It is said that smarter people tend to make smarter decisions. For fund managers, those decisions involve investors' money, so investors shouldn't be surprised when fund managers try to demonstrate how smart they are. But managers must take care how they do this.

The problem is that frequently, when fund managers try to display their "smartness", they can end up pushing investors away from their fund rather than reeling them in.

Many managers use convoluted phrasing and impenetrable technical jargon when describing what they do. Probably, they think it makes them seem smarter, but in truth it does the exact opposite. Academic research suggests that trying to sound smart makes you sound dumber than you are.

Daniel Oppenheimer, professor of psychology at Carnegie Mellon University, tested whether complex texts or longer words had a material effect on the perceived intelligence of the writer. Here's one of his conclusions about needlessly using long words:

"Anything that makes a text hard to read and understand ... will lower readers' evaluations of the text and its author."

That's not all.

When fund managers use unnecessarily complicated language, investors start having these thoughts:

  • This manager is going to be difficult to communicate with
  • If this manager cannot describe what they do in simple terms, do they understand it?
  • How on earth am I going to relay this to my investment committee?
  • If I cannot understand their strategy should I be committing capital to it?
  • When things go wrong will they be able to explain why?

And I'm not done yet...

Overly technical or formal language also creates an emotional barrier between manager and investor exactly when they should be building an emotional connection.

Investors are human beings, too – and investment decisions are just like any other human decisions: they are made on an emotional level first, then rationalized, later.

If there is no emotional draw, an investor may well assess your fund, but they will be looking for reasons NOT to invest. After all, they likely have a huge stack of funds to assess. The quicker they can eliminate a given fund, the faster they can move through the stack and leave the office.

If, however, you managed to build a strong emotional connection, they will view exactly the same information very differently. Instead of looking for reasons NOT to invest, they will (subconsciously) be looking for evidence to support this strong emotional draw. They will want you to win.

So, if you are a fund manager wanting an investor to think you are smart, what should you do?

Wear glasses? Fake a British accent? Put on a bow-tie?

Please. No.

Do this instead: write and speak with straightforward language; demonstrate your mastery of the complex by expressing it in simple terms. Not only will investors be grateful, but you will also seem more human to them and your chance of building an emotional connection will be far, far greater.

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