First, let’s give kudos where they’re due: to new NAPFA chairwoman Lauren Locker, former NAPFA chairman Ron Rhoades, and project leader Ben Lewis, for the recently released “infographic” titled: “Why Financial Planning is Important” (see Melanie Waddell’s Oct. 5 story “NAPFA Illustrates Dire State of Americans’ Finances" on AdvisorOne). It’s a big step in the much-needed effort to educate the American public about the growing need for sound financial planning and client-centered financial advice in our increasingly complex world. With that said, the NAPFA infographic also offers valuable insight into the challenges of consumer financial education, and hopefully, will serve to provide some valuable lessons to those who embark on the next steps down that road.
While the NAPFA piece does a nice job of spelling out the types of questions that financial planners can help consumers answer, as well as offering a detailed description of the financial planning process (which, even though expanded to nine steps, somehow fails to include actually creating a financial plan), it also includes many of the classic mistakes that have rendered most previous attempts at financial consumer education less effective than they might be: statistics that are either confusing or simply not compelling, trade jargon that studies consistently show turn consumers off, and worst of all, parental-sounding directives that only serve to reinforce the reasons why most people don’t engage financial planners in the first place.
As for the baffling stats, here a few examples. “39% of US adults carry credit card debt from month to month.” So, that means that 61% of us don’t, right? I don’t know about you, but I find that somewhat encouraging. Along the same vein: “23% of Americans are not at all confident in having a comfortable retirement.” That means 77% of us are secure in our retirement. Really? If NAPFA’s point is that probably half of all Americans are deluding themselves about a secure retirement, it’s a good one, but still requires a bit more info to be convincing.
Then there’s: “40% of US adults are saving less than they did in 2011.” No kidding—with the U.S. and global economies in a extended recession I’m surprised the figure isn’t higher, and a bit puzzled about what NAPFA thinks even a good financial planner can do about that. And finally, “31.4% of all mortgage borrowers are under water.” So, we’re going to beat prospective clients up about that, too? Sounds as if NAPFA is training its members in some form of high finance with which I’m not familiar.
Beyond the stats, though, the infographic fails to address the question that should be top of mind for the entire financial planning community: Why don’t more people go to financial planners? Seems to me, the answer is “fear.” Many people are afraid of:
- Being embarrassed by their current financial condition
- learning their financial situation is much worse than they realized
- of getting beat up for not saving more
- of being told to do things they don’t want to do, such as going on a budget, saving more, or buying more insurance.
If financial planners are going to reach these people (a broader audience), they are going to have to focus on providing things that people want, rather than telling them things they don’t want to hear (which the NAPFA infographic does way too much of): Helping people to take control of their lives, reach their financial goals, get the peace of mind that they can meet their goals and obligations and are on the right track to do so, learn to make the financial markets work for them, minimize the risk of investing and perhaps that virtually anyone can get these benefits regardless of income levels. These are but a few ways planners might really reach people, while avoiding sounding like schoolmarms (not that there’s anything wrong with that…).
Also, notice that these concepts don’t have to include “complex” terms that most laypeople people don’t understand— diversification, risk tolerance, underinsured, net worth, rate of return, savings ratios, fiduciary agent, etc. In fact, to my mind, the best thing about the NAPFA infographic is the characterization of an ideal financial advisor in its conclusion: “People can seek the counsel of an independent, qualified financial planner who has the education, experience, knowledge, and character to guide their personal financial needs.” “Independence” is a concept that most Americans don’t need explained. And it’s the cornerstone of sound financial advice.
Undoubtedly, there will be future efforts, by NAPFA and others, to educate consumers about the benefits of financial planning. Hopefully, they’ll incorporate some of the lessons of this latest infographic and continue to focus on independent advice, as well.