Special Feature

Consumer Insights

Consumer Insights offers an exclusive series of articles analyzing the results of the on-going Financial Comfort Zone Study, conducted by Missis­sauga, Ont.-based Credo Con­sulting Inc. in partnership with Montreal-based TC Media's investment group. (Investment Executive is published by TC Media's investment group.) The survey, conducted monthly in English and French, is designed to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. The number of respondents is expected to grow to 12,000 within 12 months.

By Rudy Mezzetta | August 2017

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 financial 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-in-time 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 in 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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