Fund industry backs advisor channel

Some of Canada’s more recognizable mutual fund manufacturers, managers and distributors used a panel discussion at IFIC’s annual conference to stress the importance of the advisor to the industry, despite reports that say funds pay advisors too much.

Don Reed, president and CEO of Franklin Templeton Investments, characterized the relationship between the advisor and a fund company best when he described it as a partnership. “It is a partnership between the investment advisors who service the client and the fund manager,” he said. “A financial plan is a key aspect to any successful investor’s results and the mutual fund is the product that allows that advice to occur and plans to be created.”

As another panelist added, advisors are the main point of contact between the client and the fund company. That relationship is becoming more important with time. It’s easy to think that as people retire they will have more time to tend to their own personal financial matters, cautioned Robert Frances, president and CEO of Peak Financial Group.

The reality couldn’t be any further from the truth. People want a trusted advisor to take care of things for them, he explained. “Very few people look forward to retirement and say ‘I can’t wait to retire so I can read back to back every prospectus that’s been sent to me.'”

Mutual funds are the most simple, straightforward solution for most Canadians to meet the financial targets they have, said Robert Tattersall, director and executive vice-president of Saxon Financial, which he added is the same thing he would have said 20 years ago. “Most Canadians aren’t financial experts and they are not interested in becoming financial experts,” he said, stressing that mutual funds offer these investors a cost-effective way to entrust their money to people who are.

But having someone to deal with the tedious paperwork isn’t the only thing that investors want, or need. Investors are looking for people to help them manage their retirement so that their money doesn’t run out before they do.

Much of that burden has fallen on the advisor, said Jim Hunter, CEO of NexGen Financial. Investors are going to need liquidity and they’re going to need more specialized advice so they earn an income without seeing it eroded by tax. “Some of that responsibility will have to come back on the manufacturer,” he added — which is a not-so-subtle reference to NexGen’s new line of tax-efficient funds.

It’s innovations like this that make the mutual fund industry better positioned to take care of retirees than defined benefit pension plans, Hunter said. “People who have RRSPs have all sorts of flexibility that the defined benefit industry doesn’t have.” To hammer home his point, Hunter warned that 60% of corporations have unfunded liabilities in their corporate plans. “If there is failure in that business, those issues are going to come to the fore in the next 20 years.”

Tax-efficient funds are just the latest example of how the mutual fund space has evolved. With a portfolio of $50,000 you can get top advice from a financial advisor, access to some of the leading financial minds and a dedicated regulator “all of that for the price of a latte at Starbucks,” said Frances. “When you think we contribute $10,000 a year into an RRSP, it costs you as an investor less than 60, 70 cents a day for that money to be managed.”

Another innovation has been the charitable giving fund. Charles Sims, co-president and CEO of IGM Financial, said development of this fund provides advisors with another tool to help their clients. “What the product does, it allows the advisor and the company to position itself within the investor’s eyes around a complete solution to their overall investment and planning process.”

When giving that advice, Reed implored advisors not to get too caught up in investing in the latest hot region or sector. Although Reed used BRIC funds — Brazil, Russia, India and China — as an example, he made it clear that the same can be said about investing too heavily in Canada. “Advisors are taking so much risk by leaving their clients in the Canadian market.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(09/28/06)