The financial services industry has done a poor job of educating consumers, and should work on simplifying product offerings and more clearly identifying the risks associated with products, according to Joseph Iannicelli, president and CEO of the Standard Life Assurance Company of Canada.

In a presentation to the Canadian Club of Toronto on Monday, Iannicelli said the financial crisis has revealed the poor state of financial literacy in Canada. While the crisis has heightened awareness of financial issues among Canadians, he said it has not led to a more educated consumer.

“If anything,” he said, “it has pointed to a glaring hole in financial literacy.”

Many Canadians who saw their savings deteriorate in value during the financial crisis likely did not realize that their investments faced the risk of dropping by such a substantial amount, according to Iannicelli.

“The financial services industry has not been very good so far at educating consumers about financial risk, nor at creating simple, easy-to-understand products and services,” Iannicelli said.

“The financial services industry could and should have done more to protect consumers.”

He calls on the industry to simplify product offerings, and to provide better explanations of which financial objectives a product meets, the degree of risk associated with the product, and a realistic analysis of what taking that risk means to the consumer.

Iannicelli also calls for better and simpler Internet-based tools for researching products and services, and more creative approaches to education and marketing in order to increase consumers’ interest in financial matters.

In addition, he urges industry firms to build group savings plans that are affordable for small and medium sized business, and to help these businesses provide education programs to employees.

But the industry is only one piece of the solution. Iannicelli said consumers must also take responsibility for their own finances, and make greater efforts to educate themselves.

“Individuals need to ask more questions about the products that are presented to them,” he said. “They have to ask more questions about the fees they are paying, and the value of the advice they are receiving, especially when the market tumbles.”

Consumers must also learn to budget and spend more reasonably, use debt more intelligently, and accumulate savings more diligently, Iannicelli said.

He pointed to research conducted by the federal Task Force on Financial Literacy, showing that many Canadians believe that their Canada Pension Plan will take care of them in their old age, and are not saving enough to pay for even basic expenses in retirement.

“Canadians have to learn to balance current consumption with long-term planning for retirement,” he said.

Governments have a role to play, too. Iannicelli said that while the federal government have provided Canadians with effective vehicles for saving, such as the Registered Retirement Savings Plan and the Tax-Free Savings Account, it hasn’t been proactive in helping Canadians understand what they need to do to plan for their financial future.

He calls for a government-sponsored public awareness campaign – even a scare campaign – to make people more mindful of their responsibilities. In addition, school curricula should include mandatory courses on the basics of financial literacy, Iannicelli said.

IE