The Language Barrier

Andrew Allentuck


Financial Planning and the language barriers that present a challenge for clients.

John Ulan/National Post Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., says much of his business is asking the kinds of questions that his clients don't know how to put into words.


In their offices at the end of working days, financial planners lament the gulf of meaning between what clients say they want and what they really need.

Part of the problem is that the language of finance isn't what clients speak. And part is that clients don't necessarily know their own needs. In that gulf of understanding the client's psyche becomes as important as his wallet.

Derek Moran has been counselling clients for 15 years. Head of Smarter Financial Planning Ltd. in Kelowna, B.C., he explains that much of his business is asking the kinds of questions that his clients don't know how to put into words.

"Some financial planners have software that can produce 50-page reports with charts that simulate three dimensions showing how clients' wealth will vary with time, income and rates of return on capital. But the clients don't want that. They want peace of mind. That is what this business is about."

Mr. Moran recalls a principal of a school who came to him with a serious problem. "He had a defined-benefit pension plan with options on the payouts. He had taken the option with the biggest monthly cheque and a guarantee of payments for 10 years. Then he found out that he had a cancer that would kill him within months.

"In 10 years, when the pension payments would be finished, his wife would be 72 and, he feared, she would become destitute. I went through their finances and their investments, worked out CPP survivor benefits and added it all up. They realized that she would be OK in financial terms. You could feel the peace that settled over them."

Much of the problem of finding out what clients need comes from excess information, says Daniel Stronach, head of the Stronach Financial Group in Toronto. His business, he says, is offering wisdom and trust -- peace of mind by another name.

"People come to me after they have been given sales pitches by guys selling stocks, others selling mutual funds and still others selling life insurance," Mr. Stronach says.

"The clients want peace of mind, but they arrive conflicted. They don't understand risk and return, but they do see me as a doctor and they will usually respect my opinion because I am not selling any product."

In the wake of the 2008 global stock market plunge, people have become very risk averse, Mr. Stronach says. "They allowed for 30% declines in portfolio values, but not the 50% that happened. They are still running scared and my job is to help them move beyond their emotions to return to efficient investments. Frightened investors can be their own worst enemies," he says.

It is a question of how much loss an investor can take. The financial analysis of risk is a matter of mapping portfolio variance over time. That's calculating standard deviations and comparing how components move in relation to market averages.
But risk aversion -- or risk seeking -- is also personal, says Graeme Egan, portfolio advisor with KCM Wealth Management Inc. in Vancouver.

"You can have clients who want to preserve their capital at all costs and others who have a primitive sense of wanting to make a big kill in the jungle, to make a capital gain that's like shooting the tiger."

There is a bandwagon effect when markets are rising and a few people walk around bragging about their gains. People want in on the action.

"Everyone has a friend or acquaintance who revels in the exhilaration of having made a killing," says Marc Stern, a portfolio managers at PWL Capital Inc. in Montreal.

"The bravado associated with such a winning investment is dwarfed by the silence associated with one, or numerous, money-losing investments."

In other words, in rising markets the thrill of the chase and the anticipation of gain replaces good sense and caution. And that, Mr. Stern suggests, is where professionals come in to replace passion with reason.

Sometimes, what clients need is to have their confidence restored. It's like getting a person back on his emotional feet after a series of losses based on trying to outsmart the market by short-term trading, Mr. Egan explains. "We don't get a lot of people coming in and saying 'we're happy with what we have.' "

Often the clients are wounded, he says. "They want to preserve their capital. And we become stewards of their wealth, employing sensible strategies that won't impair their liquidity or get them into tax problems."

That amounts to seeing through the clutter of wants and ideas, Mr. Egan says.

He tells anxious clients that capital markets do not move in straight lines. "Clients tend to see the past as continuing into the future. That is linear thinking and, as we know, markets don't go on straight lines. We show and teach the broader principles of how our clients can position their capital to attain reasonable relationships of return for given levels of risk."

Mr. Egan sees his role as helping clients to be reasonable. But his bottom line is to help clients be serene. On the couch of financial counseling, the advisor is not just asset manager, he is also a therapist of aspirations and a soother of fears.

(c) 2010 The Financial Post, Used by Permission