Over the years, I’ve consumed my own weight in Timbits and coffee at half-day sessions for group pension plan members. Don’t expect these annual learning events to lead to a CFA-level understanding of investments. Besides, even CFAs can’t guarantee what most investors want and need: retirement income that’s adequate and reliable.

These sessions stress the importance of diversification, patience and risk (e.g., stocks should return more than bonds). In the end, however, most plan members end up in default investments—those available to investors who can’t choose because of confusion, lack of time or lack of understanding.

Highlighting the problem of education, retirement-education advocate Dennis Ackley has said that the “largest failure ever of adult education” is 401(k) training. He’s referring to the employer-sponsored U.S. retirement account, which shares similarities with Canada’s RRSP. Underpinning his argument is the fact there is a lack of programs that stress outcomes. “No target, no success,” he says. Likewise, Canadian plans encourage accumulation instead of income replacement, and the latter is what most people expect from a pension.

Ackley’s proof of failure: the typical 4% annual withdrawal rate results in only $400 a month for typical households headed by employees aged 55 to 64. (These households have a median total 401(k) and individual retirement account balance of US$120,000.) That’s not much to live on—even when combined with the average monthly social security benefit at age 65 of US$1,369 as of 2017.

Canadian plan members have the same challenge, with similar account balances and a maximum CPP payment of $1,114 as of 2017.

Adding to the problem are target date funds (TDFs), which make up two-thirds of new 401(k) deposits and are the most popular default option (Investment Company Institute, August 2017). TDFs automatically shift to more conservative asset allocations as retirement approaches. Although TDFs focus on accumulation, not pensions, they are increasingly popular—in Canada, too—because they make investing simpler. Their set-it-and-forget-it approach offers a valuable clue to better investor education—more on that in a bit.

What investors don’t know can hurt them

The 2016 investor education study conducted by CSA revealed that only 25% of investors demonstrated strong investment knowledge (by answering six or all of seven investment questions correctly). That might not be surprising, considering poor investor education, not to mention the 24-hour financial news cycle and movies based on Wall Street that distort reality. Even among the most skilled investors—those older than 55 and those earning more than $120,000 per year—only 40% and 46%, respectively, demonstrated high investment knowledge.

Often, new investors look for the biggest returns, having thought little about their financial goals, needs or time horizons. And the investment industry perpetuates maximizing returns—risk-adjusted or otherwise—because institutions have always pursued preserve-and-grow-capital strategies that may not be appropriate for most individual investors.

Advisors, take the lead

This is where advisors come in, because the CSA study found that 77% of investors relied on advisors for their investment information.

When I informally polled experienced investment professionals about their best advice for new investors, the most popular response was “have a plan.” This aligns with Ackley’s focus on targets. Still, many advisors focus on maximizing returns instead of meeting investors’ goals (see “A closer look at goals-based investing,” AER September 2017).

That must change.

A new generation of investors, better informed about fees and ETF investing, will likely prioritize low costs and effective planning. That’s because slower economic growth and modest capital market returns, especially for seniors, will make these considerations vital.

The best portfolio for most investors, who tend to have multiple goals, doesn’t lie in modern portfolio theory’s efficient frontier (see “Why most investors need goals-based investing,” AER June 2017). Investors and their advisors must manage beyond maximizing returns.

Rethinking investor education

Remember, clients want to set it and forget it. Investor education doesn’t need to start from first principles—what’s a stock, what’s a bond, how does a stock exchange work? Many clients don’t have the time or interest for that. And why should they?

To get a driver’s licence, we learn the rules of the road and demonstrate how to keep ourselves and others safe as we travel to our destination. We aren’t required to explain the different methods of variable valve timing in a four-stroke engine. We don’t even have to know how to change the oil or replace a flat tire.

Likewise, to build an appropriate portfolio, clients must first learn to identify their goals. Instead of focusing on investing details, advisors should first focus on helping clients to better articulate those goals. Clients also need to know how important those goals are (essential or aspirational), the time horizon required to achieve each one, and the risk characteristics of asset allocations that will address each goal using something like a value-at-risk analysis (VaR). More on that in coming months.

In other words, our industry should focus on delivering solutions, not on selling products to maximize returns.