Canadian investors and investors worldwide are grappling with conflicted feelings about volatility and risk. Many have unrealistic return expectations and a significant number are downright misinformed about their options.
A new survey from Natixis Investment Managers examines responses from 9,100 investors in 23 countries, including responses from 300 Canadian investors with assets over $100,000. It found that Canadian investors trust their financial institutions and their financial advisors: Fully 91 per cent of those surveyed said their own financial advisor was trustworthy, 72 per cent trust their financial institutions and 79 per cent trust financial advisors generally.
To maintain those scores, however, particularly as volatility returns to markets, financial advisors may need to step up their game and help explain basic concepts like volatility, risk, return and active versus passive investing to clients.
Active management strategies
For example, respondents indicate that they tend to favour active management strategies. Seven in ten say they prefer an expert to find the best investment opportunities in the market and 79 per cent say it’s important to beat the benchmark. At the same time, however, 94 per cent say fees are an important consideration when they are selecting investments.
“Our survey shows that investors are inclined to prefer active investment strategies, but their quest for lower investment costs may be setting unrealistic expectations for what passive investments can actually deliver,” says Abe Goenka, CEO at Natixis Investment Managers Canada. The survey found that 55 per cent think index funds are less risky than other investments while 62 per cent think index funds can help minimize losses.
A deep disconnect
More, the survey’s authors found a deep disconnect about realistic return expectations. In Canada, individuals believe they need 9.1 per cent returns above inflation to meet their goals. Financial advisors say 5.7 per cent above inflation is a more realistic expectation.
While 77 per cent believe they understand market risks and 64 per cent say they are prepared for a market downturn, only 44 per cent of financial professionals surveyed say investors understand the risk and only 42 per cent are actually prepared for a downturn.
“Even though more than half of investors say the long-running bull market has made them feel secure about their investments, nearly eight in ten financial professionals say it’s simply made investors complacent about risk,” say the report’s authors.