Despite recent regulatory reforms requiring Canadian investment firms to disclose more information about fees to their clients, the majority of investors still feel in the dark in understanding their own investment fees, according to the J.D. Power 2017 Canadian Full Service Investor Satisfaction Survey released on Thursday.
In fact, only 23% of Canadian investors recognized any change this past year as to how their advisors communicated fee and performance information. Furthermore, only 24% of investors reported that they understood their fees this year, which was down from 27% in 2016.
Financial services firms and advisors should take note because investors with a “complete understanding of fees” are considerably more likely to recommend their firm to others, the report says. Specifically, 55% of investors who understand their fees would recommend their firm compared to 36% of investors with less than a complete understanding.
“Disclosure is not the same as transparency,” says Mike Foy, senior director of the wealth-management practice at J.D. Power, in a statement. “Yes, investment firms in Canada have to disclose more information about their fees in line with the new [second phase of the client relationship model (CRM2)] requirements, but our data show that the message is not always getting through clearly enough.”
Advisors can do better when explaining such critical information to their clients, the report suggests. For example, 36% of investors said their advisor did not clearly explain the reasoning behind the performance of their investments and 41% say their advisor did not explain their fees.
Among clients aware of CRM2, and who discussed the topic with their advisor, only 35% say they fully understand their fees.
“Establishing a clear link between fees charged and value provided is very important for full-service advisors,” Foy adds, “especially now as they confront new threats coming from generational and technological changes that have put a large chunk of customer assets at risk of attrition.”
Among affluent millennials — those born between 1982 and 1994 with more than $100,000 in investible assets — 23% say they “definitely will” or “probably will” leave their current firm in the next 12 months, the report says.
Approximately 23% of millennials have already used a robo-advisor and the report surmises that even investors who want a traditional advisor are likely open to reallocating some assets to less expensive advice channels.
The J.D. Power study also ranked several Canadian full-service investment firms, scoring the following seven factors: financial advisor, account information, investment performance, product offerings, commissions and fees, website, and problem resolution.
Mississauga, Ont.-based Edward Jones received the highest investor satisfaction score for the fifth year in a row, followed by Toronto-based Assante Wealth Management Ltd. and Edmonton-based ATB Financial.
The J.D. Power study was conducted between May and June and is based on responses from 4,903 investors who seek advice-based investment services from financial services institutions in Canada.
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