80 Years of Financial Security

Transcription

1 80 Years of Financial Security Address by Glen Gowland Chair, IFIC To IFIC 2012 Leadership Conference Toronto, Ontario October 3, 2012 The investment funds industry is a major success story. Canadians have put their faith in our products. We have witnessed excellent growth in our 80-year history of innovation and investor support... We are a key source of investment capital for Canada s small business sector. At the end of July 2012, there were 115 Canadian small-cap funds holding more than $14 billion in assets. Our sector employs more than a quarter of a million Canadians from all regions of the country. CHECK AGAINST DELIVERY

2 Glen Gowland Address to IFIC 2012 Leadership Conference Good morning, and welcome to IFIC s 2012 Leadership Conference. This is an exciting time to be assuming the role of chair at IFIC. Though I only took on these duties seven days ago, I have been an active participant on the board for five years, and I am well aware of the significant role that the industry plays by coming together, through IFIC, to create a strong regulatory framework, and to provide investors with a range of products and distribution channels. The staff and member volunteers at IFIC are a focused bunch : we deliver on what we say we will, and this has held us in good stead. I am looking forward to leading the organization as we continue on our path of supporting our members as they seek to deliver ever high levels of service and value to investors. We have a great program planned for you today, with industry and regulatory experts providing information and insights on the state of the industry, and what lies ahead. Later in the day, we will be celebrating 80 years of mutual funds in Canada and the 50 th anniversary of IFIC, as well as acknowledging some of our members milestones. We have a few special things planned, including an appearance by Ontario s Deputy Premier and Minister of Finance, the Honourable Dwight Duncan, a great booster of the financial services industry. I hope you will stay right through to the end to celebrate with us. As we celebrate our milestones, we can take pride in knowing that the investment funds industry is a major success story. Canadians have put their faith in our products. We have witnessed excellent growth in our 80-year history of innovation and investor support. Our mission is simple: to help build a culture of savings so that Canadians can achieve their important life goals and, in particular, enjoy financial security in their retirement. And by connecting Canada s savers to Canada s economy, our industry makes significant contributions to healthy and responsive capital markets growing the Canadian economy and helping to create jobs. Page 1 of 10

3 Today, I would like to reflect on how our industry uses its core strengths and values to bring about positive change for Canadians in three key areas: Our pre-eminent role in helping Canadians to adopt a savings culture, Our significant role in strengthening the Canadian economy, and Our commitment to a strong regulatory framework in the interest of financial consumers, and an effective and balanced environment in which to do business. But first, I would like to spend a few minutes looking back at how it all began. Eighty years ago, still under the long shadow of the stock market crash and in the midst of The Great Depression, a young man named Alan Chippindale was sent to Montreal by Calvin Bullock s New York office to start and manage the first open-end mutual fund in Canada. For the first time, ordinary people with small amounts of capital could participate in a professionally managed, diversified investment plan. Until this point, only the wealthy could access the services of expert portfolio managers and invest in the market. Mr. Chippindale recalled years later that Montreal had been cold at the time, but the economy was even more frigid. Unemployment was about 40%, and the Dow-Jones had dropped 90%. Not surprisingly, Mr. Chippindale reported that business was very slow in those early days. His landlord told him: I admire your courage but question your sanity in trying to start a business at this time. In its first three months, the company spent $50,000 on newspaper advertising which was a large amount in those days. Gross sales in those first three months were about equal to the cost of the advertising. Over the next several years, other companies entered the field and further innovations, such as dollar cost averaging, were introduced. People were starting to acknowledge just how revolutionary investment funds were. Mutual funds were becoming recognized as the one vehicle through which average Canadians could access the markets and build their savings. In 1957, when the Canadian government introduced the first Registered Retirement Savings Plan, Canadians had an additional reason to turn to mutual funds. By the end of 1960, there were approximately 20 mutual funds with assets under management of $540 million. In those days, mutual funds only accounted for 1.3% of the national wallet. Page 2 of 10

4 At that time, industry observers thought there were too many funds. But in hindsight, they were clearly mistaken. The industry grew from 20 funds in the early 1960s, with assets under management of $540 million, to 65 funds with assets of $2.7 billion in A decade later, assets had doubled and the decade after that, in 1993, they surpassed $100 billion. And during that time many industry naysayers suggested that there were far too many funds and that the most significant growth period of mutual funds was now behind us. Some things never change! By 2002, assets under management quadrupled to more than $400 billion, and over the next decade, they doubled again. Today, the industry offers more than 2,800 funds through 120 fund managers and assets under management have surpassed $800 billion. The advisory channel is 97,000 strong, and we are also seeing growth in alternative channels and new points of access, as the industry innovates to support advisors and serve investors in this digital age. We also offer a wide range of pricing structures, from commission-based to fee-based. For example, F-series funds are designed for the advice fee-based programs. HNW-series funds feature a high investment minimum and a discounted management fee. A total of 346 products are offered in this category. D-series funds are geared toward do it yourself investors and also offer a discounted management fee. There are 62 fund products in D-series funds with about $2 billion in assets at the end of More and more, the talent and expertise of the Canadian mutual funds industry is being recognized globally, as evidenced by our expanding presence in the international investment fund community. For example, this summer, China s National Council for Social Security Fund sought to retain offshore fund managers to oversee 13 mandates, including emerging market debt, global equities and natural resources. Of the 12 firms that were selected, two are Canadian: AGF Investments and RBC Global Asset Management. Page 3 of 10

5 Pre-eminent role in helping Canadians adopt a savings culture Reflecting on what our industry has built, it is clear that our most important contribution has been to strengthen the savings culture of Canadians. We have accomplished this through significant product innovation as well as an advisor-led distribution network. We offer a wide range of investment solutions that meet the diverse and evolving needs of our customers, including those designed for short-, medium- and long-term, and funds offering varying levels of risk. Our product offerings have evolved over the years in response to investors varying appetites for risk, as well as their affinity for ethical funds, socially responsible funds, Sharia-compliant funds, and more. We have RRSP-eligible families of funds, funds with international features, and fund wraps, which many investors favour because they offer pre-assembled solutions. A cornerstone of our value proposition is that we provide a knowledgeable and professional network of advisors to guide investors. The advisor-led distribution network, through which mutual funds are largely distributed, plays a critical role in helping individuals achieve their financial goals. This is because advisors instill a savings culture in our clients, and help them make financial decisions that are well-suited to their individual needs. Eighty-one years ago, only the wealthy could purchase equities because of the minimum investment requirement. Purchasing shares was an expensive proposition. The vast majority of individuals had no way to invest their modest savings. No way to see their money grow. No way to plan for a secure financial future. Today, 4.3 million Canadian households invest in mutual funds. The breadth of products and the number of funds and fund managers, ensure a robust competitive marketplace. This enables consumers to choose from a multitude of options that meet their diverse needs and financial objectives. Research demonstrates that mutual fund investors are benefitting from our approach. For the seventh year in a row, the Pollara survey of investor attitudes has found that mutual funds top the list of financial products when it comes to investor confidence that the product will help them Page 4 of 10

6 meet their financial goals. Mutual fund investors report an 80% confidence level in the ability of mutual funds to help them reach their financial goals, as compared to 68% for GICs. The 2012 Pollara research also found that 85% of investors still purchase their funds through an advisor, and 81% name advisors as their preferred source of information on mutual fund products. We know that households receiving financial advice are better savers and ultimately have more financial assets than households that don t receive advice. We have learned this through numerous past studies, both in Canada and internationally. The most recent, and by far the most compelling, is independent research by the Montreal-based think tank, CIRANO, which applied highly sophisticated statistical analysis to the largest survey of household financial circumstances ever compiled in Canada. After accounting for roughly 50 different variables ranging from age, income, and investment knowledge to economic situation and financial goals, the CIRANO researchers stated conclusively that investors who use advisors build higher levels of wealth than those who do not, are more ready for retirement, and have better rates of saving. This slide shows financial assets of households that received advice over various time periods, as a multiple of the financial assets of households that did not receive advice. The yellow bars show the raw data for investors receiving advice over three different time periods. The blue bars show results from the econometric analysis after correcting for all other variables, so that the difference is attributable only to receiving financial advice. The conclusion of this analysis is that an Advised household that has worked with a financial advisor for four to six years accumulates 1.58 times more assets than a Passive non-advised household that is identical in all other respects. After 15 years or more with a financial advisor, the Advised household accumulates 2.73 times more assets than an otherwise identical Passive Non-Advised household. In light of the CIRANO findings, Pollara data reconfirming that many investors start out with small amounts of assets and little investment knowledge is particularly worth noting. Forty-one percent of survey respondents reported that they started investing with less than $10,000. Twenty-two percent had less than $5,000 and 72% reported having little or no investment Page 5 of 10

7 experience. These facts underline the importance of making affordable advice accessible to first-time investors. For the industry, governments and regulators, these findings underscore the importance of building financial literacy. This has been a goal of IFIC and its members from the beginning. In the industry s early years, there were few products with little variation and the concept was simple. The sales force had to teach potential investors about the power of compound interest and the merits of staying the course. But as the industry grew, and the world of investing became more complex, it became increasingly important for advisors to deepen their knowledge to be able to serve their clients more effectively. That is why, dating back as far as 1967, IFIC has provided training courses to ensure that advisors offering mutual funds were knowledgeable about product features, relevant tax issues, regulatory requirements and standards of conduct. Providing this training was not something that the industry was required to do. It was an initiative that we undertook, in order to provide a knowledgeable distribution force that would help investors make appropriate decisions. Today, IFIC offers close to 20 courses in English and French through IFSE our educational arm. Approximately 15,000 students enroll in these courses each year, and the program is recognized by the regulators in National Instrument and in the Rulebook of the Mutual Fund Dealers Association. In addition to facilitating financial literacy, as part of our commitment to help Canadians adopt a savings culture, our industry provides investors with a high degree of disclosure. We tell our consumers how much they are paying in total for their products, and the returns on funds are always net of fees. This information is available now in the prospectus, the Management Report of Fund Performance, the annual information form, and more recently, in the more readable, shorter document, Fund Facts, which is being finessed as we speak. While we are glad to be in the forefront of the financial sector in terms of disclosure, we believe consumers deserve to have clear and meaningful information on all of their financial products so that they can make informed decisions that are best suited to their circumstances. Mutual funds Page 6 of 10

8 account for 25.5% of the almost $3 trillion in financial assets owned by Canadians. The rest is in deposit instruments, fixed income and equities, and segregated funds. And yet, no other product is held to the same standard and level of disclosure that mutual funds provide. We encourage investment fund regulators to take a leadership role with other regulators to create consistent disclosure across financial products. With this accomplished, investors would be able to assess the relative suitability of the various financial services and products available to them. In addition to training advisors, and providing clear, relevant information to investors, IFIC s members are on the frontline of financial literacy efforts in this country, producing a host of materials, programs, and online resources for Canadians of all ages, and actively partnering with educators, government, and other groups. We have made great strides in creating plain-language materials, and we designate individuals as financial literacy leaders within our organizations. Most important, we educate investors through the thousands of individual conversations that take place each and every day between advisors and their clients. In addition, through IFIC, we are proud to be the title sponsor of the Junior Economic Club of Canada, which was created to inspire Canadian youth to become financially literate. The Club organizes groups of high school students to spend a Day on Bay Street, giving them first-hand exposure to Toronto s financial district, while teaching them about making smart financial decisions, budgeting, compound interest, investing, trading, financial services and portfolio management. We also partner with Morningstar to sponsor the IFIC Investor Education Award, which is given annually to an investment fund manager, dealer or integrated firm that has produced an exceptional educational initiative for investors. For organizations that share our Members' commitment to building financial literacy, IFIC has created a Financial Literacy Partners Program. Its goal is to connect organizations seeking participation for financial literacy programs with our Member organizations. Our Partners' Program is one more way we are supporting our Members' commitment to financial literacy. Page 7 of 10

9 Significant role in strengthening the Canadian economy Another area in which industry members can take great pride is the significant role we play in strengthening the Canadian economy by providing affordable capital for Canadian companies to grow, innovate, and create quality jobs. Mutual funds play a significant role in this process by aggregating small inefficient pools of savings. The buy side of the capital markets the investment managers deploy these pooled savings in equity markets, fixed income markets, money markets and derivative and commodity markets at home and abroad. This is the process of efficient capital allocation. Investment managers efficiently allocate capital and create healthy capital markets through their individual activities in research, and through the due diligence they conduct on firms, as they strive to select the best investments for their clients. Mutual funds in Canada help drive the economy by investing $460 billion in Canadian companies, both large and small. We are a key source of investment capital for Canada s small business sector. At the end of July 2012, there were 115 Canadian small-cap funds holding more than $14 billion in assets. Our sector employs more than a quarter of a million Canadians from all regions of the country. Many of our investment managers win mandates from other jurisdictions to manage their investments, and most of our fund firms are important players in other countries. This contributes to Canada s reputation as an international financial centre and enables our industry to strengthen our global perspectives. Our commitment to a strong regulatory framework One way for the industry to deliver a high level of service and value to investors is by supporting a strong regulatory framework in the interest of financial consumers, and an effective and balanced environment in which to do business. This has been a core value of our industry since the beginning. When reflecting back on those early, frigid days in Montreal, when fresh memories of the crashes of 1929 and 1932 caused the concept of investing in stocks to be met with great cynicism and fear, Alan Chippindale said: We realized we had to concentrate on maintaining Page 8 of 10

10 the highest possible standard of ethics and business conduct, with no over-promising or reneging. We had to try hard to earn and merit the confidence and respect of dealers and investors. This value was evident 50 years ago when IFIC was established, known at that time as the Canadian Mutual Funds Association. The organization s role was to collaborate as an industry to put investors first. The fund members set out to create an ethical, professionally managed group. Mr. Chippindale became the organization s first chairman. At the founding meeting, he stated that the organization should always: convey the industry s desire to earn ever increasing respect and confidence from the investment public generally. The association quickly moved into high gear. One of its first accomplishments, in 1963 the year after it was formed was to publish a Code of Ethics and Regulation for its members. Through the years, the organization has issued a series of guidelines, in addition to the Code of Ethics, to set high standards of conduct, in areas such as Emergency Preparedness, Fund Volatility Risk Classification, Portfolio Pricing and Money Laundering. In these initiatives, the industry didn t wait for regulators to devise or regulate these standards. It took the initiative to create the type of environment that Mr. Chippindale and his peers envisaged. In more recent years, setting standards and guidelines has been more formalized through the Canadian Securities Administrators, provincial securities commissions, the Investment Industry Regulatory Organization of Canada, the Mutual Fund Dealers Association of Canada, and in Quebec, by the Autorité des marchés financiers. As these organizations have developed, IFIC has worked energetically and consistently alongside our regulators to support the ongoing task of establishing standards and guidelines, and to support the creation of more formal regulatory structures, such as the MFDA. That s not to say we agree with absolutely every regulatory initiative these organizations put forward it s our responsibility to test the reasonableness and effectiveness of the various rules that are put forward so that the appropriate balance is created. Notwithstanding our watchful approach to additional regulation, our goal has always been to deliver high levels of service and value to investors. We remain firmly committed to this objective. Page 9 of 10

11 In closing, I hope you have gained some new insights today into the industry s significant impact over the past 80 years, enabling Canadians from all walks of life to achieve financial security. As we sit here today, marking the industry s 80 th year and IFIC s 50 th anniversary, we can take pride in the level at which Canadians have put their faith in the investment solutions we provide. We contribute significantly to healthy and responsive capital markets and economic growth. We have helped improve the financial literacy of Canadians. And we have helped develop and support a strong regulatory framework. Today is a celebration of these achievements, and of the constructive role that the industry has played through IFIC. I want to acknowledge the large number of industry volunteers that participate in IFIC s committees, giving their time, their ideas and their commitment to ensuring that the industry understands, and is understood by regulators and the public, as we all strive to innovate and meet investors needs. The Investment funds industry is a modern success story. As the 37 th Chair of IFIC s board, I follow a long line of distinguished leaders and I look forward to following in their footsteps, as we continue to help Canadians reach their financial goals. I will continue to advance our critical role in helping Canadian investors adopt a savings culture, so that they can meet their financial goals and achieve financial security in retirement. This involves continuing to raise awareness about the value of our products, and the value of the advice that our industry provides, as well as continuing to promote greater financial literacy for advisors, investors and the general community. At the same time, I will work to raise awareness about the role our funds play in creating a healthy and responsive capital market and supporting the growth of the Canadian economy. Finally, I will set the tone to work collaboratively with governments and regulators to ensure a fair and balanced environment that serves consumers. I hope you will find today s sessions to be informative and inspiring, and I look forward to celebrating the industry s milestones with you later this afternoon. Thank you. Page 10 of 10