FAIR Canada research finds investors support restrictions on high risk products, lack regulator familiarity, and more than a quarter still don’t trust their advisors
A survey of Canadians released today by FAIR Canada revealed that, fundamentally, fair treatment remains among Canadian investors’ top three priorities. While 56 per cent of respondents prioritize fair treatment, 53 per cent prioritize regulatory compliance, and 49 per cent prioritize advisor qualifications only 21 per cent prioritized innovation and 13 per cent prioritized product development. While it can be inferred that investors are trusting their advisors to understand product for them, the survey also found that only 72 per cent of Canadians believe their advisors put client interests first.
Jean-Paul Bureaud, CEO of FAIR Canada in Toronto, highlighted a number of core takeaways from the survey. He emphasized the need for fairness in the system, noting that a surprisingly small number of respondents, only 16 per cent, could correctly name a financial investments regulator. He also emphasized an investor preference for trust over new product, with a bare majority of respondents supporting restrictions on higher-risk or complex investments.
“I think it’s almost an intuitive acknowledgment on [investors’] part that they lack the ability to assess whether those products are appropriate for them. And that’s a bigger question for investors that are, do it yourself investors because they don’t have an advisor acting as an intermediary,” Bureaud says when asked why he thinks there is this support for product restriction. “But even those working with an advisor, I think some of it is based on just their lack of understanding and their lack of ability to assess whether or not this is a riskier product. It gives them signposts and roadmaps in terms of how to navigate different investment products that are available to them.”
Defining ‘trust’ in the advisor-client relationship
One of the core takeaways for advisors in this survey is the fact that 28 per cent of Canadians with advisors don’t think the advisor puts their interest first. Understanding that lack of trust, Bureaud says, begins with a better understanding of what trust actually is. He outlines that trust across three categories: competency, benevolence, and integrity.
Competency, Bureaud says, is the measure of trust that most closely mapped to FAIR’s survey results. Investors rated their advisors well on competency questions like how they explain risks to their clients and whether they tailor recommendations to client goals.
Benevolence is more tied to that question of whether the advisor is working in a client’s best interests. He notes that the biggest gap emerges there, and he attributes that to trust issues around how advisors actually get paid. Despite a range of disclosure requirements, there is still the perception that there could be parts of advisors’ compensation that’s hidden from the investor.
Integrity, Bureau explains, speaks more to the idea of accountability. He ties that idea to the lack of awareness among investors about the specific regulators governing the financial services industry. Without that awareness of compliance and enforcement mechanisms, it can be hard for investors to see their advisors as fully accountable.
Building investors’ trust in a fair system
What FAIR Canada wants to do is empower investors through rights education. Bureaud notes that a great deal of the regulatory framework is written to and for advisors and dealers. He wants more regulation that’s framed around how investors work and what they can do to ensure they trust their advisors or their investment fund providers.
One of the factors in this regulatory preference that stood out to Bureaud was a preference among investors for compliance over enforcement. In a focus group he says that respondents said they’d rather regulators hired on the compliance side than the enforcement side, preferring preventative regulatory action. While broad concepts like fairness and trust in this industry are still being worked out and understood discursively, Bureaud believes that continued conversations on the subject should lead to better outcomes for investors and help those investors articulate what Bureaud believes they know intuitively.
“Fair treatment is going to probably be an issue or a topic we’re going to want to explore in more detail through other work,” Bureaud says. “One of the things I’ve been thinking about is even though many investors can’t clearly articulate issues, it seems to me that they have the right intuition. They know when they don’t know enough about this, but they also know that their advisors are in it to make money. They’re not completely naive. It’s more the issue that don’t understand enough to be able to make their own assessment of whether or not this is suitable.”
