Financial Literacy

Consumers Confused by Financial Jargon

Many consumers are confused by financial industry jargon, making it more difficult for individuals and families to successfully plan for retirement, college, and other future needs.

Recent surveys by the Empower Institute indicate most Americans do not understand a number of commonly-used industry terms. At least two-thirds of respondents were unclear about the meaning of such terms as asset allocation (69%), Social Security optimization (77%), rebalancing investments (66%), and Registered Investment Advisor (76%). The percentage of millennials who did not understand the last three terms was even higher.

Fundamental changes are already underway in the industry should address some sources of confusion, according to DawnMarie Corneau, founder, president and wealth advisor at Corneau Wealth Management of Beverly, Massachusetts. Fee disclosures and 401(k) marketing materials have come a long way in recent years, Corneau said. A SEC regulation requiring advisors to put clients’ interests first should help address confusion about advisors’ fiduciary duties. Still, she said, more work is needed on communications.

“More documents need to be in language that individuals can understand. There's so much more to be done to simplify the language. That would give clients the ease and comfort of understanding what a lot of those prospectuses or forms say,” she said. “It needs to be simpler and more direct -- in words everyone can understand. It's getting there, but I think it still has a ways to go.”

Corneau said her firm communicates thoroughly with new and existing clients. They outline fees, their processes, and what services are delivered for what costs. Investment strategy clients also receive brochures that include advisors’ backgrounds and credentials.

Educating clients about industry terms and best practices can also help them navigate confusing situations, and to make better decisions.

“Financial education is at the core of our service model,” Corneau said. “We're constantly providing education to every client, whether they're a high-net-worth client, a small business, or an average client who is receiving an inheritance. We constantly provide education through review meetings and workshops. We try to teach them that can trust us – that the knowledge we have can help them make informed decisions.”

Many of Corneau’s clients are referred by existing customers. Clients often come in response to an immediate need, such as receiving an inheritance or nearing retirement. Some are business owners, or recently widowed or divorced women. Although one specific concern may bring the new client through the door, the firm builds a big-picture plan to address their entire financial picture.

The process begins with a face-to-face meeting, either online or in person. The firm presents its findings in a second meeting. After clients review their options, the third meeting decides what steps are needed to meet the identified goals.

“In the first meeting, we have a really honest, paint-the-picture conversation with every client and every family,” Corneau said. “We're trying to learn what their financial strengths are, their concerns, their goals. Then we can put together a plan.”

Corneau said she believes human interaction is one of the most important factors in financial planning. Consumers miss out on that factor when they use online robo-advisors or hybrid platforms. She added many platforms do not help clients address what they need to consider in making informed decisions.

“I also find that people who start doing that do not stay engaged in the financial planning process,” she added. “They lose that engagement if they get frustrated, or lose their jobs, or when something happens like the pandemic right now. They stop planning and just react. I don't want my clients reacting; I want them planning.”

With any new client relationship, Corneau works to first establish an ease of communication with clients. The firm then provides transparency about fees and the process to strengthen client engagement.

“Getting communication and engagement is critical,” she added. “I think a lot of that will improve as we get into these new fiduciary rules about serving the best interests of the client, plus other changes that will come down the road.”

For more information on Corneau Wealth Management, visit: corneauwealthmanagement.com

 

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