The next couple of years are going to be interesting for anyone involved with Canadian mutual funds.
Essentially, Canadian mutual fund investors are going to have a much better handle on what they pay for fees. Instead of a simple management expense ratio, new rules are going to break down to the penny what investors will pay per year for the privilege of having their money professionally managed. It might not seem like much to pay 2.5% of a $100,000 portfolio for professional management — but $2,500 sounds like a lot.
There will be more changes in 2016. Investors will start getting more detailed annual reports, including a breakdown on fees, thus ensuring that the fee structure is disclosed on an annual basis, and more detailed investment reports. Investors will be able to see how their funds performed against the benchmark and against other funds in the same category. It’s a nice change for investors, especially for less financially savvy folks.
It’s just too bad it won’t really matter.
For most people, investing is a bit of a chore. I liken it to when I go clothes shopping. I don’t go to a clothing store because I enjoy the pursuit of finding new clothes. I go because I need a shirt, a pair of pants, or socks. I have a certain brand I stick with for most things, and I continue to go back to it.
My girlfriend, on the other hand, views shopping as a leisure activity. She tries on clothes not because she intends to buy them, but because she’s curious about how they look on her. She’ll venture into a new store just to check it out. She’ll spend hours at the mall, while I’m ready to hit the road in 90 minutes, tops.
The point? I have a clothes shopping problem, and I seek to solve it in an efficient way. She enjoys the activity, and chooses to prolong it.
Well, though there are many out there who enjoy investing, there are many that far prefer to be spending their time elsewhere – maybe even shopping. Even though there are many that aren’t keen, they know it needs to be done, so they get it out of the way quickly, paying a premium to do so by buying mutual funds. They treat investing like I treat buying clothes.
The people who hang out at this website treat investing like my girlfriend treats clothes shopping. They enjoy the experience, dedicating their free time towards researching companies and improving their overall investment knowledge.
What type of customers do you think IGM Financial Inc. (TSX: IGM) and AGF Management Limited (TSX: AGF.B) are catering to? The people like you and me who love this stuff, or the rest of the population who would rather just let somebody else worry about their investments?
IGM Financial knows how to serve this market well. Through its Investors Group sales force, it almost exclusively serves investors who have little initiative to invest independently. All of its marketing screams “don’t worry, we’ll take care of everything.” That type of customer doesn’t care what it costs, and will gladly pay for the guidance of a caring Investor’s Group salesperson.
AGF Management is in a little more difficult of a spot, since it doesn’t have its own sales force. Instead, it’s forced to market its funds to financial advisors across the country. Still, remember that those financial advisors are just like Investors Group’s salespeople: They’re after the same types of customers.
This is why I’m not worried about the mutual fund industry going forward. Sure, mutual fund advisors will lose some folks to lower-cost alternatives, but there’s still a huge market of folks out there who are willing to pay for financial guidance. Even if they know an alternative exists, adopting it will be a slow process. It’s terrible for individual investor returns, but great for IGM Financial’s and AGF Management’s shareholders.
