An overwhelming majority of investors say that financial advisors should be required to put their interests first, according to a new study released Monday by the Ontario Securities Commission’s independent Investor Advisory Panel (IAP).
The study, which was conducted on behalf of both the IAP and the Investor Education Fund (IEF), counters some of the rosier claims of the industry-financed research into the depth of investor trust in the financial industry.
For example, it reports that, while investors generally trust the advice of their financial advisors, only 20% of investors “strongly agree” that they generally trust their advice. And, almost two thirds say they believe that how an advisor is paid impacts the recommendations that they receive (64% overall, comprised of 25% who strongly agree, and 39% who simply agree). Yet, more than 40% admit that they don’t know how their advisor is being paid.
The IAP stresses that advisors need to give their clients greater assurance that their best interest is being served. Indeed, it reports that 93% support the imposition of a statutory best interest duty on advisors (with 59% strongly agreeing that it is needed).
It says that investors want other aspects of advisor regulation strengthened too, including clearer professional standards on use of titles, rigorous educational requirements and ethics training, and stricter enforcement.
“This investor research will inform and support our recommendations to the Ontario Securities Commission regarding future statements of priorities,” said IAP chair, Paul Bates. “The research will also inform our positions regarding investor protection initiatives, including the introduction of a statutory best interest duty to replace the current inadequate suitability regime and reforms to mutual funds’ compensation structures in Canada.”
The survey confirms that there is a clear power imbalance between investors and advisors, with only 11% describing themselves as “very confident” in their financial literacy. It also found that confidence is lower among female investors, and younger investors. And, as a result, a majority of investors (58%) rely on their financial advisor as their main source of investment information.
Notwithstanding these vulnerabilities, investors also believe that their financial advisors have a positive impact, the study notes, with over half saying that they believe their investment returns are higher due to their advisor, and 70% reporting that they have remained invested in volatile markets because of their advisor.
In terms of choosing an advisor, the survey says that institutional brands and personal recommendations are the leading factors influencing investors’ decisions, but that performance has the greatest influence on whether an investor stays with a particular advisor.
Additionally, the survey finds that investors want more plain language product information and improved content and presentation in investment statements to help boost investor understanding. And, it says that investors also acknowledge the need to educate themselves in order to bolster their confidence.
The research was conducted by Ascentum Inc. and is based on an online survey of 2,030 Ontarians from the Ekos Probit research panel, and 52 participants took part in face-to-face dialogue sessions.