The Value-add of Financial Literacy (& How Advizr Can Help)

The Value-add of Financial Literacy (& How Advizr Can Help)

Today’s article will explain the main reasons why you should emphasize financial literacy in your practice, some tips on how to go about doing so and where Advizr can help.

You’ll sometimes hear soccer fans remark that people who don’t like the sport just don’t understand its strategy and intricacies. In other words, they don’t “get it.”

If you want your clients to view your firm like the local Manchester United blokes view their team, they need to see you as the bridge between complexity and confusion and true financial literacy. But there is a lot of work to be done. A recent study found that only 15% of affluent Americans feel knowledgeable about financial products[1].

So what can you do? Emphasizing well-timed, relevant financial education can help clients better understand the value you add, and in turn, create stronger advisor-client relationships.

Defining Financial Literacy and Its Importance

Financial literacy is the “ability to make educated and informed decisions about your financial situation.”

Clients without that ability often create more work for advisors. Difficult conversations about overspending or insufficient saving are simple cues that demonstrate a client’s knowledge gap – and ultimately open the door for advisors to provide the necessary education. One way to overcome this is with value-added services, such as financial planning, that allow an advisor to educate while servicing their client’s broader needs. 

Here are two more reasons why financial literacy is important.

  • It increases client confidence. From an advisory standpoint, keep in mind that clients with written financial plans are not only more likely to feel confident and knowledgeable about their financial situation[2], they are also more likely to have a budget, rainy day fund, monthly savings goal and to be on track to meet their retirement needs[3].
  • It encourages goals-based planning. Research suggests that a goals-based approach can account for increased wealth accumulation[4]. But effective goals-based planning requires clients to have a baseline of financial knowledge. Advisors who assess their clients’ financial literacy and provide some basic training can increase the value their clients receive throughout the planning process.

You can help influence positive financial decision-making by presenting high-quality, non-complex information[5]. In the next section, we’ll look at how to do that.

Four Ways Financial Advisors Can Incorporate Financial Literacy In Their Practice

Adding financial literacy initiatives to your practice can be simple. Here are four ways to get started.

  • Begin relationships with due diligence and client profiling to set a baseline for how to gauge client understanding. Client profiling will uncover a client’s areas of concern and knowledge gaps.
  • Communicate the “why” and “how” of everything you do for clients so they understand the benefits you provide. 
  • Adopt an educational mindset by implementing financial wellness initiatives. Many Broker-Dealers already offer materials for this purpose. If yours does, take advantage of them. You could also offer seminars or speaking engagements that address prospects and clients alike; both audiences can benefit from your wisdom—just remember to adhere to compliance requirements when giving advice.
  • Create written financial plans for clients. Only 14% of baby boomers have a written retirement strategy[6]. Clients need information available to them before they can ask the right questions. A written plan can help clients see their entire financial picture with more clarity.

How Increasing Financial Literacy Benefits Advisory Firms

Not only is an education-first mentality the professional and responsible way of engaging in a client-facing relationship, but it can help you demonstrate additional value beyond your asset management or planning services and benefit your firm in the following ways:

  • Clearly positions you as an expert.
  • Any opportunity to communicate is an opportunity to demonstrate value, broaden relationships, and uncover new opportunities.
  • Builds trust by showing an intent to put the client’s needs first.
  • You become the go to expert the client approaches for guidance any time there is a major life event.

When it comes down to it, better-informed clients are often more appreciative clients, and clients who appreciate you are more likely to refer you to friends and family.

Using Technology To Increase Financial Literacy

It can be difficult to fully grasp a client’s financial wellness if you can’t see the whole picture. Implementing data aggregation technology can make it easier for you to capture and report on assets and liabilities you don’t manage—like a bank account or home loan—and ensure you’re having well-rounded and comprehensive discussions.

Aggregation tools can also capture the information necessary to create conversations about otherwise difficult or peripheral topics, like overspending. Connecting insights you gain from aggregation with financial planning tools that can show a client how small changes can make a large impact on their goals is an opportunity to keep clients focused on the long term.

Technology also makes it easier for FAs to visually illustrate important yet confusing concepts like compounding, volatility and diversification. Graphs that provide real time feedback on how changes to each variable can impact a client’s ability to meet their financial goals serve to further engage clients.

Additionally, pairing the connectivity benefits of an effective client portal with the ability to adjust plans in real-time can give added context, which is especially resonant when it addresses your clients’ goals.

Advizr makes it simple to add tools like data aggregation and collaborative financial plans to your practice. Find out more by subscribing to our blog or Book a Demo!

[1] Consumer Federation of America and Certified Financial Planner Board of Standards, Inc. Household Financial Planning Survey

[2] [3] Charles Schwab, How Americans define and manage their wealth

[4] David Blanchett, CFP®, CFA The Value of Goals-Based Financial Planning

[5] Altman M. Implications of Behavioural Economics for Financial Literacy and Public Policy as reported in the National Financial Capability Strategy

[6] Transamerica Center for Retirement Studies