Financial Education vs. Advice: Which is better?
Access to Financial Help Varies
The wealth management industry is very interested in managing accumulated wealth, especially over certain net worth levels. This leaves a tremendous gap. Employees who have yet to accumulate wealth still need professional help, yet they have fewer options.
Naturally, employees turn to their employers as a resource. After all, their job provides their most meaningful monetary benefits, including their wages, health insurance, and retirement savings accounts.
Options for Employers
Employers are stepping up to fulfill employees’ needs, and those who want to provide financial help have an endless list of choices. From retirement plan recordkeepers to employee assistance programs, nearly every provider has some form of “financial wellness” service. Oftentimes these tools and resources are even included with existing services, free-of-charge.
An employer really needs to determine what specific form of financial help is most beneficial. In general, there are two options: financial education or financial advice.
Gain More Insights
What is financial education?
Financial education promotes knowledge on a variety of financially-related topics. Its strength is creating awareness. When provided, ideally, it will lead employees to question and assess their situations, applying the knowledge learned.
The downfall of education alone is that it is limited in terms of specificity. Education is typically presented in group or learn-on-your own settings. Employees who participate rarely walk away with action steps catered specifically to them. Instead, they obtain high-level, generic guidance. While still relevant, this guidance often fails to prompt meaningful action. Employees are left wondering how or when to do what comes next.
What is financial advice?
Financial advice takes financial concepts and applies them directly to specific circumstances. The value of advice, especially in comparison to financial education, is the delivery of specific, personalized recommendations that make taking action easier. Instead of wondering, ‘What should I do, based on this general information?’ employees who receive advice have precise options, applied to their exact situations. Having these actionable steps provides reassurance and increased likelihood of positive change.
Education vs. Advice: Which is better?
Both financial education and financial advice have their merits. When the question is which helps employees more dramatically, the answer is clear: Advice more meaningfully impacts employees because it provides personalized, definitive answers.
In contrast, financial education or guidance is generic, impersonal, and open-ended. While employees may gain knowledge, they lack any further assistance to act upon the knowledge gained.
The Added Advantage of Advice
Nowadays, financial advice can come in different forms, including “robo” advice. Robo-advisory options take into consideration personal inputs and use algorithms to generate recommendations.
Financial advice is most powerful, however, when it is delivered through a personal, one-on-one relationship between an employee and a real, live advisor. The human component of advice enables back-and-forth interactions rather than one-and-done. Employees gain confidence as a real face and voice walks them through each step. Over time, a personal relationship develops, adding trust and familiarity that cannot be replicated by robo-advice or automated call center prompts.
Know What You’re Getting
Organizations looking to hire a financial advice provider have no small task in front of them. With so many nuances, it can be difficult to decipher what you’re really going to get. The main concern is exposing employees to service providers who may have conflicted motives or an agenda to sell products. These are important angles to consider when selecting a service partner.
Employers should pose specific questions in order to assess the quality of an advice provider. Examples of these questions include:
- What kind of professional designations, experience, and qualifications do your service representatives or advisors maintain?
- How do you get paid for the services you offer?
- Can your compensation vary in any way?
- Do you sell any additional products or services directly to employees?
- Will you act as a fiduciary for the advice you provide?
Understanding the answers to these questions will help employers determine the appropriateness of the services delivered.
For additional questions and rationales, check out 12 Questions for Financial Advice Providers.
For decades, Francis Investment Counsel has been helping organizations take care of their employees through employer-sponsored financial education and personalized advice services. If you’re looking to better understand how your employees can benefit from financial advice, reach out to our experienced team of experts to get started.
Tags: financial wellness, financial education, financial advice
PLANSPONSOR, “More Plan Sponsors Executing Financial Wellness Programs,” February 2021.
CNBC, “Feeling financial stress? Here’s how your employer may help,” April 2021.
SHRM, “Employers Feel More Responsible for Employees’ Financial Wellness,” October 2020.
Francis Investment Counsel, “Is Financial Wellness a Passing Fad? (Podcast),” January 2021.
Investopedia, “Robo-Advisor Guide,” March 2021.
Francis Investment Counsel, “The Power of Financial Advice (Podcast),” April 2020.
Francis Investment Counsel, “12 Questions for Financial Advice Providers,” April 2020.