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Getting It Right: Financial Education For Your Employees

By: Rick Doust

With nearly 25 per cent of employers who offer Defined Contribution pension plans expecting to face a lawsuit in the future, the importance of good education has never been greater. Rick Doust explains what a financial planner can give to a plan member.

An old Jack Benny radio sketch begins with the gruff voice of a thief. “Your money or your life!” There’s a long pause. “Hey, I said your money or your life, pal!” Another long pause. “I’m not kidding mister, your money or your life!” Finally, Benny responds with that elegant, lazy, unforgettable voice, “I’m thinking, I’m thinking.”

So are your employees.

In 2003, the Globe and Mail and CTV News surveyed Canadians for key causes of stress. Work won top honours. Forty-three per cent cited the daily grind as the greatest cause of stress in their lives. That’s not front-page news. But a disconcerting 39 per cent ranked stress from finances second. That should be headline material.

The findings were complemented by a Financial Planners Standards Council survey done in late 2003. It found that 75 per cent of Canadians link good financial planning to their overall future health.

If the stress from finances is increasing, how bad is it? Walk down your street past 10 houses. Imagine a suicide in two of those homes. One in five Canadians surveyed said they’ve considered suicide as a means to relieve the stress of finances. For a significant number of Canadians, it’s no joke.

It’s their money or their lives.

Stress isn’t always turned inward. AJanuary 2004 National Post article highlighted the stress many members of Defined Contribution pension plans are feeling after poor returns from a bear market. That stress is expressing itself as anger. Witness newspaper headlines such as: Pension plans brace for lawsuits: 40% expect to lose (National Post, January 21, 2004).

Nearly one-quarter of Canadian employers who offer DC pension plans expect to face legal action from employees angry over the way their plans have performed, a new survey has found. Forty per cent of respondents expect to lose those lawsuits.

Good Education Or Litigation: What’ll It Be?

So the stakes are clearly high, for both employees and employers. More than three million Canadians belong to more than 60,000 capital accumulation plans. More than 70 per cent of these plans allow members to make investment choices. Those choices need to be informed. That means knowing the basics of good financial planning, having an objective sense of the options, and being able to decide with risks clearly in mind.

So there are good reasons for employers to offer financial planning education. A Certified Employee Benefit Specialists survey for December 2001 lists these as:

As well, employers may find themselves well-advised to provide this type of program. In The Joint Forum of Financial Regulators’ Proposed Guidelines for Capital Accumulation Plans, Item 3.2 - Investment Information says “the CAP sponsor must provide CAP members with investment information that could assist the members in making investment decisions within the plan. Types of information CAP sponsors should consider providing include:

For employees to make educated financial choices means employers must put in place a sound educational framework to guide their decisions. Better plan performance depends on it. This isn’t rocket science. A majority of sponsors recently surveyed said they believe that properly educating plan members is the most important way to protect against litigation.

There is a catch. Only 11 per cent rated their own financial education performance as ‘well done.’ Those poor self-ratings were joined with the perception of many sponsors that education must be supplemented with independent advice to be really useful. Roughly one-quarter of plan sponsors already provide third-party advice to better serve their members. An additional 15 per cent will add this capability within the next decade. But that’s still only 40 per cent.

At a recent DC Plan Summit, a room full of employers with DC plans were told that plan sponsors face increasing pressure to bring in third-party advice-givers. The reasons are threefold:

So Who You Gonna Call?

This climate of rising pressures means employers need to use the best financial planning professionals to do the job.

Cary List, vice-president of standards and certification for the Financial Planners Standards Council (FPSC), says “this is clearly an area for CFP professionals.” The CFP (Certified Financial Planner) designation is granted by the FPSC to individuals who meet its standards.

“They have extensive knowledge of both Defined Benefit and DC plans. They have strong understanding of the implications of pension plans on the ‘big picture’ of employees’ lives.”

If the best advice and education comes from trained professionals, how do you choose between those professionals? The consensus of some experts is that employers should look for depth of experience, resources, and a track record of previous success with other corporate clients.

Lynn Biscott, of the Fernwood Consulting Group in Toronto, has worked with both the private and public sectors to deliver impartial financial education. Clients have included Nortel, Wrigley Canada, Merck Frosst, the Ontario Public Service, the City of Toronto, and the Town of Markham. Most have DB plans, but Biscott says the principles of good education are transferable to DC sponsors as well.

“The number one rule seems to be that employees are reluctant to have salespeople come in who have a vested interest in specific investments. They are very keen on learning the skills that will help them control their own situation, from neutral parties.”

If a seminar is handled properly, Nancy McDonnell, who coordinates financial education sessions for the City of Toronto, says employees, “go away more relaxed about their finances. They tell us they feel more organized and in charge.”

Biscott educates on the basics of investing, insurance, tax planning, retirement planning, and insurance planning. But it’s not dry and dusty. She uses case studies, hands-on individual exercises, personal stories from the audience, and interpersonal dynamics to make it memorable – education that lasts.

“People learn when they do. I ensure there’s a practical component that gets them doing things.”

Inventory Of Spending A Key Exercise

One of the key exercises is doing an inventory of spending. Biscott gives participants a questionnaire in advance to show them how spending is critical in wealth management. Employees are amazed at what they spend and how they can save some of that to build wealth. Seems the Wealthy Barber is still right!

“Good education gives employees control of their financial situation and a clear sense of their role in making sound choices for the future,” says Biscott.

Jury Kopach, of T.E. Financial, suggests one of the reasons most companies fail in their financial education efforts is they “have confused information with education.”

Information about company plans is one thing. Education about the responsibility of employees to complement company plans and to take personal charge of the rest of their financial lives is often the missing ingredient. And doing that effectively means making financial education, well, fun.

Graydon Watters, president of Financial Knowledge Incorporated, says sessions should “encourage the use of all of one’s senses.” All the latest adult learning techniques – games, quizzes, group exercises, role-playing, real life case profiles, and mind-mapping (to assess their dreams, values, needs, and goals) need to be used to enable employees to align solutions to meet their needs. The idea is to be both “practical and entertaining,” says Watters.

Bottom-line: It’s About Employee Health And Productivity

When it comes to the future, it pays to look at what the leaders are doing. Getting financial planning right is something the leading corporations in Canada are starting to take seriously. The popular best-selling guide the Top 100 Companies in Canada lists firms such as Hewlett Packard, Hallmark, and OMERS as companies that provide financial planning resources for staff. But there’s lots of room for growth. Ann Bowman, vice-president of communications and corporate relations for FPSC, says “including good, independent financial planning education as part of a wellness strategy makes good sense for employees and employers. People who are in charge of their finances are likelier to be happier and more productive at work.”

Rick Doust is an Aurora-based business writer.

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