Subtle changes in language can make an enormous difference to a client, according to Paul Brunswick, head of Invesco Global Consulting.
This is especially true when discussing a alternative investments such as real estate and real estate investment trusts (REITs), which clients are not as familiar with as they are with stocks and bonds, Brunswick said in an interview.
The shifts in language may be small and seemingly unimportant, such as replacing “durable” rental income with “consistent” rental income, or saying REITs are “more stable” than equities, rather than saying they are “less volatile,” Brunswick said. But advisors who make these kinds of changes can help clients better evaluate the suitability of different investments for their portfolios, he added.
Invesco released a study today that was designed to help advisors gauge the reactions clients are likely to have to different terms. The study, “Building Opportunities: The Compelling Language of Real Estate Investment Trusts,” aims to determine clients’ emotional response to common real estate investing words and phrases. The year-long survey started with conversations with industry experts and advisors, and also included interviews with accredited investors, and a quantitative survey of 500 accredited investors.
Invesco has completed 23 studies in four countries on the effects of language on investors in a number of areas, and the company regularly works with advisors to help them hone their presentations in the most impactful way possible, Brunswick said.
“This study was particularly relevant now because investors are interested in real estate investments because of inflation and the volatility of the market,” Brunswick said. “Words matter. If advisors know the right words to use, they have the confidence to start the conversation” and they can help clients decide what is the best option for their individual portfolios.
“It is important for financial professionals to effectively communicate with their clients the potential benefits of real estate investing so they can understand their investment choices, and the research upheld our longstanding belief that word choice matters when introducing REITs,” Brunswick said. “Although most of the investors surveyed had favorable views on real estate investing, their views shifted depending on how certain concepts were presented.”
The study revealed a number of traps that advisors can fall into when presenting real estate as a potential investment. For instance, telling clients “Investing in real estate is a great opportunity” is not as effective as telling them “there are specific opportunities that currently exist in the real estate market that we should explore.” Not all real estate is perceived equally, and some has a negative connotation right now, such as office space and retail, the study said. It also is important to note that real estate would be used for “a portion” of the portfolio, otherwise clients may think big changes are going to be made to their portfolios.
The survey showed that 60% of the investors think it is a good time to invest in real estate, but only 46% said they were likely to do so. “This could be attributed to the fact that they do not understand the role real estate could play in their portfolios and could cause some investors to miss opportunities that could benefit them,” Brunswick said.
In another example of how words can make a difference, the study noted that inflation is on the minds of most investors and advisors need to be able to explain that real estate investments might be able to help them play defense when it comes to inflation, but, again, the language used to ask the relevant question mattered. When asked what they would rather add to their portfolio for inflation protection, 24% selected “an inflation hedge,” while 76% liked “a source of income that can rise to stay ahead of inflation.” The phrase “hedge” is not a plainspoken potential benefit and often investors think of the term in a negative light, the study said.