Financial advice and resilient investor – Investment Executive


What does the resilient investor look like?

A resilient investor understands that every investment has some degree of risk. Stocks, bonds, mutual funds and ETFs can all lose value when markets turn bad. However, a resilient investor knows that they cannot achieve their financial goals without risk. Therefore, a resistant investor is also one who only takes on the amount of risk he can personally tolerate. Finally, a resilient investor can withstand market volatility and avoid panic selling in falling markets when losses can crystallize.

The question is, how can we foster the resilience of retail investors?

Evidence shows that one of the best ways an investor can build resilience is by getting financial advice. A large and growing body of research shows that investors who work with advisors generate more wealth over time compared to similar non-advised investors. Research shows that the specific aspects of advice that contribute to increasing wealth are a combination of asset allocation and savings discipline.

The Pollara Mutual Fund and ETF Investor Survey, sponsored by the Mutual Fund Institute of Canada, also reveals the power of personalized investment advice to build resilience: advice that answers specific questions from circumstances of the investor in the context of a fiduciary relationship.

When asked, 74% of mutual fund investors and 68% of ETF investors said “I have better saving and investing habits because of my advisor.” Additionally, 84% of mutual fund investors and 78% of ETF investors said they feel more confident that they will achieve their investment goals when they use a financial advisor.

The volatility of the markets this year has certainly reinforced the value of advice to many investors and the role it plays in building and maintaining resilience. In fact, 92% of mutual fund and ETF investors reported this year that they are satisfied with their advisors, and 79% of mutual fund investors and 71% of ETF investors said that they would not want to manage their investments on their own.

Also of note, when asked how they rate satisfaction with their advisors, the second most common response (after investment returns) was peace of mind and a sense of security in a trusted relationship.

Finally, behavioral economics has shown that investors have predictable irrational biases, such as loss aversion and confirmation bias. An investment advisor can improve resilience by coaching clients to overcome bad investment behaviors, stay the course in volatile markets, and avoid costly mistakes.

Competition and innovation will continually change and improve the way investors access investment advice. One thing that won’t change is the importance of long-term investment advice from a trusted adviser in creating the resilient investor – the first line in investor protection.

Paul Bourque is President and CEO of the Mutual Funds Institute of Canada.

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