As retail investors’ trust in the financial services industry in Canada plummets, the opposite is happening in the US, UK and Australia.
A new survey from the CFA Institute found that since 2013, trust among Canadian investors has fallen 12%, while investor trust in the US, UK and Australia has increased during the same period. Yet despite sliding from 76% to 64%, Canada’s overall trust level is still higher than the levels in those markets.
“It’s still high relative to all those other countries we’ve talked about, so we still benefit from that trust,” says Elizabeth Hamilton-Keen, director of investment counselling at Mawer and chair of the CFA Institute. “There’s a bunch of confusion that is contributing to that drop in trust. But I would say market activity is the number-one cause. Our market in Canada has been a little bit more volatile than some of these other markets this last little while.”
Another issue affecting trust has been the news surrounding Canadian firms.
“We’ve certainly seen a lot more noise and allegations about some of the companies that are paramount on our Canadian markets and exchanges – whether it be infrastructure companies in Quebec or manufacturing companies,” Hamilton-Keen says. “All of that is kind of adding to this question, and turmoil may have impacted investor trust.”
Regulations certainly have had an effect as well – both positive and negative. Hamilton- Keen says the complexity of Canada’s regulatory system, in which retail investments are largely regulated by the IIROC, while private investors fall under the scrutiny of provincial securities commissions, could be a factor in consumers’ confusion.
“We’re a bit more disorganized from the regulatory side,” she says. “I sense that might be contributing to the confusion.”
However, she highlights the increase in trust in the US, UK and Australia, all of which have undergone regulation reform in recent years, as an indication that regulations could be helping to foster more trust. She points to the UK as an example.
“If we look at the UK, they went through significant regulatory reforms,” Hamilton- Keen says. “It was very disruptive, but it seems to me it might have been working, that it is helping UK investors. In the UK, those who are truly investment management professionals have stayed in the industry.”
So will CRM2 bring similar changes to Canada?
“I think that’s the intention,” Hamilton- Keen says. “Disruption comes first, and I think we’ll still see more disruption from the CRM2 side before there is that reassurance and clarity that impacts investors. But overall, I think it’s the right direction to get that transparency in the hands of investors so it’s not as opaque and complex.”
The findings from the CFA Institute survey also reveal that investors want regular, clear communications about fees and upfront conversations about conflicts of interest, further supporting the underlying aim of CRM2.
“Performance is no longer the only ‘deal-breaker’ for investors,” says Paul Smith, CEO of the CFA Institute. “They are continuing to demand more clarity and service from financial professionals, and with the rise of robo-advisors, they have more alternatives than ever before. If investment professionals don’t provide this clarity, then regulators may force them to,
for better or worse.”
The CFA Institute found that the biggest gaps between investors’ expectations and what they receive relate to fees and performance. Clients want fees that are clearly explained and fairly reflect the value they are getting from their financial advisor.
“The bar for investment management professionals has never been higher,” Smith says. “Building trust requires truly demonstrating your commitment to clients’ well-being, not empty performance promises or tick-the-box compliance exercises. Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance.”