The business case for enhancing your clients’ financial literacy

An increasing number of agents and advisors are focusing their attention on enhancing their clients’ financial literacy. As many know, clients' financial literacy has numerous benefits for both advisors and their clients.

Educating his clients about financial literacy yields numerous benefits, noted Brian Haney, founder, CEO of The Haney Company. It is part of the reason his firm places such a high emphasis on financial literacy and financial wellness, he added.
Among the benefits:

Improved money management skills: Clients are better equipped to manage their finances effectively. They understand concepts such as budgeting, saving, investing, and debt management, enabling them to make informed financial decisions, Haney said.

Increased confidence: Financial literacy empowers clients to take control of their financial futures with confidence. They feel more secure in their ability to handle financial challenges and make sound financial choices.

Long-term financial planning: Clients are more likely to engage in long-term financial planning, Haney added. “They understand the importance of setting financial goals and developing strategies to achieve them, such as retirement planning, education savings, or purchasing a home, “he said.

Improved risk management skills: Clients become more aware of financial risks and how to mitigate them. They understand concepts like diversification, insurance, and emergency funds, which can help protect their financial well-being in the face of unexpected events.

Better communication with advisors: Educated clients can communicate more effectively with their financial advisors, Haney pointed out. “They understand financial terminology and concepts, allowing for more meaningful discussions and collaboration in developing tailored financial plans,” he said.

Financial independence: Ultimately, financial literacy can lead to greater financial independence. Clients are less likely to rely on others for financial support and are better prepared to navigate life's financial challenges independently. “I firmly believe that this should be the ultimate goal of our industry – to empower Americans to live their best financial lives,” Haney said,

Benefits for advisors

But clients are not the only ones who benefit when clients enhance their level of financial literacy. As Haney pointed out, spending time in educating clients about financial literacy can also be highly beneficial on many levels for advisors.

Working with a financially literate client:

• Builds trust and loyalty: “Educating clients demonstrates your commitment to their financial well-being beyond just managing their investments,” Haney said. “This builds trust and strengthens the advisor-client relationship, leading to greater loyalty and retention. It’s one of the best ways to deliver a superior client experience.”
• Enhances client satisfaction: Clients who are knowledgeable about financial matters are generally more satisfied with their advisor's services, Haney added. They appreciate the value-added through education and are more likely to refer others to their advisor. “Collaborative learning engenders clients on a deeper level because you’re not just taking time to demonstrate your technical skills, but you’re moving beyond that to improve their skills,” he said.
• Reduces misunderstanding and miscommunication: Educated clients are less likely to misunderstand financial advice or misinterpret investment strategies. This reduces the potential for conflicts or disagreements and streamlines the advisory process.
• Differentiates the advisor from competitors: “Offering financial literacy education sets you apart from other advisors who may focus solely on investment management,” Haney pointed out. “It positions you as a comprehensive financial partner dedicated to your clients' overall financial success.”

“We improve as professionals when we take this approach, and the industry as a whole thrives,” Haney added. “In my opinion, educating clients about financial literacy benefits both clients and advisors alike by improving financial outcomes, fostering stronger relationships, and promoting long-term financial well-being. Therefore, it's in everyone’s best interest to meaningfully incorporate this into your practice!”

Additional benefits of enhancing financial literacy

Echoing some of these sentiments is MDRT member David Appel, managing partner at Appel Insurance Advisors, LLC. When Appel thinks about financial literacy, he believes it starts with the basics: the foundation of any sound financial plan, and literacy around that plan needs risk management at its core, he said.

“What if you were to die young?” Appel asked. “What if you became disabled, cannot work anymore, and you are your only source of income? What if you needed extended care beyond your ability to not work, so you needed income for essential living and needed additional care and help, on top of that?” These are all questions that we need to ask and get answered, he said.

By educating clients early in the process about financial literacy, they can realize the benefits of core planning upfront, Appel added. They feel good that they have a base plan – and what they do above and beyond that is secured by the planning that they have done around risk management. “It allows them to invest more aggressively as a young investor, more conservatively as a senior as they know they learned early on to have an emergency nest egg, to put more money away on a tax-deferred, tax-free basis – contribute money to employer-sponsored plans especially when there is matching, and learning the value of compounding and dollar-cost averaging,” he added.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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