The volatility in markets over the last year has highlighted the need for investors to seek financial advice in order to halt panic selling, says Paul Bourque, president and chief executive of the Investment Funds Insitute of Canada.
Mr. Bourque, who is retiring from his position at the end of the month after 6½ years leading the industry association, says investors need to develop more resiliency to withstand market swings without overreacting and quickly selling at a loss.
“Resiliency allows individuals to understand there is some degree of risk when you are investing,” he said in an interview. “Behavioural economics tells us that people don’t behave rationally in certain markets and can end up buying high or selling low.”
In 2021, investors injected billions of dollars of their pandemic savings into conventional mutual funds and exchange traded funds. At the same time, more than 3.6 million new do-it-yourself accounts were opened at discount brokerages, according to data from Toronto-based Investor Economics, a unit of ISS Market Intelligence. That was an increase from 2.3 million in 2020, and 846,000 in 2019.
But the lack of advice at discount brokerages is now becoming problematic for trading platforms that have growing numbers of unsophisticated investors.
“That is where an adviser earns their money – they are helping investors avoid costly mistakes that can occur during these times,” Mr. Bourque said.
Now, after a year of shaky markets, he said it is clear that many investors need advice that caters to their own personal situations, rather than generic market updates.
“Investors can easily fall back into similar emotional behaviours seen during the 2007-2008 global financial crisis,” he said. “While the markets may not be the same as 2008, the behaviours are hard-wired, and we need constant mentoring to avoid loss aversion and confirmation bias.”
The Investment Funds Institute of Canada (IFIC), which includes about 150 investment fund managers, investment dealers and back-office businesses, represents approximately 93 per cent of mutual fund assets under management (AUM) and approximately 89 per cent of exchange traded fund AUM in Canada.
This week, Mr. Bourque is passing the baton to his successor Andy Mitchell, but he will remain with the organization until Feb. 1 to help with the transition period.
During his tenure, he has been an active voice for the industry concerning regulatory rule changes, including increased reporting on how much Canadians pay for financial advice, clearer disclosure of the overall performance of investment portfolios, and reductions to the cost of investment fees.
Looking back over the last 45 years, Mr. Bourque says he has always been drawn to advocacy.
He began his career in 1978 as an assistant Crown attorney in the old courthouse on Rossland Road in Whitby, Ont. He eventually travelled to Western Canada, landing positions with the Alberta Department of Justice, including as director of criminal appeals and criminal law policy.
In 1995, he shifted gears and joined the B.C. Securities Commission, which led to an operational role at the Ontario Securities Commission, and later a nine-year stint at the Investment Industry Regulatory Organization of Canada. In 2010, he returned to the BCSC as executive director, where he spent six years overseeing securities regulation and enforcement.
When he stepped into his role at IFIC in June, 2016, the industry was already in the midst of implementing one of its largest regulatory initiatives to increase transparency of advisory fees and improve the way they appear on an investor’s annual statement from financial institutions, a project known as the second phase of the client relationship model, or CRM2.
Now, the next step in improving reporting under the client relationship model – often referred to as CRM3 – is disclosing the cost of a fund’s management expense ratio, or MER. Regulators published proposals in early 2022, and several industry organizations and investor advocates – including IFIC – are at odds over how long investment firms need to build new systems to report costs to investors.
With regulators wanting the rules to come into effect in September, 2024, IFIC is advocating for an extended timeline until 2025.
“We are concerned that the proposed transition period will not provide sufficient time to ensure successful implementation and look forward to working with the Canadian Securities Administrators to identify and overcome operational and technical barriers,” Mr. Bourque said.