Education Makes Information Meaningful
By: Colin Geissler
While the Joint Forum should be applauded for its guidelines for Capital Accumulation Plans, Colin Geissler, of the Canadian Securities Institute, says it did not go far enough in emphasizing the importance of education, a process that goes well beyond the provision of information.
One of the key aspects of the Joint Forum’s proposed guidelines for the administration of Capital Accumulation Plans (CAPs) pertains to the sponsor’s responsibilities with respect to providing members with informational resources.
However, while the Joint Forum should be applauded for the guidelines and, particularly, for recognizing the difference between information and advice, it did not go far enough in emphasizing the importance of education, which is a process that goes well beyond merely the provision of information.
In an August 2001 Benefits and Pensions Monitor article, Jury Kopach hit the mark when he said, “Education is taking information and teaching an employee how to use it for his or her own benefit.” Kopach goes on to say “if information is improperly used, the results could be disastrous for both the employer and the employee.”
With this in mind, the challenge for the plan sponsor is to bridge the gap between providing information and then presenting it in a way that will be understood and acted upon by Capital Accumulation Plan (CAP) members. It is possible to think of this gap as a thorn-filled ravine.
Typically, most Canadians have little background or experience in the areas of major financial choices. So, on one side of the ravine are the individuals who have little or no retirement plan but lots of information. On the other side are CAP members who know how to use the plan for their own benefit. The sponsor’s job is to build a bridge over the thorns of acronyms, taxation implications, financial risk, and complex math to help people move to the other, more educated side. How can this be accomplished?
Think about the process of buying a house and obtaining a mortgage. The end goal is to secure a mortgage but getting there can be a complicated and stressful process. To reduce the adverse effects, individuals may call on various sources including family, friends, published resources, and experts and then go through the f o l l o w i n g information gathering steps required to make a knowledgeable decision:
- Context: Why do buyers need to learn about a mortgage? It’s simply because they need a place to live. In this case, the buyers bring the context in which the decision is made.
- Information: Banks, realtors, books, and the internet can all define what a mortgage is, how it works, when it is used, and who might need one.
- Guidance: These sources can also provide guidance in the form of advice and help you work through various scenarios.
- Practice: Mortgage and amortization calculators allow home buyers to experiment with numbers and scenarios to explore their various options.
Together, all of these steps – context, information, guidance, and practice – represent education. Now, the buyer is in a position to make key decisions such as which mortgage provider to choose and the appropriate mortgage size, rate structure (fixed versus floating), and amortization period.
Relative to deciding on a mortgage, decisions pertaining to CAPs can be quite complex. Furthermore, the buyer may not have access to good information or sources of guidance.
The other key difference is that home buyers have an immediate need in purchasing a house which means that they need a mortgage. Employees may not value a retirement plan because the need is not immediate and, therefore, often not understood. So how can we teach them about CAPs and how do we motivate them to learn?
The following guidelines, as proposed by the Joint Forum on CAPs, aim to provide the timbers to build the bridge across the thorny ravine.
- Investment Information – how investment funds work, securities, relative levels of risk, glossaries, and product guides
- Decision-making Tools – asset allocation models, retiremen