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Clarify Financial Planning Advice With Reflective Listening

conversationHere’s a useful bit of advice I got from one of my staff members several years ago: “Rick, your clients don’t understand half as much about investing as you think they do.”

She didn’t intend any disrespect to the clients. Instead, she was reminding me not to assume everyone swims in the same waters I do. For me, those waters are investing and finance. Financial planning not only is my work, it’s my passion.

So in a client meeting, I can easily dive into the details of a mutual fund advisor’s performance or some other aspect of the client’s investments. If clients don’t ask questions, I might assume they understand what I’m saying, when in reality they may be just waiting for me to move on to something more meaningful to them.

If clients don’t understand what financial advisors are saying, why don’t they ask? In my experience, one of the reasons is embarrassment. Clients may not ask for clarification because they think they should already know. I might well have the same feeling with an auto mechanic or a doctor.

If you think you should know the meaning of terms like asset allocation or capitalization, you probably will hesitate to ask an advisor to explain those terms. Since financial planners, like other professionals, can easily forget that not everyone understands the vocabulary that is so familiar to them, they won’t necessarily think to offer explanations unless you ask.

One useful strategy to help ensure that you and a financial advisor understand various terms in the same way is to reflect back what you think you’ve heard the advisor say or what you think a statement means.

Suppose, for example, a financial planner suggests that you consider some asset protection strategies. The word “assets” to you means primarily the money in your investment portfolio, and of course you know what “protection” means. To you, then, “asset protection” might mean “keeping my investment safer.”

To clarify, you might respond to the advisor this way: “What I hear you saying is that I should change some of my investments to funds that have less risk. Is that right?”

This would let the planner know that what you think she said is not what she meant. She could then explain that by “asset protection,” she meant protecting yourself against frivolous lawsuits. For example, she might recommend forming a limited liability company to own a piece of rental property instead of having it directly in your own name.

It may seem simpler just to ask, “What do you mean by asset protection?” The drawback of this directness is that her answer might use additional terms you don’t understand, so it still might not be clear. After two or three such questions, you might be too embarrassed or confused to ask further.

Reflecting back what you think you heard, however, helps the other person know more precisely what you understand or don’t understand. It can be an efficient method of clarifying a potentially confusing topic. It’s an effective way to make sure that both you and your advisor are talking about the same thing or trying to solve the same problem.

Remember that helping you learn more about your finances is part of a financial planner’s responsibility. Letting the planner know when you don’t understand something is part of your responsibility as the client. Please, don’t just sit with your eyes glazed over and nod politely if your financial planner dives into depths where you can’t follow. Instead, remind him or her that in those waters, you need a life jacket.

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One Response to Clarify Financial Planning Advice With Reflective Listening

  1. Jerry August 4, 2014 at 10:19 am #

    Well, this story makes me feel better. Yes, I listen and read all your reports that can cause a plethora of questions that I do not hesitate bugging Rick about. I often feel guilty seeking clarity beyond ‘my pay grade’ meaning size of portfolio.

    I must say, the Kahler group has always been receptive, thorough, and kind.

    Glad Kahler recognizes us ‘dummies’.

    Thanks