As national consultations on financial literacy get underway, financial advisors are set to come under the microscope for the role they play in educating investors — and could face pressure to expand their efforts in this area.

The federal Task Force on Financial Literacy, which has been appointed by the Department of Finance to create a strategy for enhancing financial literacy in Canada, is preparing to embark on a six-week tour of Canadian cities to gather public input.

The task force will assess the various ways that Canadians are currently educated on financial matters, and is working to develop a co-ordinated national strategy that incorporates and enhances the initiatives that are currently in place. The task force acknowledges that the private sector — and the financial advisor community in particular — is an important player in the education process.

“The research that we’ve commissioned to date shows that financial advisors are the most important and most influential source of advice,” said Donald Stewart, chairman of the task force and CEO of Toronto.-based Sun Life Financial Inc. , in a teleconference with members of the media. “They obviously are going to play — and do play — a very critical role in ensuring that customers are well served for the basis to make responsible financial decisions.”

The task force points to research from Statistics Canada showing that more than half of Canadians identify their financial advisor as the person with the greatest amount of influence on their financial investments.

Through consultations, the task force hopes to determine the role that Canadians think advisors, as well as other parties, should play in the financial literacy puzzle. Said Stewart: “We would expect in our consultation process to hear a considerable amount of additional information around that.”

Experts on financial literacy say advisors are in an influential position, when it comes to educating consumers, because of their close relationship with their clients.

“The role of the advisor is critical to the communication of financial concepts,” says Tom Hamza, president of the Toronto-based Investor Education Fund,which is funded by the Ontario Securities Commission, “because [advisors] do have a deeper relationship with many Canadians than virtually any other institution — certainly from a face-to-face perspective.”

But the financial services industry is not doing enough to educate consumers through those relationships, critics say. Keith Costello, president and CEO of the Mississauga, Ont.-based Canadian Institute of Financial Planners, says the recent financial crisis highlighted the fact that many advisors had not educated their clients sufficiently.

“I don’t think we’ve done enough,” Costello says. “But I do think there’s momentum and consciousness from the advisor and planning community that we need to do more.”

Financial services firms also seem to be recognizing the importance of educating consumers, with a number of interactive websites and educational campaigns having been launched by the industry recently. For instance, Mackenzie Financial Corp. of Toronto has developed an investor education website that features guides on a variety of aspects of financial planning, including investor psychology, investing for your children’s education and teaching children about money.

Another example is the Snapshots pro-gram, launched last year by Toronto-based DundeeWealth Inc.’s Dynamic Funds division. The online resource provides educational material to both investors and advisors on financial decisions that need to be made during various life events, such as marriage and having a baby.

The program is designed to provide investors with questions to ask advisors, explains Terri Williams, vice president of editorial services and production with DundeeWealth, and to provide advi-sors with the answers.

Helping clients know what questions to ask is an important aspect of financial literacy, Williams says, as it leads to more effective advice. “[Clients] need to know what to ask, and how to filter the answers,” she says. “They need to work with their advisor to make sure that the decisions that are being made suit what their needs are.”

Working with clients who have a foundation of knowledge also produces benefits for the advisor, experts say. “This can potentially be a much richer relationship between advisor and client,” says Greg Pollock, president and CEO of Advocis and a member of the Task Force on Financial Literacy, “if the client is better versed in the process of financial planning and in the kinds of products and services that are available to Canadians.”

@page_break@The dynamics of the client/advisor relationship ultimately change when the client is more knowledgeable, says Hamza. There is less second-guessing by the client, conversations become more sophisticated and, rather than making decisions for clients, advi-sors take on more of a consultative role. “That’s a lot more rewarding,” he says, “and it allows [advisors] to provide better service.”

Williams points out that educated clients are also more likely to understand the volatile nature of markets, and as a result, are less likely to panic when markets decline: “They’re less likely to have their emotions run away with them if they have some knowledge.”

Efforts to educate clients should start at the very beginning of a client/advisor relationship, says Costello. He encourages advisors to provide new clients with some elementary materials on the basics of financial planning and investing. Advisors should also maintain ongoing education throughout the duration of a relationship with a client, he says, by providing clients with easy-to-understand information on any new trends and financial solutions that emerge.

A challenge for advisors, when it comes to education, is overcoming a client’s perception that the information provided may be biased and is intended to help generate sales. Indeed, the task force acknowledges Canadians have a hard time identifying credible, reliable sources of financial information.

For education to be effective, says Hamza, information provided by advisors must not focus on products: “The key is that it always has to be an investor-centric piece of information — not based on selling. It’s difficult sometimes for people who are in the battle for sales to see that.”

Educational materials distributed by financial advisors should be produced by governments or independent organizations such as CIFPs in order to be objective, Costello says. He is hopeful the task force will develop a strategy for distributing such independent resources through the advisor network: “Advisors can be a delivery vehicle for some of this basic information on all the areas that a client should understand.”

Costello urges financial advisors to incorporate educational efforts into their practices as a service that benefits clients and builds trust in the client/advisor relationship: “I see it as a value-added service.” IE