Fund investors happy with product

The vast majority of mutual fund investors are confident their chosen investment vehicles will help them meet their financial goals, according to IFIC’s second annual survey of mutual fund investors.

In all, 83% of respondents expressed confidence in funds, making them the most trusted investment, edging out primary residences at 79%.

“As a financial product, Canadians realize the benefits of mutual funds — whether it’s the professional management, diversification or easy access that come with funds,” said IFIC’s president and CEO, Joanne De Laurentiis, in a press release. “Over the years, the industry has helped foster an investing culture in Canadians, and the survey confidence numbers bear that out.”

The strong expression of confidence is not surprising, however, since the methodology of the survey screened out Canadians who did not hold mutual funds, including investors who have sold off their mutual funds, or have never invested in them at all.

The survey found that 83% of mutual fund investors bought their funds through an intermediary who also supplied them with advice — virtually unchanged from the 85% who used an advisor last year.

Among those investors who used the services of an advisor, 52% said they made the decision to purchase with the advisor, as opposed to the 37% who said they made the decision themselves after listening their advisor’s opinion. Only 8% said they strictly followed the advice of their advisor.

Investors appear to be quite happy with their advisors’ understanding of their risk tolerance, with a staggering 95% saying they were satisfied with the assessment at the time they opened the account.

Advisors overwhelmingly discussed the suitability of investors’ most recent fund purchases, with 88% saying they had such a conversation. The 10% who said they did not discuss suitability may seem a little high, but the figure does not take into account the circumstances of the “last purchase,” which may have been an automated purchase that had been previously discussed.

The survey found that investors are weighing a wide variety of factors in making their purchasing decisions. Ninety-five percent said it was either very important or somewhat important to understand whether the fund fit portfolio objectives; to know what the risks were; and to look at past performance. Ninety-two percent said it was important to consider whether the fund fit their own investment style.

There is room for improvement in the advisor relationship, however. Only 54% of investors said they discussed compensation with their advisor, while 63% said their advisor discussed the sales commission associated with the purchase or sale of the fund.

Angela Marzolini, vice-chair of POLLARA, which conducted the study, pointed out that roughly 30% of fund sales occur in bank branches, where compensation is less of an issue, as staff are salaried employees.

Some investors appear to be buying funds blindly, with 39% of respondents saying they did not consult any sources before buying their funds. Thirty-four percent said they consulted just one source.

Of those who did their own research, 30% consulted newspapers, magazines or journal articles, while 28% spoke with friends and family. Mutual fund websites were consulted by 23% of investors doing their own research, while only 15% checked out independent analysis services, such as Morningstar and Globe Fund.

The lack of research did not end there. When asked if they read the prospectus of the fund at the time of purchase, 39% said they either read “a page or two” or none of it at all.

Twenty-eight percent made it past page two, while 22% claimed to have read the prospectus in its entirety — which is likely an indication that they have no idea what a prospectus is.

Of those who said they did not read the prospectus, 44% said they skipped it because other sources had provided enough information. But 41% said there was simply too much to read, while 31% said it was too complex.

While only 22% claimed to have read the prospectus, 32% said it should be required reading. Simply having it available was enough for 65%.

Adding fuel to the debate over reforming the delivery of point-of-sale documents, 45% said they wanted to receive the prospectus from the advisor, while just 28% would prefer to receive it through the mail. When it came to continuous disclosure, however, the tables were turned and the postal system was preferred by 48%, compared to 25% who wanted the information from their advisor.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(10/03/07)

Steven Lamb