A new study from Invesco Consulting found financial jargon prevents advisors from selling alternative investments to clients.
Working with Maslansky and Partners, a research-drive language strategy firm, Invesco surveyed 800 investors and found only 23 percent were interested in “liquid alternatives.” When the same products are introduced as “alternative mutual funds that are bought and sold like any other fund,” 77 percent of investors were interested.
“Investors are very open to hearing about how alternatives can help them meet their goals, but this value proposition is quickly clouded by words like derivatives and arbitrage,” said Scott West, the head of Invesco. “By avoiding jargon, advisors can eliminate misconceptions, improve conversations and help their clients understand how these strategies may enhance their portfolio.”
Investors were also turned off by phrases like “future-proof your portfolio,” “smooth equity returns” and “immediately allocate 20 percent of your portfolio to alternatives.” Products like hedge funds, global macro funds and unconstrained equity funds were also unpopular, but the least attractive word to investors is “derivatives.”
Instead, advisors should focus on showing clients how alternative products complement the investments already in their portfolio. Seventy-three percent said they would rather invest in a complementary product than something that replaces what’s already in their portfolio.
Phrases like “behaves independently” work better for investments that don’t rise and fall with the markets than the industry phrase, “non-correlated.” Two-thirds of investors would invest in “funds that focus on more consistent returns,” while only 11 percent wanted “long-short equity funds,” the common parlance of advisors.
Advisors also need to consider how they explain alternative investment managers to their clients. The study found investors reacting much more positively to an alternative fund managed by a team with a long track record than one with a well-known brand name or large AUM.