Financial services professionals tend to overestimate the financial literacy levels of clients who do not work in the financial services industry, according to Colonial First State (CFS).
Head of retail sales, Laird Abernethy, quoted Eureka Whittaker Macnaught chief executive, Greg Cook’s opinion that financial advisers sometimes tended to assume that existing clients were more knowledgeable and financially literate than they actually were.
“He used the case of an engineer, and he assumed probably a high level of financial literacy than there actually was,” Abernethy said.
The comments came after CFS released the Wealth IQ tool in June, which assists advisers explain financial planning concepts to their clients, including different asset classes such as shares, cash, property, bonds, real estate investment trusts (REITs), and fixed income.
The tool was launched following adviser feedback that they wanted to explain complex financial concepts to clients without the jargon.
“Particularly when you look at particular demographics, blue collar workers, those people with no post-secondary education, it’s in everyone’s interest that people receiving advice, that footprint increases,” Abernethy said.
Abernethy added that advisers were using the tool to examine the financial literacy levels of new and existing clients, and to check that clients had a grasp of the strategies that were being delivered to them.
“When you see the tool you’ll see there’s a performance graph there. They can talk to them about what period that was and explain how asset markets and how asset classes work over different periods,” he said.
The tool was available to independent financial advisers (IFAs) as well as aligned advisers, and was released to 1,500 advisers in a pilot program thus far, with CFS looking to increase that number over time.
