Advisors are some of the least-trusted professionals in Canada, and high fund fees are driving away clients, says Beth Hamilton-Keen, director of private client management at Mawer Investment Management, and CFA Institute’s incoming board of governors chair.
She cites a 2013 CFA investor survey, which looked at consumer trust levels for various industries in Canada. Financial managers rated the lowest, with just 52% of investors surveyed saying they trust the industry, below banks, telecommunications and pharmaceuticals. And she notes a more recent study shows the results have barely changed.
“For a profession that relies greatly on consumer trust, this isn’t great news,” she told advisors gathered at an ETF event held by S&P Dow Jones Indices in Toronto on June 24.
It’s a stressful time for the industry, which is facing greater competition from robo-advisors, as well as reforms spurred by CRM 2 which require advisors to provide more detailed fee disclosures.
“Potential clients don’t see our value as investment management professionals,” says Hamilton-Keen (who serves on Advisor Group’s publications advisory boards). Relative to other developed countries, the 2.5% or 3% MERs for Canadian mutual funds are “a bit of an embarrassment.” She advocates following countries such as Australia, which has eliminated trailer fees, and passing those savings on to clients.
“No amount of indoctrination and regulation will lead to a cleaner investment management industry. For change to happen, we need to start changing the incentives people face,” she says. “Firms have to re-think the use of financial metrics as primary determinants of remuneration. Commissions, sales targets, create conflicts of interest that only reward product pushing, to the detriment of clients.”
Until the public feels they can rely on asset managers, she says regulators will increasingly intervene. Also, potential clients will hesitate to invest through advisors, choosing robo-advisors, or cash and self-directed accounts, instead.
In fact, Hamilton-Keen says almost two-thirds of wealthy clients say they expect to be able to manage their wealth digitally in five years, and they would consider switching firms if their current advisors don’t provide that service.
“The benefits provided, for instance, by a doctor or a lawyer are clear for the users of those services, but it isn’t clear for the users of investment professionals,” she says. “In essence, we need to do a better job of explaining ourselves to our clients, and justifying the fees that we charge.”