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Remarks by Lucie Tedesco, FCAC Commissioner, at the Independent Financial Brokers of Canada’s Toronto Fall Summit

November 4, 2014
Toronto Ontario

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Thank you for such a warm welcome. And good morning everyone.

It’s a pleasure to be here. I know it’s customary for speakers to say that at the outset of a speech, but I can assure you that I mean it sincerely.

This is a wonderful opportunity for me. I appreciate every opportunity to speak with people who work on the front lines, dealing with Canadian consumers and their money — not only their money, but their hopes and dreams and future financial well-being.

Millions of Canadians see you as the face of the financial industry. You are the people to whom they turn when they want to save or invest. You speak with them every day in your office and in their homes.

You have first-hand knowledge about the challenges they face in making ends meet, putting money aside with the hopes that it will grow, and planning for a future that can include ups and downs that would be hard for anyone to predict.

You are also well aware that the challenges people face as they reach different life stages. For example: struggling to pay off a student loan, paying for a wedding, saving for a first house, managing the finances of a growing family and planning for retirement.

I’m sure some of you have also helped clients deal with more daunting and unexpected events in their lives — job loss, ill health, divorce, even bankruptcy.

Or, events of a more pleasant kind such as investing a portion of a big bonus, or an inheritance, or even a big lottery win. That last one is only wishful thinking for most of us… 🙂

The financial industry in which you work is one of the pillars of Canada’s prosperity. Another important pillar is the web of regulatory regimes that enable consumers to have confidence in the financial system.

And I dare say a third pillar is made up of individual Canadians who shoulder the responsibility of becoming financially literate and maintaining those skills throughout their lives.

As everyone in this room will surely agree, financial literacy is more than a nice-to-have skill.

Today, in our ever-increasing digital economy, knowing how to deal with money and investment matters is a necessity. But, in order to make informed decisions about products and services, consumers first need to understand the offer.

To make matters more complicated, we are living at a time when financial products and services are growing in complexity.

New technologies and financial innovations are moving faster than ever, leading to dramatic changes in the way we spend, save and invest our money.

Consider for a moment the big changes brought by digital technology. It’s given us far greater convenience. But it has also introduced new risks that we’re only beginning to understand.

Certainly, every Canadian stands to benefit from developing financial literacy skills and keeping them sharp.  Financially literate consumers also contribute to a strong and stable economy. And that can be very good for business as well.

It can be, but…here’s the bad news. Many Canadians lack even the most basic financial knowledge necessary to make good decisions about their money.

That situation needs to change if we are to continue to prosper as individuals and as a nation.

Today, I’d like to draw a picture of the financial literacy landscape in Canada.

I’ll describe what the Financial Consumer Agency of Canada, often referred to as the   F-C-A-C,  is doing to protect financial consumers through the supervision of federally regulated financial institutions and by helping Canadians strengthen their financial literacy skills.

But I’m also going to talk about how organizations across the public, private and non-profit sectors can contribute to a more financially literate society.

Because the job is far too big for the federal government to address alone.

The only way we can hope to devise the approaches and solutions to keep up with a rapidly evolving marketplace is — if organizations from many sectors agree to collaborate and coordinate their efforts.

Fortunately the leadership we need to spearhead such action is now in place. My colleague, Jane Rooney, recently stepped into the job as Canada’s first Financial Literacy Leader.

Actually “stepped” into the job doesn’t really describe what Jane did. It’s more like she hit the ground running.

In a very short time, she has brought the people and resources together to start building a National Strategy for Financial Literacy.

She’s doing it by involving various levels of government, the financial industry, businesses, community-based organizations, special interest groups and even families and individuals from all across Canada.

Your own organization has contributed by offering valuable comments on the strategic direction as it pertains to seniors. I’m sure those comments are based on what many of you here today have observed in your interactions with Canadian consumers.

We thank you for sharing your perspective, and we hope the Independent Financial Brokers will continue to participate in the dialogue that is helping to shape the strategy.

Before I go more deeply into the challenges and benefits of helping Canadians build the financial literacy skills that can keep pace with change, I’d like to tell and show you a bit more about our agency.

In the late 1990s, a ground breaking review of the financial services sector revealed that an “information and power imbalance existed between institutions and consumers”.

In 2001, the federal government began to address that disparity by establishing the Financial Consumer Agency of Canada, or FCAC, for short.

The Agency took on a dual role:

  • To ensure financial institutions comply with consumer protection measures; and
  • To promote consumers awareness of their rights and responsibilities as well as the need to develop financial literacy skills.

So, for well over a decade, we’ve been working to promote responsible financial market conduct and to empower Canadian financial consumers.

I’m using the “royal we” here. I joined the agency in 2008 – and was appointed as Commissioner a little over a year ago. But, rather than tell you more, let me show you what we’re doing today.

[Roll video] 

That beats a long-winded list of all the things we’re doing to meet our consumer protection and consumer education mandates doesn’t it?

What it all comes down to is ensuring people get the right information and opportunities to develop the skills and confidence to make wise financial decisions. 

Both your industry and the organization I lead are in agreement about the value of business conduct rules and the benefit of protecting the interests of consumers.

Over the years, governing bodies and rules have been put in place to guide the way financial professionals deal with client relationships, conflict of interest and disclosure.

These measures have gone a long way towards raising investor confidence and strengthening your industry.

Likewise, the FCAC oversees legislation, voluntary commitments and codes of conduct  that apply to federally regulated financial institutions that protect consumers, and in large part, these rules and commitments ensure that financial institutions provide consumers with proper disclosure. In other words, we pay attention to the wording of the fine print.

Consumers, when shopping around for financial products need to clearly understand the options available to them, the features and benefits, any associated limitations or risks, and the costs, both up-front and ongoing.

When comparing products or services, they need to be able to compare these elements. And they need to be able to recognize any sales-oriented bias in materials they encounter while seeking to make decisions.

Financial institutions have a responsibility to provide customers with information they can easily understand.

To that effect, our Agency works with financial institutions to ensure that their products, policies and practices comply with these rules and commitments and provide Canadians with accurate, timely financial information to help them increase their financial knowledge and ultimately make financial choices that are right for them.

At the same time, we work to promote awareness among consumers of their rights and responsibilities.  In the past, what we often heard was that documents such as application forms were overly complex and confusing.

From the complaints we received, it was obvious that consumers were frustrated.

One way we addressed the problem is through the Cost of Borrowing regulations that went into effect in 2010. These regulations updated the rules that apply to consumer credit products such as credit cards, lines of credit and mortgages.

At that time, my predecessor issued guidance to help affected institutions integrate key principles of clear and simple language into the policies and procedures they use to develop documents.

You can see the results today any time you open a credit card statement. Statements now must contain information boxes that explain in simple everyday language details such as:

  • How the interest rate is calculated on cash advances, late payments and unpaid balances.
  • What the length of the interest-free period is if you pay off the balance in full by the due date. And by the way, the minimum interest free period is now at least 21 days as a result of regulation; and
  • How long it will take to bring the balance to zero is the consumer makes only a minimum payment per month.

Everyone benefits from clear product disclosure.

I’m sure it’s much easier to engage potential customers when they understand what’s being offered to them and become active participants in making decisions.

That’s empowerment at work.

Now, I don’t want to leave you with the impression that we see our job as coming in after the fact to lay down the law and demand that things be fixed.

As modern regulators, we prefer to act in a way that’s proactive and pre-emptive.

We don’t look at our dealings with the federally regulated financial institutions as a “them and us”.

Instead, we seek to work together in a collaborative way. Our aim is to avert potential harm to consumers. That’s much better than having to mop up after an issue surfaces.

So, we make every effort to maintain an open and active dialogue with the banks.

For two main reasons:

  • First, to make sure we have a heads up on the direction they’re moving in and the new products and services they plan to introduce in the future; and
  • Second, so that they will be clear on our compliance expectations.

We strongly believe that trusted relationships are the key to achieving richer outcomes.

Working to keep connections open and strong is one of our approaches to staying on top of consumer protection issues.

It also means we have to keep up with the vanguard of change.

Just a few weeks ago, Apple announced a new product category. Not another computer or digital device — but something called Apple Pay.

Apple Pay could be a game changer.

While the technology behind this payment form isn’t new, Apple’s strong market saturation could propel consumer behaviour to new realms. Plus, it will likely prompt other players in the payments industry to develop competing products.

We don’t know which emerging payment form will prevail at this point. But we do know that financial services will change profoundly.

Fortunately, we have already started to conduct research into the extent to which consumers are protected while using mobile payments in Canada.

And, based on those findings, we are developing information to help consumers better grasp the details about this emerging form of payment as well as the potential risks.

Mobile is just one example of how the marketplace is charging ahead with great speed.

As regulators, we need to move at the same speed to keep a sharp eye out for consumer interests. 

Although providing consumers with protection via regulation and compliance is just as relevant today as ever, it simply isn’t enough.

Sure. We can build the best regulatory regime in the world. But, what’s the good of it if consumers don’t understand the products they purchase, how to use them responsibly and how to benefit from them?

Consumers also have the responsibility of informing themselves before making decisions. But this requires financial literacy.

So, we spend a lot of time focusing on the other side of our mandate – encouraging Canadians to develop financial literacy.

This involves:

  • Promoting consumer awareness of financial institutions’ obligations and consumer protection matters.
  • Second: Fostering their understanding of financial services, products and related issues. For example, we provide lots of information on topics such as how to open a bank account or shop for a mortgage; and
  • Third: Making tools and publications accessible to consumers to help them make informed financial decisions.

These activities are important when you consider the state of financial literacy skills in this country today.

We define financial literacy as providing people with the knowledge, skills and confidence to make the informed decisions that will best suit their needs.

We think of a financially literate person as someone who understands:

  • how the financial system works;
  • how to manage their money; and
  • how to make choices that best suit their needs and income. 

Sadly, many Canadians don’t meet that test. Far too many Canadians lack even the most basic financial knowledge necessary to make good decisions about their money.

To put this discussion in context, I have to take you back to 2008. I doubt I have to say much more after I mention that date. We all know what happened then.

We all saw stock markets plunge, an event that marked the beginning of a recession that still is affecting growth today.

It caused more than a shudder here in Canada, but fortunately, our banks survived and housing prices didn’t slip like they did south of the border. But it also brought to light the difficulties people were facing in understanding and dealing with complex financial products and services.

And it precipitated the Government of Canada to take action. One measure the government took was the Canadian Financial Capabilities Survey.

The survey showed that 40 percent of Canadians were weak in at least three of the five domains of financial capability. Those are:

  • Keeping track of expenses;
  • Planning ahead;
  • Staying informed;
  • Choosing products such as mutual funds and insurance policies; and
  • Making ends meet.

We also learned some other interesting things facts — such as only a little more than half of Canadians were working with a budget.

In some age groups, that lack of planning was even more severe.

  • More than half of Canadians ages 18 to 29 as well as the majority of seniors over 70 reported that they didn’t work with a budget.
  • Worse, nearly a third of Canadians were struggling to keep up with bills and financial commitments. Of those Canadians planning to purchase a home, 48 percent had saved less than 5 percent of the cost. 
  • 67 percent — or a full two-thirds of potential buyers — said they had saved less than 10 percent of the cost.

The Financial Capabilities Survey also found evidence that Canadians lacked financial knowledge.

  • 52 percent of Canadians planning to purchase a home were not expecting to incur any costs other than the down payment.
  • And, only 40 percent of Canadians said they had a good idea of how much money they need to save to maintain their desired standard of living in retirement. 

We aren’t the only organization to uncover these trends.

About the same time, the Canadian Institute of Chartered Accountants also found that:

  • nearly half of all Canadians carry credit card balances from month to month – up from one third only a few years ago;
  • fewer than half of Canadians are saving enough money from their paycheques to have enough for retirement; and
  • nearly half of Canadians would find it hard to make the monthly payments on their mortgages and other debts if interest rates were to rise significantly — which they are bound to do, eventually.

That last point is serious cause for concern. It reflects two weaknesses:

  • The personal savings rate in Canada, which has been falling since 1982; and
  • The high level of debt many Canadians are carrying

A record high, in fact.

Between April and June of this year, Statistics Canada says the average level of household debt compared to disposable income sat at 163.6 percent. That means Canadians owe something like 1.64 dollar for every dollar they make.

That debt comes from sources such as lines of credit, car loans, and credit cards.

What’s going to happen when interest rates start to climb again?

Will Canadians be able to carry their debt loads then?

The journey ahead could be bumpy for many, which makes it more important than ever to strengthen financial literacy skills. 

In response to the economic crisis of 2008, the federal government took another step — it created a Task Force on Financial Literacy.

The Task Force brought together the best minds and expertise from diverse backgrounds to grapple with a large issue. It drew members from the business and education sectors, community organizations and academia.

The Task Force travelled across the country to meet face-to-face with Canadians. They heard their views and learned about their values and experiences.

The Task Force also commissioned original research and reviewed international best practices. And in 2011, it issued a final report, calling for a national strategy to strengthen the financial literacy of Canadians.

The task force also made another key recommendation. 

It called for the appointment of an individual champion who would be responsible for developing and executing the strategy and who would be accountable to Canadians through Parliament.

As I mentioned earlier, that position was filled this spring when Jane Rooney became Canada’s first Financial Literacy Leader. Her mandate is to coordinate and collaborate with multiple partners across the country to strengthen the financial literacy of Canadians.

Ultimately, her goal is to help people build financial literacy — the knowledge, skills and confidence they need to make responsible financial decisions throughout their lives.

And she is well on her way to creating the strategy that will make that goal a reality. In doing so, Jane is following the roadmap of priorities laid out by the Task Force in its recommendations.

The job of strengthening the financial literacy of Canadians is a shared responsibility.

And so, as an initial step, Jane created a steering committee made up of representatives from a wide range of stakeholders; individuals, government, financial institutions, other businesses and voluntary organizations. One of these members is Mr. Cary List, President and CEO of the Financial Planning Standards Council.

In addition to contributing to the development of the strategy, committee members will also act as champions for financial literacy within their own organizations and industries and seek to engage stakeholders across the country.

Work is now well underway on the strategy. What I’d like to highlight here is that there are many organizations – public, private and non-profit – already doing great work in the area of financial literacy.

The overarching goal then is to:

  • Ensure these efforts are coordinated;
  • Use and promote resources wisely; and
  • Make sure the impact of programs is properly understood, measured and disseminated to a wide audience.

We also want to fill knowledge gaps and meet the needs of all Canadians.

Without going into too much detail, I can tell you that the strategy is based on the idea that financial literacy is an essential skill that should be acquired through lifelong learning.

In other words, it recognizes that people need to master and use different financial literacy skills at different points in their lives.

So the strategy talks about other options, such as identifying and acting on “teachable moments”.

What’s a teachable moment? Well, it’s the kind of event or situation that includes a financial component and crops up in the lives of most consumers.

So that makes it a good point at which to teach financial literacy skills. For example, a teachable moment can occur when someone goes off to take a first job or attend university, starts a family, buys a home, or begins to plan seriously for retirement.

We envision that some of these moments could occur in the workplace, or as part of government programs, or even during meetings with you, the people who provide financial advice. I’ll have more to say on that a little later.

Given the diversity and different needs within the Canadian population, we’ve taken a multi-phased approach to develop the strategy. For each phase, public consultations have been or will be held across the country.

Phase 1, which was published last month, focuses on seniors and near seniors — the people who are approaching or have reached the age we traditionally associate with retirement.

There’s good reason to make seniors a priority. The 2009 financial capabilities survey found that, on the whole, seniors were half as likely as younger adults to score high in all five areas of financial capability. In particular, seniors’ results were generally weaker in keeping track of finances, planning ahead and staying informed.

We received valuable insight from the public and stakeholders on how to help seniors improves in these areas.  Here are few comments we heard:

  • Seniors are a diverse population. This suggests that we need to communicate differently with different groups of seniors.
  • There is a need for clear and simple communications.
  • Decisions and behaviours earlier in life have a significant impact on seniors and their financial well-being. This highlights the need for the strategy to emphasize a lifelong learning approach to financial literacy.
  • Potential health care costs for seniors are not well understood, and this issue needs to be addressed.
  • And finally, a number of submissions mentioned that financial products and services available to low and moderate income are more limited than one would hope, especially in the area of financial planning.

The senior’s financial literacy strategy is now available on FCAC’s website at itpaystoknow.gc.ca.

We’ve launched our consultation process for Phase 2 of the strategy which will focus on priority groups. Those groups are:

  • low income Canadians who need a helping hand to move out of poverty;
  • Aboriginal people, many of whom face limited access to services, and who live in remote locations and disadvantaged conditions; and
  • Newcomers to Canada, who may be less likely to access basic financial services and less confident about making financial decisions.

Phase 3 of the National Strategy will focus on identifying priorities and forming action plans for youth and adults.

The strategy will be published in 2015, providing us with a roadmap to follow to address the specific needs of priority groups and all Canadians throughout their lives.

We have re-fielded the Canadian Financial Capabilities Survey and the results will also shape the national strategy.

We’ll also use its updated benchmarks to gauge our progress in future years. We plan to release the survey’s preliminary results at our fourth National Conference on Financial Literacy in Vancouver on November later this week.

Putting industry regulations in place to protect consumers, and pursuing collaborative efforts to provide educational opportunities and teachable moments are laudable undertakings.

But we see Canadians as partners as well. That means they share in the responsibility for developing their financial literacy skills.

To support them, the Financial Literacy Leader is spearheading another project to develop a Financial Literacy Resource Database, which we will officially launch in the coming days.

The Database will help consumers access a wide array of financial literacy material drawn from public, private and non-profit sources.

I’m very excited about the database and its wealth of information. I’m also happy to say that the database will be an ongoing collaborative effort. Many different organizations and individuals have contributed information and tools and will continue to do so. That means we can offer Canadians access to the best and widest range of material possible. 

Well, I’ve given you a picture of the financial literacy landscape in Canada. But the question you’re probably asking yourself right now is: What does it all mean to me?

And so, let me return to where I started by talking about the difference you can make by taking action to strengthen the financial literacy of your clients.

Your industry has made big strides in recent years to protect and empower its clients.

Financial advisors routinely interview investors to make sure they understand their financial goals and risk tolerance. And they make concerted efforts to match clients to products and services that are appropriate.

But there are lots of others ways to help consumers work toward their financial goals, strengthen their knowledge and confidence, and add further value to your service.

One is building an awareness of your clients’ literacy levels. Where do they sit on a spectrum of understanding money and investment matters? Does financial terminology make sense to them?

Steven Pinker, a Canadian psychologist who teaches at Harvard University, recently explored the reasons why people often write badly.

But, I believe the advice he offers in his book The Sense of Style applies equally well to all areas of communication.

Pinker warns his readers to be aware of “the curse of knowledge”. That curse shows itself, he says, when we assume that others know what we know.

Another assumption that’s easy to make is that people are comfortable with using technology. That they know, for example, how to search for information on the web and to use the tools they may find there.

So, having a good idea of where people are in terms of their financial and technical knowledge levels is a good start-point to helping them expand their horizons further.

Keep in mind too, that small incremental changes often lead to significant results. Something as simple as encouraging a client to set a budget and pointing them to the information they need to get started can give someone a big boost.

We often hear stories from Canadians who describe how they built their financial literacy skills and used them to pay off debts, pursue an education or achieve important life goals. Time and again, they tell us that their success came as a result of doing simple things, like setting up a budget, keeping better track of expenses, or becoming more disciplined about paying off credit card balances.

Just as one bad habit can lead us down a slippery slope to others that are equally bad or worse, good habits often beget more good habits.

Let me make one final reference to the Canadian Financial Capabilities Survey, which tests participants in five areas. Each of those areas could easily be a starting point for a conversation you could have with clients to help them become more knowledgeable and aware of the practices that will help them reach their financial goals.    

Now I may be carrying coals to Newcastle. Many of you likely do some or all of these things already. But here are five conversations that could benefit a lot of Canadians.

Live within your means: While you can’t ensure your clients spend less than they earn, you can make money-saving suggestions and inform them of the importance of paying down debt every month.

Budget wisely: Explain the money-saving benefits of careful budgeting and point your clients in the direction of online or printed budget sheets and other budgeting resources.

Plan ahead:  Canadians often need help to understand employer pension plans as well as how to best use RRSPs, tax-free savings plans and other long-term saving vehicles.

Choose products carefully: Help clients choose products that have appropriate costs and benefits for their lifestyle and income level.

Stay informed: Encourage your clients to explore additional sources of information such as our agency’s website and the soon to be available financial literacy resource database.  

You’re also invited to make contributions to the portal as well. If you’ve developed materials and tools for your practice and/or your clients — they may be of value to a wider audience. It’s easy to submit them for consideration. Just use the resource database on our web site. I hope you’ll share.

And please join in the activities planned for Financial Literacy Month, which we’re celebrating all through November. There’s still time to add events to our calendar for 2014.

This year the theme is Strengthening Financial Literacy through Collaboration. We chose it to highlight the emphasis we put on drawing from many sources to give Canadians the information and tools they need to understand and manage their personal finances. People like yourselves can make such a big difference in raising the level of knowledge about financial matters.

You can all participate in Financial Literacy Month by promoting the month, raising awareness, and organising events that you can promote through our FLM Calendar of events.

Oh and if I can offer one more piece of advice: watch for those “teachable moments” when your clients are making big decisions, and be prepared to act on them. 

We are fortunate to live in a country as prosperous and rich in opportunity as Canada.

Financial regulation that protects consumers is one of the pillars that has contributed to that success. A financial industry that empowers its customers and takes an active role in helping them build wealth is another pillar. And a third comprises Canadians who take responsibility for embracing lifelong learning and constantly hone the skills that enable them to achieve financial success.

You are the people, who every day, in some way, contribute to the strength of those supports.

You are especially well placed to serve the needs of your clients by guiding them through a financial landscape that may be quite alien to them. You can help provide them with the information and insight they need to make sound decisions that will let them achieve their goals. You also stand to benefit from helping to demystify the world of finance and empowering your clients.

It’s fair to say that we all benefit from informed savers and investors, because financially literate consumers contribute to a strong and stable economy.

I hope you will join us as a partner in helping your fellow Canadians acquire and practise the skills they need to manage their finances and invest wisely.

Thank you.

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