SUR­VEY

Investment Executive - - FRONT PAGE - BY RUDY MEZZETTA

Clients with low fi­nan­cial lit­er­acy are less com­fort­able talk­ing with their ad­vi­sors.

cana­di­ans with low lev­els of fi­nan­cial lit­er­acy are less com­fort­able speak­ing with their fi­nan­cial ad­vi­sor and are more likely to con­sider switch­ing ad­vi­sors vs Cana­di­ans with higher lev­els of fi­nan­cial lit­er­acy, ac­cord­ing to a re­cent poll con­ducted by Mis­sis­sauga, Ont.-based Credo Con­sult­ing Inc.

No­tably, in­di­vid­u­als with low fi­nan­cial lit­er­acy also were much less likely to say they had the abil­ity to as­sess the qual­ity of the ad­vice they re­ceive vs in­di­vid­u­als who had higher lev­els of fi­nan­cial lit­er­acy, ac­cord­ing to the poll.

These find­ings were drawn from re­search con­ducted by Credo for the on­go­ing Fi­nan­cial Com­fort Zone Study, a na­tional con­sumer sur­vey, in part­ner­ship with Mon­treal-based TC Me­dia’s in­vest­ment group. (TC Me­dia pub­lishes In­vest­ment Ex­ec­u­tive.)

Al­though, on the sur­face, these find­ings may ap­pear coun­ter­in­tu­itive, the dis­cov­ery that in­di­vid­u­als with lower lev­els of fi­nan­cial lit­er­acy are less re­cep­tive to ad­vice that could help them im­prove their fi­nan­cial health is not sur­pris­ing, says Bran­don Ber­telsen, re­search di­rec­tor at Credo.

“If you’re not com­fort­able talk­ing about fi­nan­cial mat­ters in gen­eral, and you’re not com­fort­able talk­ing to your fi­nan­cial ad­vi­sor,” Ber­telsen says, “then you’re not as likely to build that trust re­la­tion­ship with your fi­nan­cial pro­fes­sional.”

Credo asked sur­vey par­tic­i­pants a se­ries of ques­tions as part of a fi­nan­cial lit­er­acy test, then di­vided par­tic­i­pants into quar­tiles based on their scores. Par­tic­i­pants with the low­est scores were placed in the fourth quar­tile, while those who scored high­est were put in the first quar­tile. Credo then com­pared how each quar­tile re­sponded to a va­ri­ety of ques­tions re­gard­ing at­ti­tudes to­ward fi­nan­cial well-be­ing and ad­vice.

Among sur­vey par­tic­i­pants who work with an ad­vi­sor, those in the fourth quar­tile of fi­nan­cial lit­er­acy gave an av­er­age score of 3.6 out of 10 to the state­ment: “I am con­sid­er­ing find­ing a new fi­nan­cial ad­vi­sor.” In com­par­i­son, those in the first quar­tile who work with an ad­vi­sor gave a score of 2.2; those in the sec­ond quar­tile gave 2.3; and those in the third quar­tile gave 2.5.

In ad­di­tion, par­tic­i­pants in the fourth quar­tile of fi­nan­cial lit­er­acy gave an av­er­age score of 7.7 out of 10 to the state­ment: “I am com­fort­able talk­ing with my fi- nan­cial ad­vi­sor.” In com­par­i­son, those in the first quar­tile gave that state­ment an av­er­age score of 8.4; those in the sec­ond quar­tile gave a score of 8.2; and those in the third quar­tile gave a score of 8.1.

How­ever, par­tic­i­pants in the fourth quar­tile gave an av­er­age score of 6.2 to the state­ment: “I have con­fi­dence in my abil­ity to eval­u­ate the qual­ity of fi­nan­cial ad­vice.” In com­par­i­son, those in the first quar­tile gave an av­er­age score of 7.1; those in the sec­ond quar­tile gave a score of 6.9; and those in the third quar­tile scored the state­ment 6.6.

Higher lev­els of fi­nan­cial lit­er­acy al­low peo­ple to be­lieve they are in greater con­trol of their per­sonal fi­nances and have the tools to with­stand eco­nomic shocks, says Jane Rooney, Canada’s fi­nan­cial lit­er­acy leader, who is over­seen by the Ot­tawa-based Fi­nan­cial Con­sumer Agency of Canada.

Ad­vi­sors have a crit­i­cal role to play in im­prov­ing lev­els of fi­nan­cial lit­er­acy, says Rooney. “Ad­vi­sors see peo­ple at ev­ery life stage,” she says, “so they can pro­vide just-in­time in­for­ma­tion to help peo­ple make in­formed de­ci­sions.”

Greg Pol­lock, pres­i­dent and CEO of the Toronto-based Fi­nan­cial Ad­vi­sors As­so­ci­a­tion of Canada (a.k.a. Ad­vo­cis), agrees with Rooney re­gard­ing the role ad­vi­sors can play in help­ing their clients un­der­stand the op­tions avail­able to them. Pol­lock was named to the gov­ern­ment’s Na­tional Steer­ing Com­mit­tee on Fi­nan­cial Lit­er­acy, which is chaired by Rooney, in Fe­bru­ary.

“A lot of prod­ucts to­day are rel­a­tively so­phis­ti­cated, and be­com­ing more so from our point of view,” Pol­lock says. “Take, for ex­am­ple, some of the rules around TFSAs and with­drawals. Some of these prod­ucts do re­quire ex­ter­nal ad­vice and we be­lieve, at the end of the day, we are serv­ing the in­ter­ests of our clients by en­sur­ing they get the right ad­vice on the right prod­ucts at the right time.”

One key to im­prov­ing fi­nan­cial lit­er­acy is find­ing ways to help Cana­di­ans be­come more com­fort­able i n ask­ing for ad­vice and help, and by pro­vid­ing ac­cess to un­bi­ased in­for­ma­tion when they need it, says Neil Par­menter, pres­i­dent and CEO of the Toronto-based Cana­dian Bankers As­so­ci­a­tion (CBA).

“How do you dis­tin­guish true fi­nan­cial ed­u­ca­tion pro­grams from, in ef­fect, mar­ket­ing? To me, there’s a huge dif­fer­ence,” says Par­menter, who also is a mem­ber of the Na­tional Steer­ing Com­mit­tee on Fi­nan­cial Lit­er­acy. “I think the banks all do a good job of pro­vid­ing that fi­nan­cial ed­u­ca­tion piece, but there’s al­ways room for im­prove­ment.”

The CBA pro­vides a va­ri­ety of fi­nan­cial ed­u­ca­tion pro­grams, in­clud­ing the Your Money Stu­dents and Your Money Se­niors ini­tia­tives.

Ad­vi­sors should re­dou­ble their ef­forts to make sure they are com­mu­ni­cat­ing with clients at a level that is ap­pro­pri­ate, says Kelley Keehn, the con­sumer ad­vo­cate for the Toronto-based Fi­nan­cial Plan­ning Stan­dards Coun­cil and a for­mer fi­nan­cial ad­vi­sor.

“I was in the fi­nan­cial [ser­vices sec­tor] for 12 years, and I thought I was speak­ing re­ally clearly to clients. And only in the past 13 years [since I’ve been] out of the in­dus­try, that I re­al­ized I wasn’t,” Keehn says. “I wasn’t break­ing things down for clients, and I wasn’t an­tic­i­pat­ing all of their other fi­nan­cial needs.”

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