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Are Your Clients as Financially Literate as You Are?


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Wealth managers have a tendency to assume that all their clients are as financially literate as they are.

I recently wrestled with a CIO who wanted to pepper a client communication with the word “alpha” who refused to believe it wasn’t common parlance as it was clearly common enough around the dinner tables in his world.

However in the “real world” just under half of UK adults have a numeracy attainment age of 11 or below[1]. My CIO’s argument was that “private clients are different” suggesting that wealth and financial knowledge/understanding are perfectly correlated. However as Ledbury Research flagged at a recent Market Research Society talk entitled “Watching the Wealthy”, the wealthy may be more likely to have post graduate degrees (think of all those MBA wielding entrepreneurs) but that isn’t the same as a direct correlation[2]. Building your wealth as an entrepreneur doesn’t necessarily leave you much time for reading about modern portfolio theory for example and inheriting wealth doesn’t give you have an instant affinity with the City and its jargon and acronyms. 

The FCA published an occasional paper last month on “Consumer Vulnerability”. It punctured the oft held misconception that vulnerability is only about poverty and poor educational attainment. Even the very wealthy and well-educated can find themselves suddenly and/or expectedly bereaved, unwell or redundant. Those with means and education may often have better support networks but that isn’t always the case and at such times straightforward and clear information is more important than ever for everyone.

Added to which the number of people over 85 in the UK is predicted to double in the next 20 years and nearly treble in the next 30 years. Dementia affects one person in 6 over 80 and 1 in 3 over 95, and 40% of all people aged over 65 in the UK have a limiting longstanding illness[3].

Against this background it was interesting to reread Professional Adviser’s piece from January on “the death of the sales aid” looking at how in a post RDR world sales aid is often a dirty word associated with product flogging and a lot of advisers think we are all now above such things. Yet one could argue that crafting short explanations and simple visuals can be a great starting point when engaging with clients fazed by an avalanche of information during the advice and/or onboarding process. As the FCA’s paper notes: “clear, simple information and explanation throughout the product life cycle is important to all consumers” – worth noting as the industry grapples with the ongoing discussion about suitability report length perhaps.

It is also important to remember we are not all digital yet particularly if we are over 65[4]. And making something easy to find isn’t the same as making it easy to read, understand, digest or remember.

The FCA’s consumer vulnerability paper includes a quote from the European Commission I hadn’t seen before: “The extent of vulnerability of an individual consumer depends on the interaction between the consumer’s individual combination of characteristics on the one hand and marketing practices on the other.” More dialogue with real clients and customers in the development of promotional materials and programmes is key to improving that interaction for the benefit of both sides.

As the way we all digest information evolves at a pace unheard of in the past, the commercial rewards for the companies that do this well are sure to follow.

[1] Department for Business, Innovation and Skills, 2012
[2] Albeit that research by Consumer Focus in 2011 found that degree-level education was necessary to understand a high street bank’s loan agreement and PhD level in order to understand payment protection insurance details.
[3] Age UK, 2013
[4] Internet Access – Households and Individuals 2014
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