Fund industry assets forecast to rise to $700 billion by 2010

(September 10, 2003) The days of explosive growth may be over, but that doesn’t mean Canada’s mutual fund sector is on the decline, industry leaders believe. Fund assets could rise by at least $300 billion by the end of the decade, predicts IFIC president Tom Hockin.

“This industry still has room to grow,” Hockin said this morning during a speech at IFIC’s annual conference in Toronto.

Hockin cited figures from the C.D. Howe Institute, which forecasts that the country’s gross domestic product will increase from $1.1 trillion to $1.7 trillion by 2010. If the fund industry follows that path, assets will rise 70%, from $400 billion to $700 billion, Hockin said.

“That estimate may be conservative because it doesn’t factor in baby boomers saving more than they do now,” he added. “I believe mutual funds will remain the core investment choice of most Canadians as far forward as we can see.”

Hockin’s optimism was shared by three industry leaders, who took part in a free-wheeling panel discussion at the conference.

“We’ve gone from 10% of households being investors to 40% and I think that number will get up to 60% or 70% and the dollars per households will continue to rise,” said Synergy founder Joe Canavan. “The end result is that [fund industry asset] number will be higher.”

Brenda Vince, president of RBC Asset Management, also believes that assets will grow by more than 70% by 2010, but she cautions the industry will likely have to go through some significant changes for that to happen.

“What we call a mutual fund today might not be the same as seven years from now,” Vince said. “But we will have to have product that helps Canadians generate income for their retirement years.”

Dan Richards, CEO of Cartier Partners, says the level of growth will ultimately depend on innovation in the mutual fund industry. “We grew up with a ‘one size fits all’ approach, and while we’ve evolved past that in some respects, our industry is still driven, in many regards, by that solution, and I think we’re going to have to become more adaptive and responsive to the needs of investors.”

Following a year of net redemptions, the fund industry bounced back somewhat this summer and has now experienced two straight months of net sales, though the numbers have been relatively modest.

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Richards says there’s usually a lag between market rebounds and a pickup in fund sales. Still, he believes Canadian investors have come back fairly quickly to mutual funds, considering the length of the downturn.

However, Richards says he’s worried that investors may be repeating the mistakes of the past, chasing today’s hot performers instead of properly diversifying their portfolios. “People’s memories are short,” he said. “They’re doing today, in a different form, what they were doing three or four years ago. It’s our responsibility to remind them of those periods.”

“In 1999, they were chasing growth returns,” said Canavan. “Now they will do whatever it takes, without any eye to the risks, to get yield. People are clamouring to get what they think they need.”

Some advisors are frustrated by their clients’ attitude, Richards added. But he says it’s important not to give in. “It’s easy to give people what they want but quality advisors will try to convince clients to do the right thing.”

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What do you think of these predictions? Will it happen? Are they realistic? If not, what do you think will happen? Share your thoughts with your fellow advisors in the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(09/10/03)

Doug Watt