Financial Literacy is having the knowledge, skills and confidence to make responsible financial decisions (Financial Consumer Agency of Canada). Financial literacy can ensure that you only buy the protection you need. And the basics of investing are quite simple with some fundamentals. Knowing enough, having confidence enough, to be able to take responsibility for your own financial decisions begins with understanding the financial business.
Professional or salesman?
You will still need to interact with financial advisors to pursue your financial goals. Many financial planners are knowledgeable and dedicated and really do care about their clients. Unfortunately, many are not. Some 90,000 people sell financial products. Most are paid on commission. They have to be pushy, and sell you as much of whatever they can. It is a tough business to make a living, with high turnover. Some financial companies recruit anyone with a pulse, sell them the “opportunity” to get rich, teach them some sales pitches, then let them loose on you. You may have already met one of those.
Only about one in three “financial advisors” is in the business as a vocation, to build a professional practice. These belong to a professional association, subscribe to a code of ethics, carry errors & omissions insurance and are committed to continuing education. When you do get a sales approach, check if they meet these professional standards.
What about regulations?
You may think the Big Brother of government regulators is going to protect you from unscrupulous salesmen. There is a hodge-podge of some fifty agencies that “protect” you as a financial consumer; each province has their own for insurance and for securities. Their main function is to license sales people through qualification exams. Annual license renewal requires continuing education credits, usually obtained from financial company sales seminars.
These regulatory requirements do ensure the consumer that even the “salesmen” in the business do meet a basic knowledge requirement. These exams are not easy and the study material is comprehensive. At least you will know that when you are oversold inappropriate products, the salesman did know what he was doing!
Regulators cannot protect you if you chose to do your financial planning by “blind faith” in the pitch of a smooth talking salesman who sounds so sincere. If you chose to be a sheep, you are sure to get fleeced, whatever the regulations. Take responsibility for your own choices and it will be a lot harder for the school yard bully to take advantage of you.
You may have to do more on your own anyway. In the interest of consumer protection and disclosure, some jurisdictions have banned commission compensation and imposed a statutory fiduciary duty obligation. Many advisors leave the business due to the costs of compliance, and all the paperwork. That cost forces the rest to focus on higher net worth clients, where more revenue on larger sales can compensate for the added cost. That leaves the rest of us relying on Google for our financial advice.
Only you have the big picture
The value proposition in using an independent financial advisor is that they can take a holistic view of your needs. In practice, financial advisors tend to specialize in either the protection side (insurance products) or the money side (investment products) – there is more money to be made in the money side. Both sides are complex and require the advisor to invest time and effort in knowing the products, as well as in developing their sales skills to keep eating. The majority will be too busy trying to make a living to really be an expert in all the products available. Your advisor may have been giving good advice on the money side, but has she been neglecting your needs on the protection side? Only you have the truly holistic picture of your own needs.
You need to risk manage your income during your earning years and risk manage your investments that will provide your income after Work Ends. A degree of financial literacy will actually make you a more attractive client to the truly professional financial advisors you will need.
Fredrick Petrie, Navigator, and Author of THE END OF WORK: financial planning for people with better things to do
Available now on Amazon Kindle.