Financial Literacy Lacking
In the study, less than one-third of American workers who own or are familiar with common financial products claimed a solid understanding of them. Just 25 percent claimed they understood mutual funds, 23 percent term life insurance and only 19 percent annuities. Additionally, less than 20 percent indicated they “understood completely” basic financial concepts such as dollar-cost averaging, compounding and asset allocation.
These low levels of product and financial concept understanding correlated with lower levels of emotional and financial confidence as well. Conversely, for those Americans that claimed to understand how financial products and financial concepts worked, they displayed significantly higher levels of emotional and financial confidence—and tended to be confident planners.
Build An Education Policy
The concept of an education policy isn’t groundbreaking. Many 401(k) advisors work with plan sponsors to develop robust education policies to help educate and engage employees with the goal of getting them to enroll, participate and invest in their qualified plan. They know education leads to engagement and participation. It’s time for advisors to take these institutional best practices and apply them to their retail client base to build confidence.
This is not as arduous of a task as you may think, as you are likely doing many of these things already. The key to success lies in formalizing your approach to consistently deliver on adding value through education. Here are three basic steps to consider:
Step 1: Identify Client Gaps with a Financial Literacy Quiz. Do they understand basic financial concepts (such as asset allocation, compounding, diversification)? Do they understand how products work (annuities, life Insurance, investments)? Do they understand why they own what they own? Assess and document.
Step 2: Give Your Clients Homework. Can they do any outside reading? Are there any sites or resources you think are useful? (You may want to have them check out livingconfidently.com, which provides a wealth of interactive educational resources.) Help clients understand that education breeds confidence.
Step 3: Develop a Systematic Approach to Education. Based on the assessments you perform in step 1, you will gain an understanding of which topics your clients need help with. With these learning objectives identified you can then outline your tactical plan. Create a seminar strategy that outlines the frequency (annually? quarterly?), delivery channel (in-person? webcast?), registration and follow-up strategy, and topics you’ll cover (Social Security? Intro to the Markets? Insurance 101?). Key with any seminar topic is to ensure you have an interactive and engaging experience. In addition, you’ll also want a content sharing strategy that should consider distribution method (LinkedIn? Email?), frequency and topics your clients care about most.
An education policy can help you become a bit more strategic about educating, motivating and inspiring your clients. We know it correlates with emotional and financial confidence, and that correlates with happy clients. And happy clients equate to more referrals.
Matthew Bryan is the assistant vice president and head of distribution marketing for The Guardian Life Insurance Company of America.