The Inside Storey: A tale of two stories

In his latest blog, Andrew Storey, Propositions Director at EV, discusses financial jargon and how it can hinder not help individuals when making important financial decisions.

It's no wonder people are confused by financial terms. A recent survey conducted by Virgin Money showed that a third of Brits are confused when it comes to matters of a financial nature. I think if we talked to customers like we do amongst ourselves in the financial industry, the general population would be considerably more confused than even that survey showed.

Even if you think you understand, there are often different ways to interpret the same phrases. Take the title of this blog - “A tale of 2 stories”. Is that a discussion around 2 distinct books or a single story about of 2 floors of a building?

As I work for a firm called EV, where we provide hybrid advice solutions, we are no strangers to seeing multiple definitions for the same terms. We have one in particular that has a double meaning.

"Our ESG model helps identify how sustainable your investments are"

Surely that’s clear enough? What is your first thought on seeing that? Here’s what we offer.

Story 1 - Forecasting

Looking at retirement income? Wanting to know if your money will last for your lifetime if you take drawdown? Then you need to consider the sustainability of your funds and whether they will be there to cover your expenses throughout your life.

As we don't know what the future will bring we have to make assumptions about what sort of returns your investments could achieve over a fairly long period, often decades.

To do this, we have created an Economic Scenario Generator (ESG) model which creates possible outcomes for investment returns, which allows us to check to see if your money would last throughout your retirement in a wide variety of good and bad outcomes.

By using 1,000s of possible future returns across multiple assets, we can see how many scenarios will successfully meet your expenses, and how many don't. This gives us a good idea of how likely your money is to last or not.

Our ESG model can therefore check to see how sustainable your investments will be, and if it is suitable for you.

Story 2 - Environmental investing

Climate change is a real issue for today's world and your investment can help make a real difference for the future. The problem is identifying both what your preference are in this area and how fund managers who look after your investments are matching those needs.

Areas such as Environment, Social and Governance (ESG) are part of this sustainable investment categorisation.

Like understanding the risk profile, it's important to have a repeatable process for which an ESG investment preference can be set. A suitable ESG questionnaire can set the scene and allow a fuller discussion, either to identify the priority of sustainable investing or even the more detailed preferences.

When combined with information provided by fund managers using the same ESG categories, it makes it easy to identify a suitable investment based on sustainable investing preferences. This completes the ESG model from personal preferences to finding the right investment.

Therefore our ESG model can check to see how your portfolio is sustainable and whether it is suitable.

In summary

If we don’t have distinct and easy-to-understand messages, what hope for those not experts in the financial services industry? It's therefore important when communicating to set the context, and to avoid using jargon whenever you can.

In this case, we could have used:
Story 1 - “Ensuring your money will last in retirement”
Story 2 - “Investing to meet your environmental and social concerns”

Further reading

Andrew discussed the development of our new financial planning software for advisers, EVPro, his approach to innovation, and his personal quest to find a “one-click” problem-solving solution that improves your clients’ financial planning outcomes, in a previous article.

Click here to read; My quest for the ultimate automated advice and Getting the right trade off for cash flow planning