The recent release of the Investment Funds Institute of Canada’s first annual investor survey has shown mutual fund investors’ remarkable reliance on their advisors. In addition to advisors being in an enviable position compared with other professionals, the survey emphasizes the importance of the quality of the dialogue between advisor and investor, and of the kind of information discussed.
I recently returned from an international conference on mutual funds at which I learned that nowhere else in the world — not in the U.S., not in Britain, not even in Australia, where mutual funds have grown by leaps and bounds — is there the kind of confidence and trust in advisors that there is here in Canada.
One of the reasons for that may be that Canadians tend to choose products that require some level of advice — such as equity and international funds — while U.S. inves-tors, for example, tend to gravitate more toward money market funds. The more complex the product, the more questions an investor may have, which then leads to more communication and a further cementing of the relationship.
Whatever the reason, the IFIC poll indicates 85% of the mutual fund investors surveyed bought their mutual funds from an advisor. But it wasn’t just a matter of a simple purchase. The advisor’s opinion was the No. 1 reason an investor purchased a mutual fund — above risk, the fund’s past performance, price per unit and fees. And 95% of those surveyed said they were satisfied — to some degree — with the advice they received (25% said they were “completely satisfied,” 60% were “satisfied” and 10% were “somewhat satisfied”).
Given the reliance investors place on advisors, it’s important that the quality of dialogue between investor and advisor be high. And that appears to be the case.
The survey shows that 90% of the mutual fund investors said their advisors discussed suitability with them. And about 94% said their advisors talked to them about investment objectives and risk tolerance prior to purchasing the fund.
The ever-watchful eyes of investors — and regulators — are on the mutual fund industry and the advice being disseminated to investors. Maybe that is as it should be. Mutual funds are one of the most common investments out there, with about one-third of all Canadian adults owning some kind of fund. This strong participation rate is expected to increase over time and, with it, a stronger reliance on advisors.
That’s why advisors need to continue to earn a high level of confidence from their clients. Keeping up to date on products, knowing your client, outlining the risks in understandable language and providing essential information for investors to use to make their investment decisions are key to maintaining that confidence.
And, although the bulk of investors say they are satisfied with the advice they receive, moving more of them into the “completely satisfied” column is a goal we need to set for ourselves. IE
Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada.