Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

2nd Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

The importance of being “money smart”

By David Wismer

Did you know that April is Financial Literacy Month?

And that April 10–17, 2021, is Money Smart Week?

Financial Literacy Month was designated officially by the United States Senate in 2004 via Resolution 316, during the administration of George W. Bush. (Interestingly, Barbara Bush was passionate about many literacy causes and started the Barbara Bush Foundation for Family Literacy in 1989.)

Money Smart Week is a national education campaign designed to help consumers and investors better manage their personal finances and develop a greater understanding of a variety of financial concepts. According to the coordinating organization’s research, 63 million Americans struggle with managing their money, while countless millions more would benefit from increased financial education.

Started by the Federal Reserve Bank of Chicago in 2002, the program consists of public and private partner organizations offering thousands of free classes, seminars, online educational programs, and other activities. In recent years, over 1,000 libraries from 50 states have participated, along with many financial, government, and educational institutions.

Not surprisingly, for 2021, financial education events are almost exclusively virtual, and communities most affected by COVID-19 are receiving special attention.

In a past blog post, Cindy Ivanac of the Chicago Fed wrote, in part:

“... We all seem to love … the idea if people only knew more about their personal finances, they would avoid mistakes. It is true that there is a knowledge gap on a range of issues. However, it is also true that knowledge alone has not proven to change people’s behaviors. Just think about the last time you counted calories. It wasn’t a knowledge gap that you struggled with; it was likely a behavior gap. So, we are left with the messy world of a lot of financial education content and the associated difficulty of evaluating its effectiveness in changing people’s behavior. Money Smart Week partners nationwide are working to solve these challenges. …”

There is good reason for the institutional concern over financial literacy in the United States.

Gallup research (based in part on Standard & Poor’s Global Financial Literacy Survey) has shown that almost half of all Americans do not grasp basic financial literacy concepts and that the U.S. ranks 14th in the world in financial literacy.

While the readers of this article likely fall into a more sophisticated category, many of the financial advisers I have interviewed for Proactive Advisor Magazine consider financial education to be one of their top priorities in working with clients. One adviser we interviewed in 2021 told our publication,

“I consider myself a financial advisor by profession and an educator at heart. My job is to help my clients understand the various major financial aspects of the world that may impact them, as well as the pros and cons of different approaches to handling them. If I’ve done my job well, our clients will understand what I’m recommending and why—and build a sense of personal ownership of their financial plan.”

Several financial themes come up frequently from financial advisers as they describe the educational issues they discuss with clients, such as the following:

- The importance of goals-based, holistic financial and investment planning.

- Why investment risk management is so important, especially for clients nearing or in retirement.

- The “power of compounding” and how that relates to the mathematics of bear market portfolio losses.

- Why the “sequence of returns” is a critical issue in helping clients plan for retirement income.

One adviser’s seminar approach

One savvy adviser we interviewed from Wisconsin holds frequent educational seminars for prospective clients and the general public (now primarily through online webinars during the pandemic).

His story about the “icebreaker” he uses to start his seminars relates directly to the issue Ms. Ivanac referred to above—the wide difference between the availability of financial information and how that translates to actual knowledge and sound behavior by financial consumers.

This adviser told us the following:

“I have a warm-up exercise at the beginning of all of my seminars and speaking engagements that is very effective. I first ask the people in the room to indicate how they think they will do on a basic 10-question, multiple-choice quiz about investing and financial-planning issues. They have to write down the score they think they will get. I emphasize that they will not be asked to turn in their answers or be graded.

“Next, they have a few minutes to take the quiz. Here is a sample question:

“Over a long period of time, which has a bigger impact on your investment results?

A. The negative impact of missing the 10 best days of the S&P 500.

B. The positive impact of missing the 10 worst days of the S&P 500.

“Although they don’t have to turn in their quiz, from the many people who have approached me after my talks (and from papers left behind), I typically see an expected score of 9 or 10. The typical achieved score is usually between 2 and 5. This represents at least a 100% overestimation of ‘financial competence.’

“After this exercise—when people see how they have scored compared to their expectations—they are usually more open and engaged. This sets the tone that this will be an educational presentation that is focused on teaching meaningful financial concepts that they may not have been exposed to before. (By the way, the answer is ‘B’.)”

Flexible Plan Investments’ focus on education

This past Friday, Flexible Plan Investments (FPI) held a very informative companywide online meeting that covered a broad range of topics.

Michael Heavey, FPI’s senior vice president, head of distribution and sales, made several compelling points about how FPI has stepped up during the past year to serve financial advisers and their clients during challenging times.

One of his points had to do with FPI’s continuing tradition and commitment to education. I do not think it is a coincidence that the members of the team reporting directly to Michael are called business consultants, not salespeople.

FPI’s educational focus can be found in many areas:

- A newly revamped company website that provides both advisers and clients a wealth of information. As Michael said, “It is important that our website, presentations, and our personal meetings with advisers clearly articulate ‘Who we are, what we believe in, why we do what we do, how and where we do it, and how our efforts can benefit advisers and their clients.’”

- An ongoing program of webinars for advisers, reviewing new product or strategy offerings, the specifics of strategy performance over various time frames, or educational/practice management content.

- Sophisticated analytical tools to assist advisors. FPI’s client-facing materials include the Crash-Test Analyzer, Illustration Generator, Model Performance Report, and OnTarget Investing process. Each of these tools helps advisers develop appropriate and effective client investment plans, while also adding value for an adviser’s practice. For example, OnTarget Investing helps advisers and their clients set and maintain realistic investment expectations, delivering a customized, personal benchmark for their portfolio or strategy in an easy-to-read format.

In addition, FPI’s customized My Business Analyzer (MBA) helps advisers to more easily view and analyze their aggregated or individual client accounts. (Many of the tools mentioned here are only available after secure log in to the FPI website.)

- An extensive library of white papers on various investment topics, as well as FPI’s weekly “In My Opinion” column, “Market Update,” and weekly strategy performance review. (All can be found here.)

Please check out FPI’s website, emails, webinar announcements, “Insights” page, and press room for an ongoing stream of valuable communications. I think the information found there may help add to any adviser’s or investor’s “financial education.”

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