6 Min Read
* Taking the time to teach clients boosts loyalty
* Increasingly complex products require expertise
* Conflict of interest can favor sales rather than education
By Andrea Hopkins
TORONTO, March 12 (Reuters) - In her 17 years as a financial planner, Heather Holjevac has learned that many clients are not financially literate, are embarrassed about what they don't know and will reward her with loyalty when she takes the time to teach them.
"People don't want to admit they don't know the basics," said Holjevac, a certified financial planner with TriDelta Financial Partners in Oakville, near Toronto.
"I preface all of my seminars with the statement that 'No question is a dumb question' because people think they should know things, and are embarrassed to ask when they don't."
While Canada's financial industry has lobbied for more education in schools, the growing complexity of products and demand for service from the baby boom generation have increased the need for financial education. Many boomers benefit from company-sponsored or government-run retirement products but now face more do-it-yourself options.
Women, who increasingly decide household finances, live longer alone and head more single-parent households than men, also face unique financial challenges, as do immigrants, who arrive with little understanding of Canada's tax system or investment choices.
Greg Pollock, president and chief executive of Advocis, the Financial Advisors Association of Canada, said most advisers wish financial literacy were taught in schools and within the family, and support the development of a curriculum to do so. But for now, they have to grapple with a complex industry and a demographic shift that exposes the financial illiteracy of many clients.
"We do see some vulnerable populations out there - the senior population, and new Canadians are somewhat vulnerable as well," Pollock said.
"It's unrealistic to expect every Canadian to achieve the level of sophistication required for the increasingly complex products in the marketplace .... But the vast majority of advisers enjoy that engagement - they are not there to sell a product and then move on to the next client in line."
Holjevac said one of the biggest problems is that people don't know where to turn when they need financial advice during a big life event such as a divorce, home purchase or retirement.
Canada's big six banks, with huge advertising budgets and coast-to-coast presences, are often the first places many people turn. But consumers may not know the difference between employees who sell products and those who offer financial planning advice, and they may not understand the fees associated with the different products and professionals.
They ask "the teller at the bank, but how much can they really know about your situation?" said Holjevac, who leads free seminars at the local public library or for charitable organizations to help educate people who may believe they are too poor - or are simply too intimidated - to contact a financial adviser.
That's also the strategy Taylor Hewson has taken in Regina, Saskatchewan, where he is a second-generation financial adviser trying to build a business with his brother. He, too, holds free seminars at the local public library - not because he hopes to find clients there but because it builds his own skills.
"I don't think I got one client from it, but the reception I get, and the practice with my presentation skills ... I'm surprised at the gratification I've gotten. It's a non-sales environment, non-pressure, people are free to ask questions."
But like Holjevac, Hewson said the most important education takes place when he meets with clients to set long-term goals and discuss family budgets or difficult life events. All that lays the groundwork for a loyal clientele who will turn to him when they need a retirement plan or investment vehicle.
"From a sales perspective, when you have a client who is educated and committed, you've got a client for life - that's where the trust comes in," said Hewson, 26.
Toronto-based financial adviser Maria Angelova believes building financial literacy is key to her business plan. She is focusing on mothers as the bedrock of her client base, trying to help them when times may be toughest - during a divorce or early in motherhood, when their budgets are tightest.
"This is the best way to create my business. If I see a new client, I spend hours giving them answers to their questions, the situations in their lives, how they can approach it," said Angelova, a certified financial planner.
"The clients who I spent hours giving them knowledge, they stay with me. ... I'm not looking at her as someone I can do a lot for now, but I'm looking at her as a long-term client. She might become very wealthy, I don't know that yet."
Holjevac said the industry also deserves some of the blame for illiteracy because of the conflict of interest posed by some advisers who stand to make more money for selling a product than for offering planning advice. That can drive people away, she said.
Paying off credit card debt, almost without fail, is the best thing someone can do with extra money, she said. But it makes no one any commission and in fact cuts into the income of the bank offering the credit card.
"Financial illiteracy is so prevalent because most people have been burned by someone, and that instills in them a reason to not reach out," Holjevac said. "They feel they are going to get sold something instead of learn something. Our industry really has to change."