Special Feature

Consumer Insights

Consumer Insights offers an exclusive series of articles analyzing the results of the on-going Financial Comfort Zone Study, conducted by Missis­sauga, Ont.-based Credo Con­sulting Inc. in partnership with Montreal-based TC Media's investment group. (Investment Executive is published by TC Media's investment group.) The survey, conducted monthly in English and French, is designed to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. The number of respondents is expected to grow to 12,000 within 12 months.

And less than half of Canadian investors say their advisor is trustworthy and honest

By Tessie Sanci | January 2017

As new performance and fee reports are delivered to Canadian investors in early 2017, research indicates there is a high level of confusion among Canadians regarding how they pay for their investments. What's more, a large number of investors believe they pay no fees whatsoever.

According to the latest edition of the Financial Comfort Zone Study, 59% of survey participants said they are not being charged trailer fees and 26% were unsure if they pay these types of fees.

"Only 16% said, 'Yes, [trailer fees] are how my advisor gets paid' when we know that such a substantial portion of the investor marketplace uses mutual funds," says Hugh Murphy, managing director of Credo Consulting Inc. in Mississauga, Ont.

A significant proportion (23%) of survey participants went so far as to say they are not being charged at all for the professional financial services they receive.

These findings are from the most recent edition of the ongoing Financial Comfort Zone Study, a national consumer survey conducted by Credo in partnership with Montreal-based TC Media's investment group, which publishes Investment Executive.

This edition of the survey will act as a benchmark for investors' thoughts regarding investment fees, services and advisors' value before the revised format for account statements, required under the second phase of the client relationship model (CRM2), are sent out. Canadians will be surveyed throughout 2017 to determine if their opinions change as they receive those statements, which will outline both the fees (in dollar terms) that clients pay for their investments and how those investments have performed.

If an advisor believes clients are unsure about how the advisor is compensated, that advisor needs to explain the matter clearly before clients ask, says Rob Kochel, vice president, national accounts, at Toronto-based Invesco Canada Ltd. Unexpected and unexplained fees are the top reason Canadian investors would lose trust in their advisor, according to Kochel, who cites Invesco's research into investor expectations.

The level of trust that Canadians have in their advisors is another key component of the Financial Comfort Zone Study's benchmark. When survey participants were asked how they would describe their advisors, "trustworthy" made the grade with just 45% of participants; "honest" came next with 44%.

Murphy will be looking to see if survey participants' perceptions of their advisors' trustworthiness and honesty changes in the post-CRM2 environment. "I think there is potential for [investors to] feel jilted," says Murphy. "If advisors communicate effectively [regarding CRM2], there is potential for those qualities not to diminish in the scoring."

Survey participants also were asked to describe the level of value their advisor provides through his or her services. Only 21.4% of survey participants described the financial advice they receive as of "great value." More than half (57.5%) of survey participants believe their advisor's services are of "good value."

About 16% believe they are receiving "fair value" and 5.2% questioned why they are even paying for their advisor's services. Murphy describes these two latter categories as a "switch zone," in which there is a strong possibility that these clients will be tempted to move to another advisor.

Sara Gilbert, founder of Montreal-based Strategist Business Development, takes the switch zone one step further. Those survey participants who fell within the latter two categories definitely will move once CRM2 statements are in hand, she says. And participants who said their advisor provides "good value" will be open to conversations with other advisors."That just means that somebody else needs to show that they deliver greater value and, chances are, the investors will switch," says Gilbert.

Credo's research provides advisors with a look at what and how much investors would be willing to pay for the work that advisors do. Survey participants were asked to divide a fictional $100 among various financial services based on the importance they place on those services.

Investment management reigned supreme, with survey participants allotting an average of $39.80 toward it. Retirement planning, which received an average of $22.10, came in second place.

The remaining services lagged considerably in importance, with survey participants allotting less than $8 toward each of the following: information and education, tax management, budgeting, major expense planning, estate planning, insurance coverage, education financing, elder care, referrals and charitable giving.

The popularity of retirement planning is not surprising, according to Gilbert, who attributes the category to the sizable baby boomer population: "Baby boomers see retirement coming up and they see their parents [in that life stage], and some of those parents are struggling to pay for what they need."

As baby boomers begin to move into the asset decumulation phase of life, expect the importance of tax management to increase, adds Kochel: "I think tax is going to become a bigger issue in terms of quantifying and qualifying an advisor's value."

The online Financial Comfort Zone Study polled more than 14,000 Canadians. The survey is meant to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. Canadians are polled monthly, and the number of survey participants will increase each month.

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