The Role of Advisors in Consumer Education

In my last blog I discussed how regulators are pushing for greater consumer “financial capability” and how the Irish regulator had recently issued a report on this. In the Netherlands, consumer financial capability is also a huge issue. Yesterday, I met with the Netherlands Authority for Financial Markets (AFM) along with our Country Operator, Symon Jagersma to discuss this topic. We also demonstrated how the Financial DNA Discovery Process is practically used to enhance consumer financial capability.

In demonstrating our Financial DNA process the key point that we made was that financial capability is very tied to understanding your own behavior. Your behavior is totally intertwined with financial decision making. The point being that how you make financial decisions and handle money is related to who you are, your life and your relationship with self and others. This is what the Financial DNA system provides for the consumer, and also the advisor. Financial DNA was originally built based on our passion to see the consumer receive education to become more financially empowered and in our view this starts with greater self-understanding. Consumer financial education does not start with understanding the technical aspects of alpha and beta and what a stock or bond is, or hedge funds.

So, we believe that financial advisors must play a greater role in consumer financial education starting with client behavior. This is not just about discovery of the client’s risk tolerance to build a portfolio. The process must also be educational on an on-going basis. Hence why we have promoted the role of the advisor as a “Wealth Mentor”.

Ultimately, I believe that the consumer should expect financial education from an advisor (or arranged by the advisor) which addresses self understanding about their financial motivations, attitudes and beliefs, how to set goals based on life purpose, and communication about money. Advisors are not being asked to be psychologists rather just have a greater awareness of what drives financial behaviors. So why not encourage the consumer to ask for this type of education when engaging the advisor? Most checklists out there, including from the CFP Board, only address issues like the qualifications and experience of the advisor and how fees will be charged. These points are important. However, there needs to be more depth in the advisor selection checklist with issues of what financial education the consumer will receive, the discovery process followed, and other important advisory processes that will be used to build the financial plan.

My advice to the consumer is to ask more questions up-front about the delivery of these types of financial education programs. By doing so, they will more likely choose a “top shelf” advisor who will look after their interests. If the advisor is delivering this type of education then it is likely that they will have personally participated, and hence be a more client centric advisor.

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