Keys to financial literacy

Making what can be difficult subject matter more understandable, Maio says, helps to create better client relationships.

“The more people feel comfortable and confident with what has been explained,” Maio says, “the more confidence they’re going to have in implementing the ideas that are going to help them in the long run.”

Sean Millington, an investment advisor with TD Wealth Private Investment Advice in Richmond, B.C., agrees. He believes that the time he takes to explain financial concepts to his clients makes the working relationship easier.

“I think it’s important that clients understand what you’re doing,” Millington says. “I’m the one in charge of managing their portfolio. But when I come to them with a recommendation, if they understand the framework in which I’m operating, it’s a lot easier for them to say yes or no, because now they have an understanding of the way [the recommendation] meshes with their goals and objectives.”

As well, when you introduce financial education into your day-to-day practice, your clients won’t be the only ones learning.

“The old adage that the best way to learn is to teach can be very [applicable to] an advisor,” says Gary Rabbior, president of the Canadian Foundation for Economic Education in Toronto. “If you’re putting yourself partly in an instructional environment with a client, you can actually end up learning a ton along the way at the same time.”

Financial education is becoming increasingly important, as clients are taking a more active role in planning their financial futures. Public pension benefits are far from adequate and employee pension plans are shifting to defined-contribution structures, placing the onus on the participating individuals to make more of the financial decisions. In addition, investment products are becoming more diverse and clients are recognizing the need to understand better the recommendations their advisors are making.

Further, if your clients have a better understanding of your recommendations, their feeling of trust and loyalty toward you also is likely to improve.

You don’t have to be a professional educator to help to increase your clients’ level of financial literacy. All it takes is the communication skills you should already have, an understanding of each client’s level of knowledge and some patience.

Here are some steps you can take to help to advance your clients’ financial education:

– Decide what to cover

“Financial literacy” is a broad term that can include a multitude of topics – from managing a chequing account to investing in hedge funds. To narrow down your approach, think of the issues that are relevant to your individual clients. Topics you might cover could include: debt; basic numeracy issues, such as compounding; asset classes; fees; investment risk; and registered savings vehicles, such as tax-free savings accounts and RRSPs.

Financial literacy begins with understanding your clients’ objectives, says Joanne De Laurentiis, president and CEO of the Investment Funds Institute of Canada in Toronto. You should think of yourself as a behavioural coach, she says, who is there to help your clients better understand their goals, and to help your clients reach those goals through proper planning.

“One of the big reasons why [clients] say they have a good relationship with their advisor,” De Laurentiis says, “is because their advisor is coaching them along the way.”

That coaching, De Laurentiis adds, includes explaining the reasoning behind financial decisions and advising your clients against overreacting to market events.

– Start the discussion

Your initial conversation with a client should help you to understand the extent of his or her knowledge of investments and other financial issues, which will help you to decide which topics to cover.

Remember that these lessons are for your clients – not you, Rabbior says. Think about what your clients want to learn rather than what you would like to teach.

“The mistake we make is sometimes starting with ourselves and saying, ‘Here’s what I think you should know’,” Rabbior says. “We need to turn it 180 degrees, asking clients, ‘What are you interested in?’ and ‘What do you need to know?'”

Tom Hamza, president of the Investor Education Fund (IEF) in Toronto, says those questions, and others more specific to each client’s personality and goals, can be addressed in your initial conversation with your clients regarding the “know your client” document. Often, the topics your clients will want to learn about most are concepts that relate to their objectives and goals, which will be identified during that initial conversation.

– Tailor lessons to your clients

Just as the material you choose to present to a client should be tailored specifically to that client, so should the method through which you present that information.

Millington uses his communications skills honed in a previous career as a business commentator on Global TV to help him explain complex financial concepts to his clients. Millington frequently adjusts his approach to suit the client’s reaction, to ensure that the client understands and is engaged.

“If I’m talking with a client and they’re jumping ahead of me and filling in the blanks as we go, then I will adjust my conversation accordingly,” Millington says. “But if I see them looking like their eyes are crossing, then I dial it back and make sure I’m explaining things in a sufficiently straightforward manner.”

– Offer small doses

To make sure your clients make the most of your lessons and will want to continue with their learning – and their relationship with you – it’s best to keep things short and simple.

“We often flood them with too much information, too many resources, too much to read,” Rabbior says. “That’s probably one of the biggest mistakes we make.”

Instead, choose a small amount of information for each meeting – maybe only one or two points – that suits your client’s interests and knowledge level.

– Take notes

With many topics to cover and various knowledge levels and areas of interest among your clients, Millington says, it can be difficult to keep track of the subjects you have covered with each client. He recommends taking detailed notes to track each client’s progress.

Keeping tabs on what your clients know and what they’re interested in, Rabbior says, can make it easier to make financial literacy an everyday part of your practice. Jot down which methods and resources were successful, and which were not.

“You can actually flag things in a file that are ‘hit and miss’,” Rabbior says. “So, from a very cursory look, when you make new content with a client, you can very quickly recall what worked, and why, and what the need was.”

– Assign homework

Although you have a role to play in your clients’ financial education, you can’t do everything. Take advantage of the many reliable third-party resources your clients can turn to for more information.

Often the clients who need to learn the most are those who have the fewest assets, Hamza says. Therefore, it might not always be feasible for you to spend a lot of time going through basic financial concepts with these clients. It probably would be better use of your time – and of your clients’ time – to recommend books and websites for these clients to explore independently.

There are ample resources available – from books and brochures to videos and webinars – for clients to take advantage of. Some of these tools can be useful in explaining concepts that are hard to explain in person.

“You should not be trying to reinvent the wheel,’ De Laurentiis says. “For example, if you’re having a conversation with your client about mortgages and how they work, there are many excellent mortgage calculators.”

Start by finding out what resources your dealer offers, De Laurentiis says. Also, develop a list of reputable financial-education websites that you have vetted. For example, the Financial Consumer Agency of Canada (www.fcac-acfc.gc.ca/) and the IEF (www.getsmartaboutmoney.ca) offer excellent financial education websites.

Warn your clients that a lot of questionable information and bad advice also can be found on the Internet. Ask your clients to check with you regarding any online resources they are referring to that are not on your vetted list.

– Go live

Millington brings third-party resources to his clients through live events. Every three months or so, Millington and his team host a seminar for his clients to shed light on some aspect of financial literacy. A recent event, for example, focused on bonds because many of Millington’s clients have bonds in their portfolios.

For some subjects, Millington’s team members make the presentations. For more esoteric investment topics, such as asset allocation and portfolio construction, Millington invites an expert, such as a portfolio manager, to make the presentation.

“The seminars are usually pretty instructive for clients,” Millington says. “They get a peek behind the curtain to see how mutual funds work, what’s going on underneath the cover of the name, what kind of investments they hold and why they hold them, and the strategy involved.”

– Expand the class

Invite your clients to bring their children along for one or more education session. Including members of the younger generation in the meeting, Rabbior says, can reduce the fear that you are “talking down” to your clients. You can make it a child-centred meeting; offer to teach your clients’ children about financial concepts, and your clients can learn along with them.

“Clients often don’t feel capable of having those conversations with their children,” Rabbior says. “But helping to educate your clients’ kids helps in many ways. It particularly helps to build the trust and respect between the client and the advisor.”

– Discourage truancy

Some clients might not be enthusiastic about feeling like a student again. Your challenge is to make sure the lessons are relevant to each client’s needs and presented clearly so that he or she will become interested.

Some clients, however, may be intimidated by financial or numerical concepts altogether, Hamza says. Don’t let a learning difficulty have you skipping important details, because that could lead to problems later, should markets turn volatile. Instead, encourage your clients to learn more by providing a variety of educational resources.

If a client is not responding, try a different method. Perhaps this client is more receptive to videos and infographics than to text, for example.

Of course, Hamza says, everyone has some responsibility for his or her own financial education. Your role is to try to make the financial education process easier by providing guidance and recommending resources and tools that explain the concepts that are important to your client.

Maio helps to ensure he has an educated client base by seeking out individuals who have a real thirst for financial knowledge: “I’m looking for people who are motivated to put themselves in a position to succeed financially. If they just generally don’t have an interest, then I’m going to find a way to make them have more of an interest.”

© 2014 Investment Executive. All rights reserved.