Canadians' risk tolerance has been steady amid COVID-19

CSA report reveals fewer reviewing their risk tolerance regularly, changing makeup of fraud victims

Canadians' risk tolerance has been steady amid COVID-19

In spite of the economic uncertainty and market volatility set off by the COVID-19 pandemic this year, Canadian investors are reporting no change to their risk tolerance, according to a new report from the Canadian Securities Administrators (CSA).

The 2020 CSA Investor Index survey, which was derived from a poll of more than 7,500 Canadian adults conducted by Innovative Research Group, found 60% of respondents self-identified as “fairly” or “very conservative” investors, a modest change from 63% in 2017. Conversely, 37% of investors in 2020 and 35% of those in 2017 identified themselves as aggressive.

That steadiness in risk tolerance relative to the last survey was consistent across demographic groups and investor types, the CSA said, with the major exception being DIY investors. Among unadvised Canadians, 37% of those in the 2020 survey said they had an “aggressive” investing style, compared to 30% of those in 2017.

“Despite the economic environment in 2020, it’s encouraging that Canadian investors’ confidence and risk tolerance has remained relatively steady,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers. “However, it is important that investors remain diligent, especially during uncertain economic times. Reviewing risk tolerance regularly and developing a financial plan helps investors ensure their investments are aligned with their goals.”

When asked when they or their financial advisor last reviewed the level of risk they’re willing to take with investments, nearly half of investors in the 2020 survey (48%) said they’d done so within the past year, down from 62% in the inaugural 2006 Index Investor survey.

With respect to advisor background checks, the survey detected a marked drop in investors who look into their advisors’ history, dropping from 41% in 2012 to 33% this year. The proportion of Canadians with financial plans has also dropped over that timeframe, from 31% to 27%. But on the plus side, the proportion of advised Canadians who say they know exactly how much they’ve paid their financial advisor has improved from 44% to 52%.

Survey findings on short-term economic optimism traced a rise and fall over the past eight years. Investors’ 12-month outlooks on all four indicators tracked – performance of the stock market, economic growth, inflation, and unemployment rate – all rose in the period from 2012 to 2017. But in the past three years, all those indicators declined, with the largest decreases in optimism reflected in respondents’ attitudes toward economic growth and the unemployment rate.

Participants’ optimism with respect to their investment portfolios was somewhat muted in the short term: less than half (45%) of investors this year expressed optimism in their ability to achieve their investment targets over the next 12 months, while 21% were pessimistic. Respondents showed more confidence in their longer-term prospects, with 60% being optimistic about meeting their investment targets in the next five years and just 11% pessimistic.

The survey also revealed an evolution in the makeup of fraud victims. The proportion of respondents who said they’ve been approached with possibly fraudulent offers has declined from 36% in 2006 to 18% in 2020. However, the number of people who got taken in as a percentage of people approached with possible fraud rose over that same period, from 11% to 18%.

Arising from that change, the CSA said, is an increase in the proportion of Canadian investors who said they trusted the person who last approached them with a potentially fraudulent investment offer. While just 8% of 2006 survey respondents who reported being approached with a possible fraud said they had a “somewhat” or “very strong” level of trust in the one who presented it, that proportion rose to 20% in 2020. That increase was driven largely by frequent investors, who went from 7% saying they trusted the person who touted a possibly fraudulent investment scheme in 2006 to 32% saying the same in 2020.

The age profile of fraud victims has also shifted. In 2006, those successfully targeted by scammers were disproportionately older Canadians: at the time, the 55-and-older demographic represented just 28% of the Canadian population, but accounted for 50% of all fraud victims.

Now, that gap has narrowed as the 55+ crowd in 2020 represent 51% of fraud victims and 38% of the whole population. Looking at younger demographics, Canadian investors aged 18 to 34 make up 28% of fraud victims as well as 28% of the country’s population, while those aged 35 to 54 accounted for 21% of victims and 34% of the population at large.

“The share of fraud victims 35-54 has also shrunk over time, from being on par with the general population (39% of victims compared to 42% overall) to well below it (21% of victims, versus 34% overall),” the CSA said.


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