Fund investors trust advisors: PwC

Mutual funds and the advisors who sell them have taken a beating in the mainstream press lately, but clients appear happy with the products and have faith in their advisor, according to survey results released today by PricewaterhouseCoopers.

Seventy-three percent said they were good investment options, and offered sufficient choice. Survey respondents were slightly happier with their financial advisor, with 75% saying they trusted them, and 73% said they did a good job.

“Investors today are forced to make sense of the daily barrage of conflicting messages,” says Raj Kothari, leader of the PwC Canada Investment Management practice. “It’s no wonder the value of advice is crucial to investors.”

It’s a good thing they trust their advisors, as only 59% said they understood all of the investments in their portfolio. Fifty-six percent said they understood how their advisor was compensated.

“To be honest, when I read the negativity in the newspapers about advisors, I was very surprised with the results that we got,” Kothari says. “Fortunately in the Canadian marketplace, there is still a lot of trust in fund advisors.”

But it’s unclear in what ways investors trust their advisors, as only 65% said they believed their advisor was “primarily motivated” by the investor’s interests in selecting investments for their portfolio.

Twenty-three percent of respondents said they believed investors were better served by managing their own portfolio of mutual funds. Men were more likely than women to fall into the DIY camp.

While those using mutual funds were fairly content with them, only 46% of the total survey sample said they were investing in funds.

The steep declines witnessed in the markets over the past six months have given many investors cause for concern: 34% said they would have given different answers if they had been surveyed a year earlier.

When asked how long it would take for their investment portfolio to recover recent losses, 38% said it would take less than two years, while 23% think the next three years will be enough time. Twenty-seven percent said it would take five years.

Fund preferences tended toward more conservative choices, with balanced funds, guaranteed products, and fixed income routinely listed as top-three picks for a portfolio.

Balanced funds were ranked number one by 29% of mutual fund holders, and 19% of all survey respondents, whether they held funds or not. Guaranteed products were top-ranked by 19% of fundholders, and 22% of the total survey sample.

“People are looking for absolute returns, rather than trying to beat the benchmark,” Kothari says. “Is there a return that keeps my head above water, so it can cover inflation and my needs of tomorrow?”

While a balanced fund is not likely to shoot the lights out, its slower and steadier returns help insulate it from violent downturns, preserving capital better than an all equity fund.

Eleven percent of fund investors ranked fixed income funds as the most important, statistically the same as the 12% of the overall sample.

“In our analysis, it became quite apparent that age, income, and to a lesser extent, education and marital status, all play a role in terms of which options respondents believe are best-suited to meet their retirement needs,” says Kothari.

He points out balanced funds were typically listed first by investors aged 35 or older, those with a university education, and men. As the respondent’s income increased, so too did their preference for balanced funds.

Among the 18% of fund investors who ranked equity funds as the most important investment, the survey found they were most likely to be men, ranging in age from 35 to 50, with a university education.

The survey of 867 Canadian mutual fund investors was conducted by Leger Marketing in March of 2009. Results can be considered accurate within 2.4 percentage points.

(04/30/09)