IFIC campaign encourages investors to open their statements

New disclosure on the costs of investing is helping prompt action from already-confident investors but less-confident investors are not following through with action, despite being better informed, according to a study commissioned by the British Columbia Securities Commission (BCSC).

The study, Investor Readiness for Better Investing, which was published Monday, examines the initial impact of the cost and compensation reports that are now required under phase two of the Client Relationship Model (CRM2) reforms.

Among other things, the study finds that “more confident investors” — who tend to be men over 55, with larger investment portfolios, larger incomes, who say they read their account statements — report following through on their intentions to communicate more with their advisor, change their fee arrangement, change the mix of products in their portfolios, or change their advisor or firm.

Conversely, “less confident investors” who received the reports knew more about the fees they are paying but did not follow through with actions such as increasing communication, altering their investing arrangements, or changing advisors.

Although investors increased their knowledge of investment fees in the wake of the new CRM2 reports, this increase “is not enough to close knowledge gaps between more confident and less confident investors,” the study adds.

The survey also finds that trust in advisors “remained high overall,” with 83% of respondents describing their trust as “very or somewhat strong”. Investors also remained generally satisfied with their relationships with advisors, the study says, “although satisfaction with value for fees ranked behind relationship and investment performance.”

Satisfaction with fees increased among less confident investors by five percentage points, according to the study, and decreased by nine points among more confident investors. However, the more confident investors remain more satisfied with the value they receive than less confident investors (77% to 60%).

For investors who report not receiving their new CRM2 statements, trust in advisors dropped 10 percentage points, from 83% to 73%, according to the study. These investors also report a 15-point decline in satisfaction with the overall advisor relationship, and a 20-point decline in their satisfaction with advisor communication.

“CRM2 provides a great opportunity to strengthen the client-advisor relationship,” says Peter Brady, executive director, BCSC, in a news release. “Advisors should take the opportunity to help their clients be more aware of the new reports and help them understand the impact of fees on investments. Having a greater understanding of fees and investment performance benefits both parties.”

“This initial research on CRM2 shows that change in investor knowledge and behaviour has started, but we still have a long way to go. We want more investors to feel empowered and have important conversations with their advisors about their financial futures,” adds Brady. “We plan to continue our educational campaigns started last year that encourage investors to ‘Take a Look’ at their CRM2 reports.”

The research was conducted for the BCSC by Innovative Research Group Inc. using an online survey from Nov. 2016 to June 2017. The survey did not use a random probability based sample, so a margin of error for its results cannot be calculated.

The Canadian Securities Administrators is also conducting a longer-term study on the impact of the CRM2 reforms, the BCSC notes, which is to be completed by 2021.

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