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Investing: Is the Word “Risk” Too Risky?

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After reading The Language of Trust by Michael Maslansky for a third time, we started thinking about the word “risk” again. Is the word risk appropriate for a retail audience? Does using risk help or harm your communications with clients? Does risk actually explain what risk actually means?

What do we think?

When investing, thinking about risk is essential. But when talking about investing, risk may not be the word you’re looking for.

Here are some of the risks that the financial services industry routinely employs in client communications: interest-rate risk, inflation risk, longevity risk, retirement risk, liquidity risk, political risk and credit risk.

When you say these words to retail investors, how do you think they will respond? With understanding or with fear? Caution or concern? It’s hard to put a finger on it but, as Maslansky points out in his must-read book, retail investors may be thinking that you’re trying to instil a sense of fear.

Inciting fear isn’t a great tactic to use on someone you are trying to educate, engage with and advise.

Risk, however, is not a four letter word … or is it?

We are not recommending you eliminate the word risk from your vocabulary, but it may be time to exercise a little restraint.

Instead of identifying the risk and leaving it at that, try explaining the impact the risk may have in a way your audience will understand. For example, when you’re talking to a retail client about investing for retirement, consider replacing language like “… managing longevity risk” with an impactful statement like “… creating an investment portfolio that will provide an income stream for as long as you need it.”

Instead of identifying the risk and leaving it at that, try explaining the impact the risk may have in a way your audience will understand.

Your audience will know what you are talking about. Instead of feeling frightened into action (Avoid the risk!), the retail client is invited to partner with their advisor to create a solid portfolio – a positive outcome for everyone.

While talking about risk may be one way to explain a situation, it may also scare away your clients or influence them to make decisions that aren’t in their best interest.

Keep this in mind the next time you sit down to write a client-facing document, whether it’s a presentationregulatory document or anything in between.

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