Advisor relationships and investor decision-making

Toronto, ON, March 1, 2012 – Advisors are the key influence on investors’ decision-making is a major finding of this study that also highlights investors’ knowledge and expectations regarding their advisory relationships. The research was undertaken to understand more about the expectations and learning needs of investors who have an advisory relationship. The research looked at several facets of the client-advisor relationship, including:

1. How advisor relationships are formed and maintained;
2. The products people buy, as well as other products they believe they can buy;
3. Which services advisors are expected to provide;
4. Types of advice sought and received;
5. Fiduciary duty in the advisor relationship;
6. Working with advisors to make investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition decisions;
7. Reliance on advisor advice versus other information;
8. Major influences on investment decisions; and
9. The role of fees and their disclosure in investor decision-making.

Key findings on advisor relationships:

• Investors most often work with an advisor that their financial institution has assigned to them, rather than an advisor they have sought out based on specific needs.
• Investors don’t understand or consider different types of advisor registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition and licensing.
• Services that people expect from their advisor, including planning and asset mixAsset mix The percentage distribution of assets in a portfolio among the three major asset classes: cash and cash equivalents, fixed income and equities.+ read full definition advice and advice on dealing with life events, are clear.
• When discussing investment choices, advisors typically present multiple optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition and make their selection criteria clear.
• Most clients believe the advisor has a legal duty to put their interest ahead of his or her own.

Key findings on investor decision-making:

• The advisor’s opinion dominates all other sources as a factor in buying decisions. Opinions of friends and family members are somewhat influential, as are independent print materials. Online sources are particularly influential with younger investors.
• Performance and portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition mix are the most critical factors for selecting investments. Risk of losing money is more likely to drive a decision “not to buy”.
• Knowledge of mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition fees and what affects them is minimal. Their complexity makes it difficult for investors to assess potential conflict of interest.
• Disclosure of fees is inconsistent. When fees are disclosed, investors want disclosure in both dollars and percentages.

Read the report.