The value placed on financial advice remains recognized. As for advisors, however, they should note that so-called retail investors just give them a passing grade of 60% when asked if they believe their representatives have their best interests at heart.
The Investment Funds Institute of Canada (IFIC) returned this week to many of these studies quantitatively measuring the value of financial advice. The conclusion remains the same: the “gamma”, a term used by CIRANO to designate the added value provided by advice, is confirmed.
Essentially, most investors who work with representatives accumulate more wealth over time. The impact of the gamma induces financial discipline and promotes an increase in the savings rate. It calls for an optimized asset allocation and strategies aimed at reducing the tax impact, one can summarize.
IFIC cites three separate studies conducted by Professor Claude Montmarquette of the Center interuniversitaire de recherche en analyze des organizations (CIRANO). The impact of advice varied across studies and related economic and market conditions, but the findings point in the same direction. After 15 years, investors working with a financial planner had accumulated 2.7 times more assets in 2010, 3.9 times more in 2014 and 2.3 times more in 2018 than comparable non-advised investors.
An older British study came to the same conclusion, for both wealthier and less wealthy individuals. “Individuals who received advice between 2001 and 2007 had more investable assets over the 2012 to 2014 period than a similar group who did not receive advice. Specifically, the assets of the ‘high net worth individuals advised’ group was 17% higher than that of the equivalent non-advised individuals group. For the less fortunate, assets were 39% higher. According to the report, the wealth accumulation gap is explained by saving behaviors and the placement of savings in stock market assets.
Same observation in a more austere situation. Research from the United States reveals that individuals who met with a financial representative before the 2008 financial crisis lost significantly less money on average (6% less on a risk-adjusted basis) than those who did not. not met, in part because early adopters were less likely to have made costly mistakes, such as selling during market downturns, IFIC adds.
Challenges for advisors
In total, personal investments in Canada, which include mutual funds, managed accounts and securities, represent a financial wealth of $4.707 billion held by 16.5 million households. Of this amount, 71.1% belong to investors doing business with an advisor, the IFIC document states in the introduction.
And it’s not just the business of the wealthy. IFIC echoes the findings of a study commissioned by the Ontario Securities Commission’s Investor Advisory Group that found that 53% of Canadian investors doing business with a representative have investable assets of less than $100,000.
That said, counselors are challenged in their practice. A survey conducted by the Investment Industry Regulatory Organization of Canada shows that more than 70% of investors express confidence in the integrity of their investment representative and the company with which they do business, but only 63 % believed that their representative had their best interests at heart.
According to the 2021 Global Wealth Management Report from personal finance specialist EY, one in five Canadian investors intends to change their wealth manager in the next three years. Before the pandemic, this intention animated 44% of respondents. The firm then explained that this expected shift was facilitated by the conversion of services to digital and the multiplication of self-service offers. “Canadians consult on average four different sources for advice”, and reduce the use of a specialized adviser to the resolution of particular problems or specific points, such as a job loss, a sudden influx of money or a change in the family situation.
In fact, three major forces are in play: the arrival of new market participants (women, in greater numbers, and millennials), the emancipation of financial technos and the increased sensitivity to fees.
The firm EY retains that at present, the majority of Canadians use an average of 4.1 investment products. “Due to factors such as experience and low costs, an ever-increasing proportion of respondents expect basic wealth management products and services, such as standard investment products and trading services, to are offered free of charge. »
The pandemic, with its epiphenomenon in the form of a craze for the spontaneous acquisition of shares promoted on social networks for the purposes of mimicry, solidarity or even shareholder activism, as we said, has highlighted a force under underlying more fundamental. The automation of the trading and intermediation market has been reinforced by a drastic reduction, or even elimination, of transaction costs, which provides customers with a high level of personalization.
In short, the advisory services industry is adapting, shifting more and more from product-oriented activities to advice-oriented activities — financial planning and other related value-added services, particularly in credit , estate, trust and taxation. This reinforces the gamma. Especially since the pressure exerted on the fee structure tends to abandon commissions in favor of fixed fees, then hourly pricing, less according to a percentage of assets under management or performance.