Your role in financial literacy

But the problem with financial literacy is summarized in research from a few years ago: people would rather go to the dentist than learn financial literacy! Financial literacy sounds complicated, difficult and time-consuming. I know one particularly helpful website for financial literacy has a five-week program. Five weeks!

Perhaps financial literacy has an image problem. As I conducted my research for this article, I found that the U.S. has a renamed financial literacy month: Financial Capability Month. While I think that’s a step in the right direction, I’m not sure it will convince many people to switch from Black Friday shopping to Financial Capability learning.

In this column, I like to write about things we can collectively solve, or at least take steps to solve. I’m not sure financial literacy is one of those things. The right solution is to continue increasing financial education in schools, and not just in an optional accounting or finance course in high school. Instead, financial basics should be taught to all students in elementary school, and reinforced and expanded on throughout students’ education. Once someone reaches adulthood and confronts financial issues, it’s too late to retrain them in their spending, saving and investing habits.

Nevertheless, there are things both advisors and firms can do. In fact, given the challenge of financial literacy, our role is important. Firms and advisors can:

• Adopt the “less is more” approach. This is a variation of my favourite expression — “keep it simple.” I recently bought a new dishwasher with a 50-plus-page user manual, which I confess I haven’t cracked. The dishwasher also came with a single-page quick-start guide, which I reviewed immediately. The guide gave me all the information I needed to operate the dishwasher. I probably should read the user manual, just as Canadians should become more financially literate. The fact is, I’ll probably use the manual when something goes wrong, and I must fix it. In the meantime, I’m a big fan of receiving key information in a short, easy-to-read document.

• Meet clients where they are. Let’s acknowledge clients’ general level of financial literacy in our communications with them and when developing or using client-facing tools. Let’s not try to teach clients all the details of how investing works or the complexities surrounding the process.

One recent client-facing document I saw provided information in basis points, and then proceeded to explain what a basis point is and how it works. If we know that clients don’t understand what a basis point is (and many don’t), let’s use percentages and avoid the teaching moment, which introduces unnecessary complexity and promotes attention loss.

Here are a few additional suggestions for advisors:

• Be client-centric. Make your client conversations about the client instead of investing. Focus on the client, their goals and their progress toward those goals. Avoid taking clients through all the ins and outs of investing — unless, of course, they ask for that.

• Use plain language. This one doesn’t get old, and we’re not at the finish line yet. We don’t need to use acronyms and industry-insider terminology to talk to clients. When we do, clients complain that they need a glossary. Instead, let’s avoid the need for one.

• Focus on key information. Rather than trying to teach clients all the details of their portfolios, start by providing them with key information, and go a level deeper only if they’re interested. They’ll learn better that way.

Here are additional suggestions for firms:

• Adjust training. Firms that support advisors in the sale of investment and insurance products should adjust their training and advisor support mechanisms. While advisors need to be well-versed in the details, firms should convey the necessity of a simpler approach when communicating with clients, and support advisors in adopting it.

• Provide timely information in client-facing tools. Client-facing tools should provide information and tips contextually, just in time to inform a decision. Instead of providing all information in one place (even if it is in plain language!), we always need to make the effort to identify the key pieces of information that clients need and the step in the process at which they need it.

• Improve client disclosures. I’m pleased that the move to plain language is taking hold in our industry. Fund Facts was a great leap forward for mutual fund investors; however, it’s sent to clients only at the point of sale and isn’t entirely in plain language. Ongoing mutual fund communications and disclosures aren’t yet even as concise or plainly written, nor are disclosure documents for other investment or insurance products. When there are specific requirements for disclosures, the principles-based approach adopted by regulators provides flexibility in how to meet them. Clients will appreciate if we use that flexibility to produce some quick-start guides. If you turn that 50-page dishwasher manual into a 50-page dishwasher manual in plain language, I still wouldn’t read it!

Here’s hoping that the education system and available financial literacy support continue to improve Canadians’ financial literacy. In the meantime, we can help by adopting these measures.

Susan Silma is a lawyer and former regulator with a deep understanding of the client perspective, and she is passionate about simplifying and humanizing the client experience in financial services.