Pollara’s annual survey of Canadian mutual fund investors, commissioned by the Investment Funds Institute of Canada (IFIC), found that – for the 10th year in a row – mutual funds lead the way when it comes to investor confidence. Confidence in advisers also remains high, with 94 per cent responding that they trust their advisers to give them sound advice.
The industry is working hard to maintain that confidence even as demographic shifts transform investor needs and expectations, says John Adams, IFIC’s chair. “From just six per cent of the workforce in 1999, millennials became the largest generation in the Canadian workforce in 2014 – just over 35 per cent, compared to Gen Xers at 32.5 per cent, and boomers, who have fallen below 31 per cent.”
The first generation born into a digital world, millennials will profoundly impact the economy as well as the investment markets as they move into their prime spending and savings years, Mr. Adams points out. “Just as they are changing everything from the way we interact socially to the way we own cars, they will demand new approaches to financial advice.”
At the same time, the transition of the baby boomer generation into the retirement phase continues to drive industry change, he says. “The need to provide an income stream for 20 to 30 years of retirement is already changing the types of products being created and triggering a growing focus on solutions to help today’s retirees prepare financially for the health-care services they will require down the road.”
With longer life expectancy and an aging population, rising rates of cognitive decline will also become a significant industry challenge, says Mr. Adams.
Changes in the ability to make financial decisions can be one of the first indicators of cognitive impairment, so financial advisers will be called on to help investors and their families plan for these potential challenges. “In turn, advisers are looking to the funds industry for training, smart practices and support, and – as an industry – we’re working together to ensure we’re ready to meet those needs,” he says.
Advanced technologies are an important tool in adapting to these shifts, says Mr. Adams. Just as it has changed the way fund managers do research and analyze trends, “it enables us to provide more meaningful information and personalized service to our clients,” he explains. “It can free financial advisers to focus more on coaching, helping their clients build knowledge and confidence, and also providing tailored advice.”
For clients with basic needs who are just starting out as investors, technology-driven robo-advice services can potentially help advisers keep the benefits of financial advice affordable and convenient to access.
“By collaborating as an industry, with regulators and with investors, mutual fund companies are continuously evolving to empower investors,” says Mr. Adams. “We’re both responding to and creating transformational change.”
What new information can investors expect to receive?
The industry is making several changes to provide investors with clear information. The changes will help you have better conversations with your financial adviser about your progress towards your financial goals. Here's how:
RECEIVE FUND FACTS BEFORE YOU BUY
Beginning May 30, 2016, your dealer is required to provide you with a document called “Fund Facts” before you purchase a mutual fund. Your mutual fund purchase cannot be completed until Fund Facts has been delivered to you.
Fund Facts is an important document with key facts about the mutual fund you are purchasing. Every mutual fund has its own Fund Facts, with information about the fund’s holdings, its performance, and the risks and costs of buying and owning the fund. You should always review Fund Facts when you purchase a mutual fund so that you are familiar with the fund’s key features.
Fund Facts could be delivered to you in person, through email or through other means. The way you receive it will depend on how you interact with your dealer and the delivery method that your dealer chooses.
NEW INFO ON ACCOUNT STATEMENTS
As of December 31, 2015, all securities firms are required to provide the following information in your account statement:
- The total amount you paid to purchase your investment, including any transaction charges related to your purchase.
- The price at which your investment can be sold for on the market at a point in time.
- The total value of all cash and investments in your account at the beginning and the end of the statement period.
- Whether your mutual fund is subject to a deferred sales charge – a fee that does not have to be paid until you sell your fund. After a certain number of years, these charges usually decline to zero.
- Whether your mutual fund is covered by an investor protection fund and the name of that fund.
- Information as to who is named as the owner of the investment and a description of how it is held. [Some investments are held in the client’s name and some are held in the firm’s name. It’s up to you.]
Ask your financial adviser to explain any terms or content included in your statement that you don’t fully understand. Better conversations with your adviser lead to more informed decisions that help you reach your financial goals.
TWO NEW REPORTS BEGINNING IN 2017
You will receive two new annual reports beginning next year.
- The first report will outline your investment’s performance over the past year. This report will help you understand whether you are on track to meet your financial goals.
- The second report will tell you how much you have paid in dollars and cents to your investment firm for the services that you have received.
The investment funds industry is encouraging firms to adopt consistent, clear approaches that will help investors understand the new information.
Experts remind us to take ownership of our financial future. Read your statements! Meet with your financial adviser on a regular basis to ask questions about the products and services in your portfolio.
Myths and facts about the changes you will see
Myth #1: The changes apply mainly to mutual funds.
Fact: The changes apply to more than mutual funds. They apply to all securities and to all dealers and portfolio managers registered with any Canadian securities commission. The securities commissions are encouraging firms to include non-securities products in client reporting, to the extent possible.
Myth #2: Investors will begin receiving the two new annual reports as of July 15, 2016.
Fact: The rule comes into effect on July 15, 2016, at which point dealers have one year in which to begin sending these reports to their clients. In the majority of cases, you will begin receiving these reports early in 2017. This is because most firms are choosing to provide the information on a calendar year basis (January to December).
Myth #3: The report on charges and compensation will tell investors how much their adviser is being paid.
Fact: The report on charges and compensation provides details about the money received by the dealer firm over the previous year to provide services to the investor. A portion of this money is paid as compensation to the investor’s financial adviser. The report does not provide a breakdown of how much is paid to the adviser and how much is kept by the dealer firm. Each firm determines this amount differently, based on its business model and split in responsibilities between the firm and the adviser.
Myth #4: The report on charges and compensation will tell investors the total cost of their investments.
Fact: The report will focus only on the amounts paid either directly or indirectly by an investor to the dealer firm. For mutual funds, it does not include the amount paid to the investment manager. For an understanding of the total cost of a mutual fund, investors can review the fund’s management expense ratio (MER), which can be found in the Fund Facts document for individual mutual funds, as well as in the financial statements.