As Canadians continue to struggle to become more knowledgeable about their finances, financial advisors are playing a bigger role in helping investors understand how key life milestones affect their overall financial picture.
It’s a knowledge gap that Seema Sharma, president of Wealth & Estate Financial Canada Inc. in Mississauga, addresses by dedicating her first meeting with new clients to learning about their financial situations, the personal and professional factors that could affect their decisions and, most importantly, to educate them about money matters they may not understand.
“When my clients visit me, they book me for an hour, but they stay for three,” Ms. Sharma says. “They have so many questions.”
A lack of financial literacy is an issue plaguing many Canadians. In a 2015 survey by the Organization for Economic Co-operation and Development, only 61 per cent were able to correctly answer five out of seven financial knowledge questions.
To help Canadians improve their knowledge, the previous Conservative federal government appointed a national financial literacy leader in 2014. Jane Rooney left the role in April after launching a national strategy and online resources to help people learn about managing their money for key life milestones, such as saving for a home and planning for retirement. (Financial literacy is now part of the Financial Consumer Agency of Canada’s [FCAC] mandate under Judith Robertson, who was named FCAC commissioner in August.)
But digital tools and programs may not help most Canadians understand their finances, putting the onus on advisors and financial professionals to pick up the slack, says Ms. Sharma, who has volunteered 3,000 hours in the past three years to teaching financial literacy.
“I have yet to meet someone who said they went online and learned everything about registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs),” she says. “The government, financial institutions and advisors all need to take responsibility for teaching financial literacy.”
Heather Holjevac, an independent fee-for-service financial planner, says that without formal financial literacy programs in place for the broader public that go beyond digital resources, advisors need to be prepared to educate their clients on financial matters.
“The problem is that most people don’t know which questions to ask, so our job as financial planners in improving financial literacy is helping people understand what issues they really need to be aware of,” says Ms. Holjevac, a finalist for a financial literacy award sponsored by IFSE Institute, the Investment Funds Institute of Canada’s educational arm, earlier this year.
She says many people continue to have misconceptions about TFSAs, unaware that the vehicle is able to hold products beyond cash, such as equities and guaranteed investment certificates; how RRSP contributions affect taxes; or even know how seemingly minor decisions could affect their financial health in the long term.
For example, Ms. Holjevac spoke recently with a woman who was juggling $10,000 in credit card debt with an annual salary of $50,000. She was making regular contributions to her TFSA and RRSP, but was not addressing her debt. When the woman met Ms. Holjevac, the advisor explained that the expected tax gains and investment returns would amount to less than the interest she would have to pay on the money she owed.
“I feel like I have an obligation to provide information and value that I’ve learned,” Ms. Holjevac says. “Even if you go to a seminar, talk to 20 people and something resonates with even one person and it makes their lives better, then I feel I’ve done my job.”
It’s for that reason that Christine Van Cauwenberghe, vice-president, tax and estate planning, in the advanced financial planning department at Winnipeg-based IG Wealth Management, says advisors at the company are spending more time educating Indigenous peoples, new Canadians, seniors and youth as part of the firm’s financial literacy program, known as IG Empower Your Tomorrow.
The program was launched a year ago to help people become more educated at a time when they face increasingly complicated matters, such varying tax regulations and lack of defined-benefit pension plans.
“All of this is leading to a lot of stress and uncertainty as to whether or not [people] will be okay,” she says. “They can go online and get access to some information, but it’s not being delivered by someone with an appropriate level of knowledge.”
As part of IG Empower Your Tomorrow, advisors with the firm host seminars for more than 2,000 participants across Canada each year. In addition, advisors are offered paid volunteer hours to support financial literacy initiatives in their communities.
“They’re volunteering their time to ensure that as many people as possible have access to financial literacy,” she says. “Advisors are quite passionate that people understand financially literacy because it affects everyone’s well-being.”