Financial advisors who want to advance financial literacy among Canadians should consider simplifying their language and avoid giving clients the perception of getting a sales pitch.
Last month, Edward Jones published a study that found roughly more than half of millennials and members of Generation X (52 per cent each) and almost half of baby boomers (48 per cent) said they are interested in receiving personal finance education to help fix their retirement savings habits. Although advisors are ideally positioned to provide that education, they first need to speak plainly and address the issue of when clients nod in approval to mask their lack of understanding, experts say.
“Vernacular has a huge impact. I think it’s the language [preventing more widespread financial literacy],” says Nicole Ewing, head of advice and guidance in Canada for Edward Jones. “It is code, really. When you learn any other language, you practice with native speakers, but when you’re learning this [financial] language there’s really nobody with whom you can practice.”
Hearing a barrage of industry jargon makes it “difficult for people to raise their hand and say, ‘I don’t know,’” Ms. Ewing says. “Many advisors are familiar with conversations they have with their clients where they’re getting a lot of nodding and it becomes embarrassing or uncomfortable for [clients to ask for] an explanation.”
Judith Robertson, the commissioner at the Financial Consumer Agency of Canada (FCAC), the federal government department tasked with organizing Financial Literacy Month each November, says advisors should make the effort to improve Canadians’ understanding of financial matters by cutting back on their use of jargon.
“There’s quite a lot of ... intimidation around some financial topics, and so many acronyms and buzzwords,” she says. “That’s an area where I think advisors can really contribute to that demystification.”
Greg Pollock, president and chief executive officer of Advocis, the Financial Advisors Association of Canada, says that the lack of understanding of financial terms isn’t “always top of mind for advisors, and it’s important for them to get back to basics with their clients. We forget about the basics.”
Part of the challenge for advisors is a lack of “safe spaces” in which the focus is solely on improving financial literacy, says Doretta Thompson, financial literacy leader for CPA Canada.
“How do you create safe spaces for people to learn about money when they’re not being pressured to buy something?” Ms. Thompson says. “Often, what [people] want to know about money is on a need-to-know basis. It has this just-in-time element to it, which is why you end up learning about product X from somebody who is selling you product X.”
Mr. Pollock says the sales pressure issue in the financial services industry has been addressed largely in recent years as advisors have increasingly adopted fee-based models that remove financial incentives for selling clients certain products.
“The vast majority of advisors now get it,” he says. “The ones who are worth their salt, they understand the need to create that separation [between sales and education].”
Ms. Ewing says the goal needs to be “taking away the notion that, ‘This is something you should understand by now.’ How on Earth would you?”
A strategy Mr. Pollock says advisors should embrace is to tell clients, “Don’t feel embarrassed or concerned if you don’t know some of the ins and outs of financial products. That’s normal.”
“One of the things I think advisors should be doing, but aren’t, is sharing all the various educational opportunities that they can with their clients,” he says. “There are all sorts of online resources out there, so if you’re an advisor, you should be putting together a package of links and resources and sharing them with your clients.”
Advisors could learn from accountants about providing that type of purely educational service, Ms. Thompson says, noting that CPA Canada usually holds about 2,000 free, in-person educational sessions across the country every year run by volunteers who must adhere to strict rules about objectivity.
“There’s a difference between education and providing professional advice. Our program explains to people what RRSPs are and how they work, but we won’t tell you what to put in your RRSP. It’s really about the basics,” she says.
Having shifted from in-person sessions to on-demand webinars and other virtual resources this year, CPA Canada has seen roughly 100,000 downloads of its financial literacy resources between the beginning of May and the end of September.
“That shows there is a real demand. People really want to learn more,” Ms. Thompson says.
Advisors don’t need to abandon their jargon completely to address that demand, Ms. Ewing says, as there’s also value in exposing more people to financial terms and what they mean.
“There’s an opportunity now to change the expectations with which we go into those conversations. If we say, for example, ‘what this means is’ or ‘in other words,’ ... [that] can be helpful,” she says. “It’s not a matter of dumbing down, but of creating familiarity and comfort.”