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Returns aren't the most important thing for retail investors

With the heightened awareness of fees in today’s wealth management industry, online portfolio managers are emerging globally to provide investors with easier access to investment management and fee transparency.


Canadian retail investors are placing higher importance on understanding their investment fees – how much they are paying and what they are paying for – than the investment returns they are receiving in their portfolio.

When deciding which investment manager to work with, 90 per cent of Canadian retail investors feel it is important investment firms fully disclose fees and other costs – compared with 80 per cent of global investors, according to a new CFA Institute survey, From Trust to Loyalty – A Global Survey of What Investors Want.

In addition, 85 per cent of Canadian investors said it was important that their investment firm clearly explain all fees before they were charged – versus 79 per cent of global investors.

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Generating returns was not ranked as high a priority as fee transparency – with 82 per cent of Canadians stating its importance when working with an investment firm. (The global figure is 73 per cent).

"[Investors] expect greater transparency and communication, especially during periods of market volatility," said Paul Smith, president and chief executive officer of the CFA Institute, in the survey report. "Investment managers who truly want to differentiate themselves from the competition will need to do much more to demonstrate their value proposition."

Globally, 70 per cent of retail investors expect investment firms to help them understand why a portfolio is positioned the way it is but only 46 per cent say firms are adequately delivering on this.

Gaining the trust of investors – and delivering services above expectations – has been an ongoing process for many investment advisers in Canada as regulatory changes are slated to hit the industry in July that will increase the transparency in the fees investors pay. Known as the second phase of the client relationship model (CRM2), investors will soon be notified – in dollar amounts – the fees they pay for financial advice and the performance of their investments.

But despite preparing investors for these changes, trust levels within Canada have not risen. According to the survey – which includes responses from 3,312 retail investors from 10 countries – retail investors' trust in the financial services industry in Canada has fallen 12 per cent since 2013. Trust among investors in the United States, Britain and Australia has increased since 2013; however, overall trust levels in these markets are still lower than in Canada.

With the heightened awareness of fees in today's wealth management industry, online portfolio managers have started to emerge globally that provide investors with easier access to investment management and fee transparency.

The majority of investors in China and India, and half of investors in Singapore consider robo-adviser options when executing their investment strategy, whereas investors in Canada, the United States and Britain still value traditional advice. Looking ahead three years, 81 per cent of Canadian investors still see themselves consulting a person rather than using the latest robo-adviser technology.

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But that number is likely to change when investors start to realize what they are paying in fees, says Michael Katchen, CEO of online portfolio manager Wealthsimple.

"[Looking] at the future of this industry, I would say it is all about growth," Mr. Katchen said on Wednesday during a Morningstar panel discussion in Toronto. "I think there is a tremendous amount of tailwinds, especially in the Canadian market, that will drive this business forward over the next 18 months.

Mr. Katchen pointed to CRM2 as one of the main tailwinds that will continue to drive growth in his industry.

"Canadians pay the highest fees in the world when it comes to investing and what CRM2 is going to do – for the first time – is make people aware of how much they are paying in fees," Mr. Katchen said. "If the regulatory changes in the U.K. are any indication of how powerful this can be, I expect there to be a lot of money and movement as a result."

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About the Author
Globe Investor Reporter

Clare O’Hara is a reporter at The Globe and Mail. Prior to that, Clare spent eight years as a staff writer at Investment Executive, a national newspaper for financial service industry professionals. More


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