November is Financial Literacy Month, a fitting time to revisit a critically important question: What do investors need to know to achieve their financial goals?
With the phasing in of regulatory changes that include the implementation of the Client Relationship Model 2 (CRM2) over the next few years, Canadians can ultimately expect clearer investment information to help inform their decision-making and aid in their ongoing investment education.
“Once CRM2 is fully implemented, investors will have a much better understanding of everything from performance to compensation to cost,” says Tom Hamza, president of the Ontario Securities Commission’s Investor Education Fund. “It will provide welcome insight into the comparative benefit that people get from their investing relationships.”
He urges investors to prepare for the coming changes by becoming familiar with core investing concepts such as how to compare investment returns to the returns of an appropriate benchmark and the comparative costs of different products. (Published by the Investor Education Fund, GetSmarterAboutMoney.ca is a user-friendly resource to use as a reference.)
“Context is everything: When you learn that something costs $1,000, you need to know if $1,000 is a lot or a little. You’ll only know that when you have an idea of what other products cost and what benefits they provide,” he explains. “The tendency is to see CRM2 as a solution, but it’s important for investors to look at it as a starting point for much better conversations with their advisors.”
Jane Rooney, Canada’s first federal Financial Literacy Leader, has a mandate to collaborate with and co-ordinate efforts among all sectors – public, private and voluntary – in order to develop a national strategy on financial literacy. “We know from research that there are a lot of people who don’t even have the basics on budgeting and managing their income and their expenses,” she points out.
The Financial Consumer Agency of Canada’s website provides many resources designed to help address that gap, but advisors also have an important role to play. “We know that education is often more effective when someone is given information when they’re making a decision,” says Ms. Rooney. “Advisors can use ‘teachable moments’ to provide clients with information at the right time.”
The CRM2 changes will provide investors with “an enhanced line of sight into how their portfolio has performed, and also the costs, both direct and indirect, of their relationship with their advisor,” says Gordon Forrester, executive vice-president of product and marketing at AGF Investments Inc.
AGF has created practice development tools to help advisors leverage the value of CRM2 for their clients, including resources that help advisors communicate the value they deliver. When clients review investment costs, it is important for them to consider the value of professional advice, says Mr. Forrester. “Cost is not value. To measure value, you have to consider the entirety of the holistic, professional services advisors offer: budgeting and behavioural coaching as well as tax, financial and retirement planning.”
CRM2 is widely viewed within the financial sector as a significant step in an important evolution. As the industry has matured, its “vision has shifted from simply selling products to serving investors’ needs,” says Brian Peters, chair of The Investment Funds Institute of Canada, and president and CEO of MD Physician Services Inc. “Today, empowering investors is our number one priority.”
Mutual funds are the product of choice for many Canadian investors. Canadians’ savings in mutual funds reached one trillion dollars in January this year and have since increased more than 10 per cent – at $1.12-trillion by September 30 – about five times the total assets managed by the Canada Pension Plan Investment Board.
“According to Pollara’s 2014 investor survey, 85 per cent of Canadian mutual fund investors say funds will help them meet their financial goals,” Mr. Peters notes.
The survey also found that Canadian mutual fund investors are as confident in their investment in mutual funds as they are in their primary residence.
“Peace of mind is the real value that investors seek and that advisors can deliver,” says Mr. Peters. “This comes from knowing you have a solid roadmap for your financial needs today and in the future.”
The Financial Consumer Agency of Canada offers a wealth of plain language information online, as well as a series of e-learning videos produced with Ryerson University, and has a call centre for people who need further assistance.
The agency also offers:
- An award-winning free resource designed for high school teachers and students called The City, with lesson plans, overheads, income, expense and budget handouts, and a variety of worksheets;
- Financial Basics, a five-hour workshop with e-learning videos for adults aged 19 to 29, produced in co-operation with the Investor Education Fund and Toronto Star journalist Ellen Roseman; and
- a program for adults called Your Financial Toolkit, also produced in partnership with the Investor Education Fund.
The Get Smarter About Money website produced by the Investor Education Fund provides user-friendly resources and information, including a Funny Money section designed to help equip children for financial success in adult life. The Investing section provides plain language, need-to-know information on everything from GICs and mutual funds to primers on complex investments such as flow-through shares.