Informed investors make better clients

By Kanupriya Vashisht | June 11, 2009 | Last updated on June 11, 2009
2 min read

Advisors might feel more empowered when hapless clients let them make all their financial decisions, but the simple fact is: Everyone benefits from more educated consumers.

This was the recurring refrain at the Financial Literacy Forum on Wednesday, organized by the Investment Funds Institute of Canada (IFIC), where a panel of regulators and educators discussed ways to disseminate financial basics — not just to diehard investors, but to disengaged consumers as well.

Tom Hamza, president of the Investor Education Fund, said there’s a mass of information out there but it’s largely irrelevant unless properly contextualized. “It must be the right message, through the right medium, and focused at the right people.”

Therefore, launching an effective communication campaign isn’t a simple matter of starting a blog, sending out an email blast, or printing pamphlets. Financial education, Hamza underscores, must be packaged in a way that interests even the disinterested.

Tweeting about retirement planning, for example, is not the right medium for 60-year-olds, just as printing pamphlets won’t cut it with the 25-year-olds.

And it’s a myth that financial information is always staid. Poland found a fun way to focus its citizens on finance by creating a game show that leveraged media and television personalities and asked participants basic finance questions.

When it comes to Canada, however, Patricia Bowles, director of communications and education for the BCSC, says provincial educators do not consider financial literacy fundamental, except in British Columbia.

The numbers speak for themselves:

• fewer than 20% of Canadians have had any financial literacy training; • almost 30% have no savings at all; • almost 60% have no financial plan; • about 50% don’t research their investments; • one in three can’t explain risk; and • fewer than 50% have a financial advisor.

An estimated 1.1 million Canadians have been victims of investment fraud and of these, 25% are repeat victims.

Despite the importance of financial literacy, it isn’t enough, notes Steven Garmaise, associate director of the Foundation for the Advancement of Investor Rights (FAIR) Canada. “It isn’t a panacea. The ultimate responsibility remains with the industry and regulators.”

According to Garmaise, due to the industry’s “if a product can be sold, it should be sold” attitude, even sophisticated investors find themselves holding products that are over-leveraged and far too volatile.

He takes exception to misleading advertising. “Ads mustn’t imply a fiduciary responsibility where there’s none.”

Since the start of this downturn, there has been a 35% rise in client complaints to IIROC; 21% increase in complaints to MFDA; and a 43% spike in complaints to OBSI.

Mackenzie consultant Andrew Dorrington says the industry needs to beef up its investor protection. “The fiduciary responsibility is on sales to make violations of suitability subject to more painful consequences — at least more than just a slap on the wrist.

“In the end it all comes down to one thing: It’s not about us, it’s about the investor,” Dorrington says. He believes the industry can change overnight if the burden of proof — proof of objectivity; proof of due consideration of circumstances; and proof of appropriate advice — is on the advisor.


Kanupriya Vashisht