Editor's Note: This article is part of the Financial Advisor series "How I Solved It." Advisors describe a client with a problem and what they did to help.

If a financial advisor can’t explain a client’s finances, the client will go to someone who can.

One California advisor found that out when he picked up an unhappy client a couple of years ago, a woman facing a tax and investment conundrum. The advisor was able to help educate her, and they built a long-lasting relationship on his counsel.

Ryan Serrecchia, an executive vice president and partner at EP Wealth Advisors, a Torrance, Calif., firm that manages $7 billion in client assets, was the advisor, and a woman bewildered by her financial situation had been referred to him. The recently widowed client had suddenly found herself in charge of the large estate that she and her husband had amassed, including $2 million in liquid assets and $5 million in rental property and racehorses. Her specific problem was that she did not understand why her portfolio was down in value while at the same time she owed capital gains taxes for the year 2018.

“The husband in this situation had managed all the finances without the wife being actively involved,” Serrecchia said. After the husband died, “she hired a management company to handle the rental properties and she sold the racehorses, which had been her husband’s passion.” But the buildup in capital gains taxes made no sense amid the investment losses.

Serrecchia examined her 1099, realized gain and loss reports, and account statements, which showed the husband had been trading options with a covered call strategy.

“As the market increased, his options were called, triggering a sale of the stocks, which realized a gain. But he immediately rebought the stocks, only to have the market decline 20%, so the portfolio was showing a loss," Serrecchia said. “Since the husband was not able to sell after the year-end decline [because he had died], he couldn’t realize the losses that had incurred to offset the earlier gains, which is a strategy known as tax-loss harvesting. So his wife was left with having to pay capital gains while the portfolio showed an unrealized loss.

“This situation that the widow had inherited turned into a teachable moment for the two of us,” Serrecchia said. “Moments like this—helping to educate clients—are one of the reasons I went into this business.”

The widow was not alone in her confusion. Studies have shown that most Americans don’t understand even the basics of finances, much less more complex concepts like covered calls and tax-loss harvesting. Many lack the basic financial knowledge and preparedness necessary to manage their personal finances, according to a study co-sponsored by Financial Industry Regulatory Authority’s Investor Education Foundation along with the Global Financial Literacy Excellence Center at the George Washington University School of Business.

“Investors are seeing a rapid evolution of the financial landscape, from the introduction of more complex financial products and instruments to a fundamental shift in the retirement system that places responsibility for saving and investing squarely on the shoulders of individual Americans,” said Gerri Walsh, president of the Finra Foundation, when the study was released last October.

Financial problems caused by Covid-19 have highlighted the lack of financial literacy in the general population and intensified the need for better education, according to a recently released Charles Schwab financial literacy survey.

One of Serrecchia’s responsibilities at EP Wealth Advisors is to make sure the teams there are up to speed on best practices.

“In this case, the widow wanted to understand what was going on. Another advisor and a CPA could not sufficiently explain the situation to her. Beyond solving her problem, it was crucial to explain exactly what happened so she could regain trust,” he said.

“There is a lot of distrust of the industry by consumers, and there are some bad actors in the business, so if something is not explained sufficiently, a person’s barriers go up,” he added. “We need to be able to explain the finances without jargon so clients feel comfortable.”