Female advisor meeting with male client at hotel lobby

When it comes to financial planning, advice has value. Helping investors achieve their financial goals is the cornerstone of the investment funds industry, and Canadians agree that receiving meaningful advice that meets their individual needs helps them get there.

We know from past research that advised investors build more wealth compared to non-advised investors. The Gamma Factor and the Value of Financial Advice study from the CIRANO Institute found that, after controlling for nearly 50 socio-economic and attitudinal differences, investors with advice were found to accumulate 3.9 times more assets after 15 years than comparable non-advised investors.

A recent survey by the Ontario Securities Commission’s Investor Advisory Panel (IAP) sought to determine how much advice investors with small and medium-sized portfolios receive and how it is perceived. A number of findings related to investor perception of advice stood out: 85% of investors polled indicated that they are satisfied with the advice they receive; 91% understood how their advisors got paid; and 87% said they were comfortable speaking to their advisor. I am encouraged by these results and am glad to see that, regardless of wealth levels, investors are receiving important aspects of financial advice.

Research has shown that the majority of investors prefer to pay their advisor through mutual fund fees, and that switching to a direct fee method could mean that investors, particularly those with smaller portfolios, would stop using an advisor. The Investment Funds Institute of Canada’s (IFIC) latest annual survey, conducted by Pollara Strategic Insights, reinforces these findings. The 2019 Pollara report, which will be released in its entirety later this month, found that 80% of mutual fund investors purchased their funds through an advisor and that 85% of mutual fund investors agree the advice they receive is worth the fees they pay. Furthermore, 80% say their advisor improves their savings habits.

Regulatory efforts over the past several years have paved the way for increased transparency, with annual cost and performance statements providing investors with detailed information to help them better understand their investments.

The numbers show that investor fee understanding has improved since the inception of these reports. The 2019 Pollara report shows that 84% of mutual fund investors are confident in their knowledge of the fees they pay, which is an 11% increase from 2018 and an 18% increase from 2017. However, investor satisfaction with CRM2 reports is declining, with 67% of mutual fund investors reporting that the information is easy to understand, down from 82% in 2017, and 73% of investors agreeing that the statements “provided me with all the information I needed,” down from 82% in 2017.

We think we can improve this outcome. Earlier this year, IFIC undertook research with BEworks to explore how behavioural economics principles can be used to further enhance aspects of fee and performance reporting. Based on the outcomes of that research, we have launched a second phase of research to explore the concept of online and interactive disclosure tools to help improve investor comprehension.

The Ontario Securities Commission (OSC) also recently undertook its own initiative with the goal of improving the investor experience and designing more effective disclosure documents. We are pleased that the OSC has made this a priority, and we hope that the OSC and IFIC’s research-based insights ultimately help further enhance the investor experience.

Advice plays an important role in helping Canadians save for their long-term financial future. It is essential that industry stakeholders continue to strive to understand investors’ evolving needs – and continue to improve disclosure and strengthen the channels of advice to ensure we continue to meet them.