With a low level of investment knowledge, and unrealistic market expectations, it’s little surprise that, according to a new investor survey, Canadian investors remain popular targets for fraudsters.
The Canadian Securities Administrators (CSA) released the third edition of its survey of investment knowledge, investor behaviour and incidence of investment fraud today, revealing that Canadians remain susceptible to fraud. According to the 2012 CSA Investor Index, “the overall investment knowledge of Canadians is low”, with 40% failing a general investment knowledge test.
It also found that most Canadians have unrealistic expectations of market returns. When asked what they think the annual rate of return on the average investment portfolio is today, the CSA reports that, only 12% gave a realistic estimate, 30% offered an unrealistic estimate, and 59% didn’t know. Yet, despite this lack of basic knowledge, 57% said they are confident when it comes to making investment decisions.
The survey also found that almost 30% of those surveyed believe they have been approached with an investment fraud at some point in their life. Yet, just 29% of those potential fraud victims said they reported the most recent occurrence to the authorities.
“Our research shows that Canadians continue to be approached with fraudulent investments and aren’t reporting it,” says Bill Rice, chair of the CSA, an chair and CEO of the Alberta Securities Commission (ASC). “As securities regulators, enforcement is always a top priority for us, and to help us investigate investment fraud, we need to hear from those who have been affected. We encourage investors to report suspected fraudulent investments and to protect themselves by recognizing the warning signs of fraud.”
The survey also found that 49% report that they have a financial advisor, up from 46% in 2009, and 42% in 2006. However, just 31% say that they have a formal financial plan. While this is up from 25% who said they had a plan in the previous survey in 2009, they are reviewing that plan less frequently (78% say they reviewed their plan in the past 12 months, down from 83% in 2009). Also, it found that 60% of those with a financial advisor have never completed any form of background check on their advisor.
Additionally, the survey found that investors are more optimistic about the long-term than the immediate future. It found that 52% said they are optimistic about achieving their investment targets in the next five years, versus 39% who are optimistic about the next 12 months. And, just over half believed they would be able to maintain or increase their level of current income in the coming 12 months, it notes.
For the first time, the survey also broached the issue of the role social media plays as a source of investment information. It found that social media is emerging as an investment tool, with over one-third of Canadians saying they have used at least one social media platform as a source of information about investing. However, traditional channels still dominate, the CSA notes, with finance professionals remaining the most common source; and, face-to-face meetings deemed to be the most reliable source of information when making investment decisions.
The research, which combines a telephone study with an in-depth online study, was carried out by Innovative Research Group with 6,911 Canadian adults online between May 17 and 31. The online sample was weighted by age, gender, and geography to reflect the actual demographic composition of the population. It estimates a margin of error of +/-1.4 percentage points, 19 times out of 20.