The playwright George Bernard Shaw had it right: "The single biggest problem in communication is the illusion that it has taken place."

It's a problem throughout the financial services industry. Rampant jargon has been superseding clarity in investor communications for decades. Now, new research reveals that our poor communications may literally be putting investors at risk. The flawed transmission of financial information is obviously troubling, but the new research also suggests that fixing it represents an opportunity to enhance client engagement, satisfaction and loyalty.

What's at Stake

Financial services jargon is like that of any other industry or profession: It's rooted in the specialized terminology and verbal shortcuts that professionals have developed over the years to describe what they uniquely do. The difference is that, when it comes to clear and meaningful communications with customers about financial products and services, something critical is at stake—the client's ability to make sound decisions that shape the foundation of lifelong financial well-being.

The financial services industry's jargon problem has already received considerable attention. The Securities and Exchange Commission's (SEC's) plain-language initiative is a good step toward simplifying regulated disclosure communications. However, that project has addressed only the language found within well-defined prospectus boundaries. Other verbiage bombards investors daily, via mutual fund advertising and marketing pieces, asset manager and broker websites, direct mailings, retirement account enrollment materials—and conversations in financial advisors' offices everywhere.

A prime goal of the advisory relationship is to create understanding that leads to client comfort, confidence and investment success. The issue is whether our jargon-laden communications are, instead, sowing confusion that leads to indecision, inaction—or worse.

AARP Financial recently decided to take a closer look at how investors are coping with pervasive financial-speak, via a nationwide telephone survey of 1,200 adults conducted with research firm GfK Roper Public Affairs & Media. The research generated fresh evidence of the debilitating lack of clarity and outright obscurity of the communications. But the findings also point out a considerable consulting opportunity for advisors—the opportunity to help investors cut through the thicket of words that all too often surrounds investment decisions.

Costly Missteps

Bottom line, the research showed that most Americans find the language of Wall Street technical and confusing—with some disturbing consequences. When asked to grade the financial services industry overall on how well it explains saving and investing to consumers, two-thirds of adults give the financial services industry only a "C," "D" or "F."

Financial services professionals don't stack up very well against other professionals and professions, either. Almost three-quarters of those surveyed feel financial professionals use more jargon than their car mechanic, and more than half feel financial professionals use more jargon than doctors. About eight in 10 believe their car insurance policy is easier to understand than a mutual fund prospectus, and 79% say the same about prescription drug inserts.

Faulty communication is generating considerable unhappy fallout. More than half (52%) of the adults surveyed say they'd made an investment with a bad outcome—like owing unexpected taxes or paying an early withdrawal penalty—because they felt "confused by" or "didn't understand" an investment.

For many investors, the research suggests, the painful consequences of their confusion may be far more enduring and profound. Many investors are making missteps and missing opportunities—now and over the long term—because they can't understand financial products and services. What's more, many think it's all intentional.

More than half of adults believe that a major reason financial services professionals use jargon instead of simpler terms is to distract people from focusing on the fees they will be paying; nearly two-thirds say a major reason is to make a product seem more impressive. Roughly half say jargon is all about making consumers feel less confident that they can handle their own finances.

Making the Difference

To sum up, investors are confused and disillusioned—and they think the industry is doing it on purpose. Clearly, not everyone is to blame. But perception does become reality.

The good news is that Americans want to develop a better understanding of investment terms; nearly three- quarters of adults surveyed say so. There is also good evidence that advisors enjoy all the credibility required to help on this front. Only about three out of 10 adults in the AARP survey say they have advisors to help with investment decision making. But these "advised" investors are more confident in selecting the right investments (76% versus 55% of those without advisors). They also have saved more for retirement (20% with advisors say they have saved $250,000 or more, compared with 6% of the "unadvised").