Happy businesswoman handshaking with client closing deal in an office interior with a window in the background
Antonio Guillem/123RF

More clients are reporting that they’ve talked with their advisors about fees, that they have greater confidence in their knowledge about fees and that they’re more open to paying direct fees.

These were some of the findings revealed on Thursday when IFIC released the results of its annual investor survey conducted by Pollara Strategic Insights. The survey aims to help the industry better understand Canadian fundholders, as well as track the impacts of Client Relationship Model – Phase 2 (CRM2), with its cost (and performance) requirements effective July 2016.

For the first time, ETF investors were also included in the survey. “While in previous research, there were some investors who held both mutual funds and ETFs, this was the first year ETF investors were analyzed as their own group,” the survey said.

It found that almost nine-in-10 mutual fund investors (88%) have had some type of conversation with their advisors about fees or compensation. The possible types of conversation were described as fees/commissions (front-end, back-end or trading), management expense ratios (MERs) and fees paid to firms.

About half of mutual fund investors had had conversations with their advisors about all three. Discussions about fees/commissions were cited by 76% of those who purchased their funds from an advisor — a significant 18-point increase over last year. Discussions about MERs were up 8 points to 67%, and discussions about fees paid to firms were up 5 points to 63%.

For mutual fund investors, self-reported confidence in their knowledge about fees/commissions also increased over the last year to an all-time high of 84%, compared to 73% last year. (The figure was the same for ETF investors.)

Regarding embedded commissions — the disclosure of which is a key component of CRM2 — the proportion of mutual fund investors who said they’re certain or they think that fees charged within their mutual funds are used to compensate firms/advisors increased to 81% from 79% last year, reflecting “slow growth” in the measure since 2016, the survey said. Among respondents who said they were knowledgeable about mutual funds, only 41% said they were certain about the embedded commissions structure.

That finding concurs with a report released by the Ontario Securities Commission’s Investor Office last month that found that, despite CRM2 reporting requirements, many interviewed investors didn’t understand terminology like trailing commissions or deferred sales charges.

On the other hand, in IFIC’s survey, a growing percentage of mutual fund investors said they’d prefer to pay their advisors directly (40% versus 33% last year), which could potentially indicate they better understand fees.

At the same time, the majority of mutual fund investors (52%) said they prefer to pay their advisors though fund fees, a figure similar to previous years but down from 59% last year.

ETF investors were almost equally split between preferring to pay their advisors through fees (47%) or direct charges (46%).

As a result of information on their annual statements, a growing minority of clients were moved to act.

Among mutual fund investors, about one-quarter (23%) said the information caused them to act, an increase of 7 points over last year. The survey described the finding as a “significant” increase since the launch of CRM2 (the figure was up 13 points since 2017). It also described the increase as “slow,” however.

Clients who took action were more likely to talk to their advisors or switch out specific funds than switch advisors or method of purchase, the survey said.

ETF investors were more likely than mutual fund investors to take action due to information on statements (33%) and also more likely to consider investing on their own (35% versus 14% of mutual fund investors).

Clients satisfied with advisors, but a declining proportion bought funds from them

Both types of investors said they were satisfied with their advisors: 96% of mutual fund investors and 99% of ETF investors were “completely satisfied,” “satisfied” or “somewhat satisfied.” Mutual fund investors have been consistently satisfied with their advisors over the last decade of the survey.

Mutual fund investors’ satisfaction increased with age, and more women were “completely satisfied” (31%) than men (18%). For ETF investors, advisor satisfaction also increased with age, with more women “completely satisfied” than men (45% versus 24%).

Similar to last year’s findings, most mutual fund investors said they wouldn’t want to manage their own investments (88%) and that their advisors gave them good financial habits (80%).

ETF investors, though satisfied with their advisors, were less likely to say they wouldn’t want to handle their own investments (81%) or that their habits were better because of their advisors (71%).

Regarding product purchases, for their most recent fund purchase, the majority of mutual fund investors continued to make purchases through advisors (80%), though this percentage declined by 5 points relative to last year.

Those who purchased their last mutual fund in another way (without an advisor) increased to 20% from 13%, with 7% making a purchase through an online brokerage and 13% in another way.

ETF purchases were less likely to be made through advisors, relative to mutual funds. Among ETF investors, 46% said they had last purchased an ETF through an advisor, and 41% used an online brokerage.

Go robo?

Among mutual fund investors, usage of robo-advisors was the same as last year (18% among those who say they’re aware of robo-advisors, or 6% of all mutual fund investors).

However, mutual fund investors’ awareness of robo-advisors increased to 32% from 23% last year, a 9-point increase.

Awareness and usage of robo-advisors was higher among ETF investors, with just under half of respondents saying they were aware of them (47%). Only one-quarter of ETF investors who were aware of robo-advisors — or 12% of all ETF investors — had ever used one.

Investors were more likely to have used online brokerages than robos.

Among ETF investors, 77% were aware of online brokerages, and 52% overall had tried them. Among mutual fund investors, awareness of online brokerages increased 9 points to 71%, and usage remained consistent with last year (21% overall).

Mutual funds still the favourite

Mutual fund investors continue to have more confidence in mutual funds than other investments. Confidence in mutual funds reached 91%, up from 89% last year. Confidence in stocks was 66%; in GICs, 66%; in bonds, 53%; and in ETFs, 35% (up from 33%).

One-fifth of mutual fund investors said they have ETFs in their portfolios, and 28% said they may increase their ETFs in the next year. Nearly one-quarter (23%) said they may increase their mutual funds.

Similar to mutual fund investors’ confidence in mutual funds, ETF investors showed high confidence in ETFs (88%). Yet, they also showed strong confidence in stocks (91%) and mutual funds (83%).

In fact, 82% of ETF investors had stocks and 66% had mutual funds in their portfolios. (In comparison, only half of mutual fund investors had stocks and 35% had ETFs, as mentioned.)

Like mutual fund investors, ETF investors had less confidence in GICs and bonds.

A greater proportion of ETF investors were more likely to make portfolio changes relative to mutual fund investors, with 35% considering increasing their ETFs, and 26%, their mutual funds.

For full details, see the IFIC/Pollara mutual fund and ETF investor survey, which includes a summary of the differences between mutual fund and ETF investors.

About the poll: This is IFIC’s 14th annual telephone survey of mutual fund investors in Canada. Respondents were Canadian investors 18 or older who made all or some of the investment decisions for their households.

Among mutual fund investors, 1,024 phone interviews were conducted between May 27 and June 17, 2019. Among ETF investors, 500 phone interviews were conducted between May 27 and June 28, 2019.

National results have been weighted based on 2019 data from the Print Measurement Bureau (PMB) to ensure they’re representative of mutual fund and ETF holders by region and gender. PMB data is an annual survey of 36,000 Canadians that measures use of goods and services.