Rob Carrick: The statistic that undercuts a key argument about how investment advisers help clients

When the stock market crashed in March, 2020, the extent of investor panic could be seen in the $14-billion in net mutual fund redemptions that month.

Flash ahead to March, 2021, and we see mutual fund investors avidly putting new money in the markets. With a humongous stock market rally in the books, investors put almost $13-billion in new money into funds. February was even bigger in fund sales – net sales of $17.5-billion. To summarize, investors sold low and bought high. Aren’t investment advisers supposed to manage that sort of thing?

Funds are primarily sold by advisers of one type or another, so it’s reasonable to view fund sales trends as a reflection of the advisory business. The panic selling in March of last year is understandable, given the layering of financial market turmoil on top of the fast-worsening pandemic. Yet net sales of exchange-traded funds, associated with do-it-yourself investors, reached almost $3-billion in March, 2020.

When advisers talk about the value of what they do, they often mention coaching clients to understand the up-and-down cycles of financial markets. That means hanging tough when stocks crash or bonds decline, and even buying more.

Fund-industry statistics show that net buying of mutual funds resumed in April, 2020, but at a low level of $1.3-billion (total fund assets were $1.5-trillion back then). Sales momentum picked up from there, but it wasn’t until winter, 2021, that sales really surged. Part of this upswing in sales can be explained by the fact that January and February are traditionally big months for investing in registered retirement savings plans. But it’s clear that mutual fund investors were largely dormant through some prime months for buying cheap stocks.

To be fair to advisers, more and more of them are using ETFs these days. So the net buying of ETFs in the worst of the market meltdown may reflect some of their work urging clients to buy low. Also, mutual fund investors tend to be less familiar with stock market dynamics and thus more likely to panic about what can only be described as catastrophically large and fast declines in March, 2020. An adviser can only do so much when clients demand to get out of a fast-falling market.

And yet, there’s a constant hum in the advisory business about the flightiness of DIY investors and how the firm hand of an adviser can deliver better behaviour and thus better returns. The mutual fund sales trends since the stock market crash do not support that view.

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