FA2B Diary of an Aspiring Advisor: Advice and Financial Literacy

If I picture myself as a retired counselor, looking back on what I’ve accomplished over the past 40 years, I’d like to hope I’ve offered a low-cost solution for young and new accumulators to access advice at the start of their career. , when it could have the biggest impact on their final numbers thanks to the power of capitalization.

But is this kind of business feasible?

People with low levels of financial literacy are less likely to consult an advisor

In 2019, I wrote my thesis, which explored whether financial advice could replace financial literacy. To save you from reading 50 pages: it’s impossible.

Bhattacharya et al. (2012) found counseling to be complementary to financial literacy. Similarly, Stolper (2017) found that greater financial literacy led to greater confidence in one’s own judgement, and thus these individuals tended to use advice as another source of information to process when making financial decisions, rather than relying on them alone.

At the other end of the spectrum, people with low levels of financial literacy are less likely to consult an advisor (Calcagno & Monticone, 2014). This means that those who may need financial advice the most and could benefit the most are not getting it. This is known in the industry as the “advice deficit”.

two camps

Referencing of Momodou Musa Touray Money Marketing article on the advice deficit earlier this year, many advisers fall into one of two camps: those who believe it is impossible to provide affordable advice due to the regulatory burden; and those who think technology and automation could provide free or low-cost advice to the mass market.

I wish I had offered a low cost solution for young and new hoarders to access guidance early in their career

On top of that, content creators like Pete Matthews of Meaningful Money and Andy Hart with his Maven Money Podcast provide free and well-conveyed information to the general public.

The third camp may come from Matthews’ Meaningful Academy, which serves as a hybrid for those between podcast listeners and paying customers, potentially generating new customers from scratch. Could this model be the best fit to bridge the gap?

better luck

This would support the studies of Bhattacharya and Stolper. Equipping the general public with financial education to begin their wealth-building journey gives them a better chance of becoming the customers of the future than if this information were not available.

Stolper (2017) concluded that greater financial literacy leads to greater confidence in one’s own judgment

If you have any ideas or would like to discuss the lack of advice further, please contact me on LinkedIn or through my social media at Proper Personal Finance, from now on.

Dan Raggett is an intern financial planner at Attivo Financial Planning


This article appeared in the August 2022 edition of MM.

If you would like to subscribe to the monthly magazine, please click here.

Louis R. Hancock