Asset allocation is a crucial concept for financial advisors to communicate effectively. When clients clearly understand their investment strategy, they feel more confident and engaged in their financial planning.
However, taking the somewhat broad topic of asset allocation and attempting to explain it to those not as well versed in wealth management can be a challenge at times.
That’s where simplifying these concepts is key. When you do, you’ll engage your clients and make the main tenets of asset allocation easily digestible for them. This will in turn strengthen your relationship and make it easier to help them achieve their long and short-term goals.
Employ Visuals and Graphics
Many people are visual learners, making it essential to present asset allocation concepts through charts, graphs, and infographics. This approach enhances understanding and makes financial planning more accessible.
In an episode of The Bucket Plan® On-Demand podcast: Mastermind Roundtables: The Bucket Plan and Simplifying Asset Allocation for Clients, Ivy Pierson, CEP, MBA, founder of Pierson Wealth Management, and Joe Salerno, of Salerno Financial Group both describe how using visuals improved the asset allocation dialogue they have with their clients.
Incorporating these elements can help bridge the knowledge gap and empower clients to make better investment decisions.
Design Your Client's Bucket Plan
Leverage Analogies to Simplify Concepts
The analogies strategy often pairs well with visual aids because it helps you drive your point home and allows clients to see their finances from a fresh perspective.
For example:
- The Bucket Approach: Divide assets into “Now,” “Soon,” and “Later” buckets based on time horizons and risk tolerance.
- A Coursed-Out Meal: Compare asset allocation to a meal plan, where different dishes represent various investment vehicles that contribute to a balanced financial future.
These relatable comparisons make abstract financial ideas more tangible and memorable.
Explain EVERYTHING
It’s easy to forget as a financial professional that your clients aren’t as familiar with the territory as you, which includes some important language. Simplifying essential investment terms can improve client engagement and decision-making.
Some key phrases you should clarify plainly when going into detail about asset structuring are:
- Diversification/ a diversified portfolio: talk about the effects of spreading wealth across several asset classes, such as having a mix of stocks, bonds, and cash.
- Risk tolerance: explain how the level of risk they are willing and capable of enduring impacts their investment return and overall plan.
- Time horizon: make sure your client understands how the amount of time they hold their assets factors into them reaching their goals.
By making these terms more accessible, you can increase trust and ensure your clients feel in control of their financial future.
Personalize Your Asset Allocation Strategies
Every client has unique financial needs and goals. To make asset allocation more relevant, incorporate their lifestyle, aspirations, and risk preferences into your conversations. This strategy is especially helpful when assessing their short and long-term financial goals.
Ask questions such as:
- Are there major upcoming expenses? (trips they plan on taking, major life events, children getting married)
- Do they have experience with alternative investments, such as real estate
Customizing your approach ensures clients feel understood and helps them take a more active role in their investment strategy.
Strengthen Client Relationships with Simplified Asset Allocation
Helping your clients understanding asset allocations and options for investing and securing retirement income will strengthen your relationship with them now and in the future.
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Financial Professional Use Only
The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.