This year is shaping up to be another busy one for the investment funds industry. But it will also be a challenge for everyone to keep up with the pace of change.
On a compliance/regulatory level, there will be a greater push for more disclosure and transparency for investors. It won’t just be in mutual funds and segregated funds, as the point-of-sale proposal from the Joint Forum of Market Regulators envisions, but also in more complex, federally regulated products such as principal-protected notes. Industry players and regulators are of one mind: consumers should be provided with consistent access to information about products being sold, whether they’re buying mutual funds, seg funds, PPNs or any other investment product. This will provide investors with reliably comparable information and also increase their confidence in investing.
Expect to see more regarding the Canadian Securities Admin-istrators’registration reform project as it aims to streamline registration requirements from the 13 jurisdictions. From the self-regulatory organizations (both the Mutual Fund Dealers Association of Canadaand the Investment Dealers Association of Canada), we should see a new principles-based client relationship model proposal that will address, among other things, changes to account opening procedures and disclosure of conflicts of interest. Other areas that are up for review, and in which we hope to get further harmonization, include complaint handling and prospectus disclosure requirements.
When it comes to products, we know that the first phalanx of baby boomers is closing in on retirement, looking for investment products that provide a steady stream of income, protected on the downside and with tax advantages.
Fund companies have responded to some of these needs. One example is fund-of-fund products that allow rebalancing, diversification and risk-profiling techniques to be used within a structure that is convenient to invest in and allows for simple statements and easy portfolio tracking.
As of November 2007, both long-term stand-alone mutual funds and long-term fund-of-fund year-to-date sales were robust at $8 billion and $19.6 billion, respectively. Fund-of-fund assets grew 19 times faster than stand-alone fund assets, and sales of fund-of-fund products were bringing in an average of $1.1 billion more per month in sales than stand-alone products.
Toronto-based Investor Econo-mics Inc. forecasts that, over the next decade, investment funds in fund wraps will claim 86¢ of each dollar of inflow into the investment fund industry, with funds in managed assets quadrupling to $630 billion by 2016.
Seg funds, which, for the most part, are either an insurance-wrapped version of an existing mutual fund or are managed by a mutual fund portfolio manager, are also expected to continue their rapid growth. For risk-averse investors, the guarantee of either 75% or 100% of the value of the original deposit on maturity and a reset option that increases the guarantee is an attractive proposition, even with potentially higher MERs. Investor Economics predicts seg funds will increase to $170 billion in assets in 2016 from $13 billion in 1996.
During this same time, mutual funds will continue to prosper, although Investor Economics notes that most of the growth will come from market effect.
Advice will take on a greater role than ever before. It’s expected investors will increase the kinds of investments they buy. Talk will increasingly move from individual products to a more generalized approach to investing. This year is expected to be a busy in the investment funds industry. The opportunities are there for fund companies and advisors alike. IE
Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada.