Why advisors should adopt financial literacy as a means to qualify prospects and identify top clients
Most people know what financial literacy is, but that doesn’t mean they’re financially literate. That involves understanding and utilizing a variety of money management skills such as budgeting, debt reduction and investing, as well as making informed and beneficial decisions about their personal finances.
Studies show that an individual’s level of financial literacy has a direct impact on their long-term financial security, net worth and even their health by reducing the #1 cause of stress: worrying about money.
Less Than One Third of Adults Are Financially Literate
Unfortunately, financial literacy is not the norm among today’s investors. Approximately 30% of American adults are considered financially literate and feel confident making decisions about money. While we’re using U.S. numbers here, Canada faces similar issues. This has contributed to the growing wealth gap and spiralling consumer debt in both countries.
Financial literacy is important for individuals and families, but it’s also a timely topic for advisors. We are currently in the midst of a multi-trillion dollar wealth transfer, primarily from baby boomers to their adult children and/or grandchildren. A huge wave of money will be changing hands over the next 20 years, including assets that are currently in your care. Your clients’ beneficiaries are set to inherit a significant amount and at present, 86% of these heirs will leave their parents’ advisor due to a lack of perceived value.
How do you change that? Show those beneficiaries the value of your services by building meaningful connections through financial education. Not only does this help build relationships with the next generation, it increases the financial literacy of those individuals and makes them better clients.
3 Ways Advisors Benefit From Working With Financially Literate Clients
Advisors benefit tremendously from having a book full of financially literate clients and by prioritizing financially literate prospects. Here are three examples:
#1: Financially Literate Clients Better Appreciate the Value of an Advisor’s Expertise
In the new world of free information, ‘fin-fluencers’ and robo-advisors, it is hard for even the best wealth advisors to illustrate the value of their expertise and support. This is much easier if a client has a strong foundational level of financial understanding.
Imagine you’re a music lover talking to someone about music at a party. As the conversation progresses, they demonstrate tremendous knowledge and insight on every area you discuss, even piquing your curiosity by suggesting some new music to discover. You walk away thinking they are a great new connection for any questions, suggestions or advice about music.
In this scenario, your musical knowledge gave you the necessary context to understand the value of the person you just spoke with—an expert. In contrast, If you knew very little about music, the discussion would not have been as impactful or have the potential to led to a longer relationship. The same principles apply to the effect financial literacy has on the relationship between client and advisor.
#2: Financially Literate Clients Want More Personalized Support
Clients with higher levels of financial literacy tend to be more sophisticated and appreciate the importance of personalized support. They see through cookie cutter solutions and demand an advisor who takes the time to understand the nuances of their specific situation, then provides personalized recommendations and advice.
#3: Financially Literate Clients Have a Higher Net Worth
Studies show that an individual’s level of financial literacy has a direct correlation to their financial health and net worth. This makes sense, of course—individuals with an interest or aptitude for personal finance are more likely to apply their skills, make better financial decisions, and improve their financial situation.
For advisors, higher net worth clients provide the opportunity for increased revenue via increased AUM and by providing a broader range of services and investment options.
Successful Advisors Leverage Financial Literacy for Growth
Advisors are in a unique position when it comes to financial literacy. As experts on the subject, there are two ways advisors can leverage financial literacy as an operating strategy in their practice. First, they can educate to create client value. This involves using their credibility and interactions to educate clients and prospects at every chance they get. An investment in the financial literacy of your clients adds tremendous value to your practice. It’s well worth it.
Secondly, advisors should consider focusing more time and energy on clients and prospects with higher financial literacy skills. Advisors can use their expertise to identify a client or prospect’s level of wealth management knowledge, then engage accordingly. Prioritizing financially literate clients can be a core strategy for building practice value over the long term.
How We Help: Creating Financial Literacy Through Personalized Wealth Education Videos
At Baking Bread Media, we turn your knowledge and credibility into education-based programs that attract and retain multigenerational wealth management clients. Our Knowledge Drip Videos feature engaging, informative, one-minute videos on personal finance. Expertly designed to introduce essential money management skills to your clients and their children in an approachable way, this content will spark multi-generational conversations about wealth management.
Our fully managed video education packages make it easy and affordable—please contact us to learn more or get started. Our team is ready to help you share your expertise while maintaining or increasing your AUM during this incredibly important chapter in wealth management.
