Polling financial literacy: results both encouraging and worrisome

Graham Bodel

By Graham Bodel, Chalten Advisors

Special to the Financial Independence Hub

The Canadian Securities Administrators (CSA) just released its 2016 CSA Investor Education Study, an assessment of financial literacy across the country.

Some of the findings are encouraging while others are a little bit worrying.

There are clearly still key gaps in investor knowledge and behaviour.  For example, while many investors rely exclusively on advisors for investment information and knowledge very few investors actually check to see that their advisor has the appropriate registrations.  Some other key points:

Risk Tolerance

To begin with, findings show that more and more people seem to be paying attention to their risk tolerance, which is great!  Risk tolerance is what should drive the mix of different investments that you hold, often referred to as asset allocation.  Risk tolerance is driven by your need, ability and willingness to take risk and should be informed by your current financial situation as well as near and longer term financial planning goals.  Risk tolerance can definitely change as your circumstances change or as you enter different stages of life so it is worthwhile checking periodically to ensure your investments are suitable for your risk tolerance.

Investment Knowledge

Survey respondents were asked to answer seven questions to assess general investment knowledge.  6 of 10 people answered 4 or more questions correctly, which is about the same as in previous surveys.  25% of respondents answered 6 of 7 questions correctly indicating a “high” level of investment knowledge.

 Older respondents and those with high incomes tended to exhibit higher investment knowledge than the general investor population.  Interestingly, passive investors showed a similar level of knowledge to that of active investors.  The way these results are highlighted in the report seems to indicate a desire for the results to be viewed positively.  Flip it around and it reads that 4 in 10 Canadians can’t answer correctly a majority of basic questions about investing.  That is worrying – lack of education plus lack of transparency around risk, costs and fees is what gets a lot of Canadians in trouble.


22% of Canadian investors surveyed were approached with fraudulent investment schemes.  This is shockingly high and clearly the rewards for would-be fraudsters remain as the prevalence of fraudulent approaches has only declined moderately since 2012.  What is unfortunate is that 68% of respondents didn’t report to any authority that they’d been approached and 53% of those who’d actually been defrauded didn’t report it to anyone!

Why don’t people report?  Respondents indicated mainly that they thought reporting would be overkill or that they didn’t know how to report it.  If you feel that you have encountered a fraudulent investment please report it to your local provincial securities regulator.

Advisor registration

Three in five respondents did not check their advisor’s registration.  The sale of investment products and the provision of investment advice is strictly regulated in Canada – we suspect a lot of fraud wouldn’t occur if people simply checked to see that whoever was offering investments to them was legally registered to do so.

Many investors are not even aware that there is a registration process.  Once made aware, Canadians do agree it is actually important to check and 80% say they would do so in the future.  So please make sure to check that your advisor has the required registration to offer you investments or investment advice. While you’re at it, note whether your advisor is required by law to act in your best interest – surprisingly few are.

Source for investment information

It’s actually this section that ties the whole report together as far as we’re concerned and reveals the real cause for concern.  Investors’ primary source of investment information is from investment advisors.  Advisors can be a great information source.  However, when the general level of investment knowledge is low, the prevalence of fraud high, the vast majority of advisors are not bound to act in their clients’ best interest and you have investors not checking if advisors are registered, it provides a fertile ground not only for fraud but more generally for investors to get into trouble.

Regulation is changing in Canada but investors still need to take responsibility to increase their own awareness and to educate themselves.  The CSA website has some useful pages for investors in that regard.

Graham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original can be found on Bodel’s blog here.

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