments, Don Ezra, co-chairman of global consulting for Russell Investments, explained in a Russell Investments’ video titled “Speaking Their Language.”

It’s important for investors to understand their desired goals and discuss with an adviser, on an ongoing basis, their progress toward those goals, Ezra said. In addition to revisiting these goals each year, advisers and sponsors must also speak in plain language. (See “Plan Sponsors Should Steer Clear of Investment Jargon.”)

“Without geek speak, it’s possible to explain why it’s necessary to save and why it’s necessary to take some investment risk,” Ezra said.

Bill Simon, managing director of retirement plan services at Brinker Capital, agrees that jargon should be avoided. A common term for advisers, such as “target-date fund,” may be foreign to retirement plan participants, he told PLANADVISER. The same goes for terms such as “to and through” solution, and “risk-based” models. “You have to define what that really is, you know. Be specific.”

When investors lose money, it’s important for advisers to bring them back to the overall picture. For example, if a 30-something invested heavily in equities in 2009 and his assets lost substantial value when the market dropped, he might be discouraged to take on risk. However, the adviser could explain that only a small percent of the investor’s retirement income was actually exposed and he has many more years of saving to bounce back from the loss.

Visuals can also help participants understand their investments, Simon said. “The more tangible we can make it, the more we can get them involved,” he added.