Credo’s asset management industry landscape ranks Canada’s investments fund companies based on:

1) Performance in terms of each company’s ability to deliver positive Investor Outcomes; and,

2) Canadian financial advisors’ Willingness to Support and sell the products of the companies.

Credo’s Industry Landscape has two purposes:

  1. It connects Credo’s clients to ever-deepening layers of information about Canada’s investment management industry.
  2. It enables people to consider unique research about the industry that will help them make buy vs don’t buy decisions

The landscape itself is pictured in the 2-by-2 analysis below (Exhibit 1.) Canada’s investment fund companies are mapped on the basis of:

  1. Investor Outcomes… which is each company’s ability to produce investors who feel financially fulfilled (the Y-axis, running North-South in the map); and,
  2. Advisors’ Willingness to Support the Company (the X-axis, running East-West in the map).
Exhibit 1. The Graphical representation of Credo’s Industry Landscape

The analysis immediately shows which companies fall into four quadrants:

  1. Justifiable Top Performers: companies that any advisor could justify having on their product shelf
  2. At-risk Worst Performers: companies that any advisor could justify marginalizing or eliminating from their product shelf
  3. Good for Investors but Forsaken by Advisors: are the companies that produce well for investors but that are not in favour, for one reason or other, with Canada’s financial advice community
  4. Good for Advisors but Less So for Investors are the companies that have not been producing for investors but that advisors have found reason to keep on their product shelves and to support.

The data for our analysis comes from two of Credo’s ongoing research studies.

  1. The Financial Comfort Zone study (FCZ), a survey of Canadian investors and their perspectives on a variety of financial matters, and;
  2. The Credo Study (TCS), a survey of Canadian Financial Advisors and their perspectives on Canadian financial product manufacturers.

In TCS we ask more than 1,000 financial advisors to identify and rate companies that they are currently working with against a whole host of factors that are related to their Willingness to Sell and support each company. Similarly in the FCZ study we ask Canadian investors to identify which companies they they have managing their money and, inconspicuously, how they feel they are doing with respect to their financial goals and expectations. The product of our research is an understanding of the strengths and weaknesses of companies that comprise Credo’s Industry Landscape.

Along the Y-axis (which runs North-South) we show what we refer to as “Investor Outcomes.” Higher scores are better and they fall to the top of the map. Lower score are worse; they fall near the bottom of the map. What are investor outcomes? We discuss this later in this article, but, positive outcomes occur when investors indicate that they feel either ahead or well ahead of their financial expectations. Less desirable outcomes, obviously, occur when fewer investors indicate they feel ahead of the game – i.e., when they indicate they feel behind or far behind their financial expectations. So, companies are positioned North-South in the landscape based on their ability to produce an investor base that feels either ahead of the game financially or behind the 8-ball. Companies do not want to be near the bottom of the map.

Along the X-axis (which runs East to West, or left to right) , we show advisors’ “Willingness to Support” the companies in the industry. Again, higher scores are more desirable for companies. They indicate that advisors are relatively more willing to recommend these companies to their clients. Lower scores fall to the left-hand side of the map. These lower scores indicate that advisors are relatively less willing to work with these companies.

In the groups below we provide links to detailed reporting about each company in the landscape.

Justifiable Top Performers

Companies in the top right quadrant of the graphic have been producing positive outcomes for the investors who have entrusted them with the management of their investments. Further, they have generally strong relationships with the Canadian financial advice community.

Exhibit 2. The Graphical representation of Credo’s Justifiable Top Performers

At-risk Worst Performers

Companies in the bottom left quadrant of the graphic not only have relatively poor outcomes for the investors who elected to have the companies manage their investments, but also lack support from the financial advisor community. This is not to say that these companies do not have financial advisors supporting them by recommending their funds. Nor does it mean that some of the investors who have their money managed by these companies don’t feel ahead of their expectations. But, relative to other companies in the broader landscape, these companies have a base of investors who are less likely to feel ahead and who are more likely to feel behind.

Exhibit 3. The Graphical representation of Credo’s At-risk Worst Performers

Good for Investors, Forsaken by Advisors (GIFAs)

Companies in the top left quadrant of the graphic have delivered positive outcomes for their investors but they are, for one reason or other, being relatively marginalized by the advisor community. These companies may have, in one way or other, neglected their relationship with financial advisors. The further to the left they appear, the greater the degree of marginalization. These companies are losing the battle for space on the advisor’s financial product shelf.

Exhibit 4. The Graphical representation of Credo’s GIFAs

Good for Advisors, Less So for Investors (GALSIs)

Companies in the bottom right quadrant of the map have been producing relatively poor outcomes among investors but have still managed to garner the support of Canada’s financial advisor community. These companies are at risk of losing the support of the advisor community if they cannot find a way to help improve investor outcomes. Companies in this quadrant are at risk of losing advisor support; they are living on borrowed time, in some respect.

Exhibit 5. The Graphical representation of Credo’s GALSIs

 

Why Investor Outcomes

In many of Credo’s analyses, we do not use return (financial performance) as the ultimate measure of results. Rather, we use something we call investor outcomes. Why? Let us illustrate by posing the following question:

In which of these two situations would a financial advisors prefer to find himself?

  1. Situation #1: The advisor has developed a set of portfolios for clients. Each portfolio has consistently delivered 11% returns on a risk adjusted basis during a 7-year period where a reasonable, comparable benchmark has delivered only 8%… but 70% of the advisor’s clients feel as though they have not been financially successful while working with that advisor; or,
  2. Situation #2: The advisor has delivered for their clients a set of portfolios where each portfolio has consistently delivered 6% returns on a risk adjusted basis during a 7-year period where a reasonable, comparable benchmark has delivered 8%… but 85% of the advisor’s clients feel as though they have been tremendously financially successful working with the advisor.

“That’s ridiculous,” you say. Returns are what make people feel successful.  We say, it’s not ridiculous. We say a whole host of things make people feel financially successful. Returns are certainly a part of the exercise… but other things are at play, too.

If you’ve done any research on the subject at all, you’ll appreciate that investors are not necessarily rational, logical beings. They are certainly not ONLY pleased when their portfolio grows. Nor are they displeased ONLY when it declines. There’s far more to people than meets the eye.

Exhibit 6. Are advisors focused on money management or on clients?

About 77% of advisors, when asked if they are returns focused or client-centric, tell us that they would prefer to meet clients goals than to simply deliver returns (see Exhibit 6 above.) Essentially, advisors aren’t simply returns generation machines. Most of them aspire to be client satisfaction machines. So, Credo does not focus on returns alone. We focus on investor outcomes – the investor’s state of financial wellness and contentment.  What is our litmus test?

Are you Ahead or Behind, Financially?

Credo has a number of different means for measuring investor outcomes. One involves a bellwether statement we refer to as “The Ahead or Behind Test.” We ask thousands of investors to react to the following question:

Which of the following statements fits best for you? Considering my financial situation at this stage of my life, I currently feel:

  • Well ahead of my expectations
  • Ahead of my expectations
  • On par with my expectations
  • Behind my expectations
  • Far behind my expectations

We can examine a response distribution for this question for 30,000 randomly selected investors. It shows that only about 3% of investors feel well ahead of their expectations while 15% feel far behind. A plurality (42%) feel on par with their expectations, but more clearly feel behind than ahead.

Exhibit 7. The proportion of Canadian investors who feel ahead of the game or behind the 8-ball.

In a different section of our study, we ask investors whether or not they work with a financial advisor and also what investment companies they have managing their money.  By doing this, we inconspicuously gather the data we need to test whether or not investors who have their investments with any specific company are different from the overall industry average we’ve presented above.

For instance, when we look at a response distribution to this same question (The Ahead or Behind Test) that includes only investors who have investments with Fidelity investments, we see a distribution of a somewhat different shape. Exhibit 3 shows that relatively more investors feel ahead of their expectations if they are invested with Fidelity Investments and relatively fewer feel behind.

Exhibit 8. The Credo Ahead or Behind Test and Fidelity Investors

A couple of quick statistical tests provide that there is almost no chance that the factor we’re measuring — feelings of being ahead or behind — isn’t related to the only thing that’s really different between the two distributions, i.e., the fact that the money manager is Fidelity.  Credo concludes that Fidelity’s investors feel better off than the average investor.

So that, in some respect, is how Credo prefers to measure investor outcomes. Do they feel as though they are getting ahead? Or do they feel as though they are falling behind?

We look at the same response distributions for all of the major players in the industry and we can evaluate which companies are performing best. (That’s Credo’s WIBO Research.) It eliminates the need to debate about whether we should be comparing money management competitors based on ten-year returns rather than five-year returns… rather than three-year returns. Those matters come out in the wash when we focus on how the end investor feels about their financial state of being… and that is what it’s all about, isn’t it?