Why Wealth Managers Should Thank the Academy for Honoring <i>The Big Short</i> -- AKA Marketing 101

I'm not saying that you have to hire a celebrity to make a cameo appearance explaining investment strategies to your clients. But you can think outside the box and use analogies in your own explanations.
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If your clients haven't brought up the 2015 film The Big Short yet, they will soon. The comedy drama starring Christian Bale, Ryan Gosling and an unkempt-looking Brad Pitt has received five Oscar nominations, including Best Picture and Director, and is sure to raise client concerns about investment risk. The movie, based on Michael Lewis's 2010 book The Big Short: Inside the Doomsday Machine, is about the bad mortgages and collateralized debt obligation (CDO) bubble that led to the 2008 financial crisis, as well as the creators of the credit default swap market who profited from the crisis.

I saw the movie when it was first released and, frankly, I'm not surprised that it captured the Academy Awards' attention. The cast is, of course, phenomenal but what's perhaps most striking is the film's ability to explain complex and, let's face it, really dry topics like synthetic collateralized debt obligations (synthetic CDOs) to a mainstream audience. Explaining investment strategies in layman's terms in this way is a must-have skill for wealth management employees, especially those working in marketing or in client-facing roles such as financial advisors.

In fact -- advisors, take note -- inability to clearly explain how investments work is among the "5 Reasons to Fire Your Financial Adviser," according to an ABC News column written by Credit.com's Jeff Rose. In it, Rose warns investors to fire their financial advisors if they can't explain investment strategies to their satisfaction. That means that, even if you think you're explaining an investment vehicle perfectly well, the client rightfully should fire you if he or she doesn't understand your explanation. The U.S. News article "10 Signs You Should Fire Your Financial Advisor" gives investors further advice, telling them to fire their FAs if they too vaguely explain investment risk.

So, what do you do if a client asks you to explain an investment strategy, like an exchange-traded fund (ETF), and even after trying various different phrasings, the client still doesn't get it? If your knee-jerk response is to give up, think again. Giving up could mean losing this client and, what's even worse, it could be a symptom of your more pervasive inability to adjust your explanations to individual clients' unique levels of investment understanding. Sure, you're able to "talk shop" with your investment-savvy clients, but can you adequately explain these same concepts to a wealth inheritor who has never been faced with making investment decisions in the past and who doesn't have a single clue how even the most straightforward strategies, such as equities, work?

That's where the film The Big Short comes in. Faced with the task of explaining some of the most complex investment strategies to a mainstream audience, the film utilizes celebrity cameos, metaphors, and analogies. In case you've forgotten your high school and college English classes, a metaphor compares two seemingly unrelated things (like simply saying your love is a rose) and an analogy is a more complex, extended form of comparison. Anyway, The Big Short employs both rhetorical strategies.

For example, to explain the layers of tranches that make up mortgage bonds, the film uses the game Jenga, labeling the pieces "AAA" to "B" and using the nature of the game to illustrate the eventual topple-down result that, of course, ultimately happened with the collapse of the housing market. You can watch a video clip of that movie scene by clicking here. Then, to explain synthetic CDOs, the film uses the analogy of actress Selena Gomez betting $10 million on a Blackjack bet (representing a single mortgage bond), another person making a side bet on Gomez's good bet, and then another person making a side bet on that person's side bet on Gomez's bet, and so on. Economist Richard Thaler stands next to Gomez in the scene, explaining the analogy to viewers. You can watch a clip of that scene by clicking here.

The film's reasoning is clear: most people sitting in a movie theater either won't understand or, even if they do, will be completely bored by a jargon-filled explanation of mortgage bonds and synthetic CDOs. However, most of those same people will be familiar enough with Jenga or Blackjack to understand the film's analogies. Now I'm not saying that you have to hire a celebrity to make a cameo appearance explaining investment strategies to your clients. But you can think outside the box and use analogies in your own explanations. This technique won't cost you a dime but it will require you to think creatively. To help you get started, take a look through Jason Zweig's The Devil's Financial Dictionary, which uses sardonic humor to explain investment terms, or just surf the Web. For example, Zions Capital Markets uses the analogy of an art collection to explain ETFs in this YouTube video. The possibilities are endless.

Take my advice and I will see you next year on the red carpet!

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