Fin-service pros use far too much jargon: survey

FWR Staff

28 April 2008

And among the results are widespread incomprehension, deep-seated distrust. Some wealth managers say their clients frequently don't follow their recommendations -- and some firms put a lot of energy into devising ways to guide their clients safely through to the "implementation" stage.

But if a new study by AARP Financial sheds any light on the subject, the problem may be less a matter of indolence and more the result of chronic incomprehension.

Head scratchers

It seems that most Americans can't make head or tails of what "Wall Street" is trying to tell them, and many of them are making costly investment errors as a direct result, according to the AARP study.

"Investing has become unnecessarily complex, confusing and, in some cases, intimidating," says AARP Financial's CIO Mac Hisey. "As a result, many American investors have saved too little -- most with less than $50,000 for retirement -- or are too intimidated to get started in the first place."

Half of the 12,000 adults surveyed few months ago by phone described themselves as "not so" or "not at all" knowledgeable about investing. In fact the survey suggest that Americans feel more confident in their ability to choose a medical professional to perform major surgery than to choose a suitable investment.

The typical client doesn't even get high-profile buzz words like "basis point," "expense ratio," and "index fund" -- phrases that less than a third of those surveyed said they understood well enough to explain to a friend or co-worker.

Suspicious minds

More than half of those surveyed said they don't read financial literature because "it's too hard to understand," and even more say that car insurance policies and prescription-drug inserts are far easier to follow than mutual-fund prospectuses.

"Many people are more likely to read the nutritional information on a cereal box than read a mutual fund prospectus before they buy," says Hisey.

But it gets worse. The survey suggests that a lot of people out there see the financial-service industry's penchant "inside basball" not just as a reflection of inherent complexity or strict regulation, but as a cover for systemic chicanery.

78% said they believe that materials from financial companies are more about selling than educating 63% say that a major reason jargon is used is to make a product or service seem more impressive 54% believe that jargon is used instead of simpler terms is to distract people from focusing on the fees they will be paying 49% believe a major reason jargon is used is to make the consumer feel less confident that they can handle their own finances

"No one is well-served by this confusion: not the industry, not consumers and certainly not our relationship with the investing public," says Hiesy. "We talk a lot about transparency in this industry but not enough about simplification and understanding." -FWR

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