At the beginning of each year, people will often analyze everything from their health to their finances and set new goals for what lies ahead. As you meet with your clients to discuss their financial goals and investments — particularly with RRSP season upon us — why not also use the conversation to help increase their financial knowledge?
You may wonder if it’s really worth it, but it is. A more informed client is a more engaged one. By helping clients build the knowledge, confidence and skills they need to have greater financial comfort and security throughout their lifetimes, you’re providing added value and strengthening your client relationships.
Recent research by the Ontario Securities Commission (OSC) found that only 34% of Canadians have high financial literacy. The rest either underestimate their financial knowledge, which could make them overly conservative, or think they know more than they actually do, which may cause them to take unnecessary investing risks.
What about the Canadians who aren’t investing? More than half say it’s because they lack the knowledge and confidence, according to an IIROC Access to Advice study.
There are also gender differences. A Statistics Canada Report shows that women tend to have lower financial literacy scores than men and are less likely to have confidence in their financial skills. This is especially concerning, as women tend to live longer than men, have higher disability rates and typically amass lower cumulative lifetime savings.
What’s clear is that many Canadian investors — undoubtedly many of your clients included — need help increasing their financial knowledge just as much as they need help building their financial wealth. RRSP season is an opportunity to educate and engage them while also building trust in the value of your advice.
The more your clients understand financial concepts, the more engaged they’ll be in the planning and investment process. This provides an opportunity for you to help them better articulate and work toward their goals. Indeed, clients who have a deeper appreciation for the value of growing their registered savings may be more inclined to utilize any available contribution room in their TFSAs and RRSPs.
How advisors can encourage financial literacy during RRSP season
1. Share the wealth — of knowledge
Help improve your clients’ financial literacy by taking the time to educate them. Look at ways you can incorporate client education into your practice. Consider hosting seminars, recommend helpful websites and resources, or share links to financial podcasts, videos or articles.
Follow up to answer any questions your clients might have. For most clients, this shouldn’t involve a deep dive into technical concepts. Rather, it’s a gradual process designed to increase their knowledge a little at a time, while building their engagement and enthusiasm for investing.
- The McGill Personal Finance Essentials course: A free online financial literacy course that teaches the basics of personal finance. Upon completion, your clients will receive a McGill Personal Finance Essentials attestation.
- Get smarter about money : An extensive selection of easy-to-read investing articles, planning, budgeting and tax tips, calculators and tools.
2. Improve the investor experience
The more you can encourage literacy, the greater the opportunity to increase client satisfaction. The OSC study found that “Canadians with high financial literacy are more satisfied with their experiences as investors.” With a greater understanding of financial concepts, they’re more engaged as clients and are better able to make informed investment decisions and avoid fraud.
3. Don’t rely solely on digital tools to do the teaching
Few clients are willing to go online and learn everything they need to know on their own about their investing options, or even about basic concepts like compound interest. They’re intimidated, and unlikely to spend much time becoming financially literate. You can help direct their learning by discussing or pointing out the key things that matter about any given topic.
4. Understand human behaviour
Behavioural economics (BE) shows us that people don’t always make logical and rational decisions, and often don’t act in their own best interest. Leverage BE insights to help you identify and moderate a client’s biases to improve their financial outcomes. Some of the more common ones are overconfidence bias, herd mentality, loss aversion and confirmation bias. Understanding what is driving a client’s behavior will help you help them.
5. Communicate so clients understand
Clients can become overwhelmed by technical terms and too much information. During RRSP season, they often feel surrounded by financial advertisements and confusing information. In your client meetings, avoid acronyms and technical explanations. Instead, focus on outcomes that matter to them.
When writing to clients, personalize your communications as much as possible and write in terms they’ll understand. Make sure your clients can absorb enough financial information in order to make informed decisions and take appropriate action. The upshot could be they’ll recommend you to their friends because you’ve been so helpful in increasing their financial knowledge and confidence.