Jason McIntyre, CFA
Head of Distribution
Vanguard Investments Canada Inc.
May typically marks the start of warmer weather, vacation planning for the summer and the beginning of barbeque and cottage season. This year, May is particularly significant as it marks the very first Investor Awareness Month in Toronto, as part of the CFA Society Toronto's Putting Investors First campaign.
This campaign is meaningful for investors as it highlights the importance of financial advice and planning. Financial advice can take many forms whether it's through personal education by reading articles and books about investing or working with a financial advisor. Vanguard's Advisor's Alpha research has estimated that financial advisors can add "about 3%" in net returns for clients by focusing on relationship-oriented services: behavioural coaching, portfolio construction and holistic wealth management principles such as tax planning.
Aligning our interests with those of our clients is central to everything we do at Vanguard. For more than 40 years, we've advocated putting investors first, and we applaud the CFA Society Toronto for their work in raising proficiency levels across our industry.
What clients want, what firms deliver
However, there can be a disconnect between what clients want and what firms deliver. In a recent global CFA Institute study1, 70% of retail investors said the top client-service attribute they expect is a firm that "helps me understand why my portfolio is positioned the way it is." Only 46% said investment firms are adequately delivering on this, a gap that indicates how much work remains to be done.
In honour of Investor Awareness Month, I wanted to share three trends affecting the financial advice industry in Canada.
1. The value of advice is increasing
There is an increasing focus on the value of advice, with ongoing regulatory changes in the industry and a shift towards fee-based financial advice. Advisors are discussing the value and benefit that they provide to clients, emphasizing greater relationship-oriented guidance and behavioural coaching, rather than trying to outperform the market.
2. The industry is changing
Consolidation, new entrants, ETF growth and robo-advice are just some of the changes we've seen in the industry over the past few years. For example, there are 22 ETF providers in Canada (as of April 30, 2017), versus only three in 2008. New technologies and social media have raised the expectation for advisors to make client interactions more digital and mobile-friendly. The landscape is continually changing and advisors need to adjust quickly to these and other changes.
3. Investment fees and transparency are important
Cost plays a critical component in total return, whether it's from actively or passively managed investments. Many investors have started to realize this and recognize that keeping investment costs low gives them the opportunity to hold on to more returns.
While investment portfolios can change depending on the ups and downs of the market, the importance of costs remains constant, in both good markets and bad. Reducing your investment cost can have a big impact that compounds over time.
In fact, in the CFA Institute study, 80% of retail investors surveyed said disclosure of fees and other costs was the most important consideration when working with an investment company. Institutional investors echoed this sentiment, with 72% listing fee and cost disclosure as important.1
This attention to fees and transparency on investment cost is taking place globally and that trend is sure to continue in Canada.
Although May is designated as Investor Awareness Month, it's an objective that should be top of mind every day as we look ahead and chart a path that puts investors first.
1 1 Source: CFA Institute's "From trust to loyalty: A global survey of what investors want" study, February 2016. Edelman Berland surveyed more than 3,300 retail investors and 500 institutional investors around the world, including Canada, on behalf of the CFA Institute. Online surveys were conducted from October 19 to November 15, 2015.