In an effort to better understand investors' perspectives, their expectations and relationships with their advisors, and their understanding of the governance and regulation process, PricewaterhouseCoopers LLP (PwC) commissioned Leger Marketing to conduct an online survey with Canadian adults who were invested in mutual funds. Mutual fund investors were asked a series of questions intended to gauge the level of overall trust and investor confidence in the marketplace. Following the initial aggregation of the survey results, we held one-on-one interviews with a range of mutual fund company CEOs and financial advisors.
To provide further insight into the findings of, we sat down for a Q&A with Raj Kothari, leader of the PwC Canada Investment Management Practice.
Why did you do this survey?
Raj Kothari: Our goal was to get a better understanding of what investors were thinking in these difficult economic times. We felt that as a independent source of information, PwC could provide valuable insight to both investors and the investment community as to what sentiments were common among them.
We also held one-on-one interviews with a range of mutual fund company CEOs and financial advisors to get their views on the results as well. Through the survey and our discussions, the following key themes emerged—the value of advice, product rationalization and innovation, regulation and the re-establishment of investor confidence.
Who did you survey and when?
RK: PricewaterhouseCoopers LLP (PwC) commissioned Leger Marketing to conduct an online survey between March 25 and March 30, 2009. During this time period, a total of 1,680 interviews were completed with Canadian adults, including 867 interviews with Canadians who were invested in mutual funds. Mutual fund investors were asked a series of questions intended to gauge the level of overall trust and investor confidence in the marketplace. Following the initial aggregation of the survey results, we held one-on-one interviews with a range of mutual fund company CEOs and financial advisors.
What were some of the key findings from the Leger survey?
RK: We were surprised that in spite of poor investment results, lead by weak markets, 75% trust their financial advisor and a further 73% feel that their financial advisor is competent and has done a good job over the years. Obviously, in these volatile markets, the value of advice is crucial to investors. In fact, half of respondents felt their answers would not have been significantly different three years ago.
Interestingly, when asked if investors would be better served by directly investing in mutual funds without the advice of a financial advisor, only 23% agreed. The CEOs we surveyed generally felt the full advice channel would continue to be a significant form of mutual fund distribution moving forward. Our survey also revealed 56% of investors understood how financial advisors are compensated, which shows a good level of transparency with investors.
What did the CEOs you talked to think about these findings?
RK: CEOs we interviewed unanimously felt the survey findings were consistent with what they have been hearing in the marketplace, though they were pleasantly surprised with the extent of trust the advisors continued to enjoy. Many agreed that financial advisors were providing a specific value proposition to their clients by providing investors with a holistic approach to investing.
What is the mood of the investors you surveyed?
RK: The survey revealed a conservative optimism with 38% of mutual fund investors believing their investment portfolio will improve within the next two years. Others were less optimistic, with only 23% believing that their portfolio will improve in the next three years and only 27% in the next five.
In a climate of failed companies, corporate scandals, government bailouts, staff redundancies and decreased corporate profits, it is easy to understand how investors can lose confidence in the markets.
How has investor demand for mutual funds changed given market events and how have companies responded?
RK: A flight to safety is typical in bear markets and our study clearly reflected this trend. When asked to rank investment products in terms of how important each of them would be in helping investors meet their retirement needs, balanced funds were more often among respondents' top three picks. However, a few CEOs commented, with this flight to safety investors run the risk of missing out on market gains as markets correct themselves over time.
In this current down-market, we are seeing an increase in product rationalization in an effort to eliminate redundancies, reduce costs and simplify product line-ups. Most mutual fund companies are taking a "back to basics" approach by offering a transparent and uncomplicated product line-up. However, investment companies will continue to evolve their product line-up to adjust to an aging population, under savers and those concerned about volatility. When asked if Canadians have enough choices of mutual funds presented to them for investment selection, 73% agreed. 73% of respondents also agreed that mutual funds are a good investment vehicle. As pointed out by one of the CEOs, "Mutual funds remain one of the safest, highly regulated and democratic investments an investor can choose from".
You mentioned regulation. What did your survey find?
RK: During uncertain and volatile market conditions, the issue of appropriate regulation is often raised. The CEOs we interviewed generally felt regulation was necessary in the industry; however, with continued new regulations being put in place, at what point do the laws of diminishing returns apply?
Our survey revealed that 59% of investors felt they understood the mutual funds in their portfolio, including management fees, investment philosophy and potential volatility. However, it is concerning to see 39% of investors feel they do not understand their mutual funds in spite of the numerous regulatory disclosure documents available. There is clearly a need for increased educational efforts by mutual fund companies, their industry association and regulators to further inform and educate investors of the regulation in place.
Are people worried about their retirements?
RK: Our survey found that nearly three-in-10 of those surveyed were unsure how their retirement needs would best be met—especially those with a college education or less, those who have not yet invested in mutual funds, and women. As age and income increase, however, the likelihood that a respondent will be unsure steadily decreases.