Analysis from the Financial Comfort Zone Study

November 2017

Questions for Researchers?

This research is extensive, exploratory, complex and ongoing.  The results presented here may not answer your questions fully.  If you have questions about the research results, you may contact:

Hugh Murphy, Managing Director
Credo Consulting Inc.
tel: 905.919.1926
eMail: hugh.murphy@credo.ca

 

Table of Contents

  1. INTRODUCTION.. 4

Research Objective & Report Structure. 5

Methodology. 7

Summary of Key Insights (in development) 8

 

  1. THE BASICS OF HNW INVESTORS IN CANADA. 9

Basic Demographic Dimensions of the Canadian HNW Investor in 2017. 9

Gender and Canadian HNW… 9

Age and HNW… 11

Geography and the HNW… 13

Ethnicity and HNW in Canada. 14

Marital Status and HNW Investors in Canada. 15

Family Composition and HNW in Canada. 16

Education and the HNW… 17

Household Income and the HNW… 18

Sense of Financial Circumstance & HNW Investors. 18

Financial Products and Canada’s HNW… 19

What Matters to the HNW Investor 22

HNW Indexed on the Importance of Various Dimensions. 23

Brand Personality: How do Investors perceive their advisors?. 24

 

  1. THE PRICE OF ADVICE FRAMEWORK: Cost vs Value. 27

Canada’s HNW Investors and Their Advisors. 27

HNW Advice Rejecters: Those Who Say No to Advice. 27

HNW are Satisfied and Loyal Clients… Generally. 28

Deeper into HNW and Loyalty to Their Advisors. 30

Fee Discussions and the HNW… 31

Price of Advice Awareness. 31

The Value of Financial Advice. 34

The Value of Advice by Geography. 35

 

  1. THE FINANCIAL LITERACY & WELLNESS MODEL. 37

Financial Literacy and the HNW… 37

The Wheel of Life and HNW Investors. 38

HNW Investors and the Effect of Advice on Financial Well-being. 41

HNW Investors, Intellectual Engagement and Advice Use. 42

HNW Investors, Purposeful Pursuits and Advice Use. 43

HNW Investors, Leisure & Recreation and Advice Use. 44

HNW Investors, Healthcare & Physical Fitness and Advice Use. 45

HNW Investors, Close Relationships and Advice Use. 46

HNW Investors, Community & Social Relationships and Advice Use. 47

HNW Investors, Home & Location and Advice Use. 48

HNW Investors, Inner Growth and Advice Use. 49

 

  1. THE FINANCIAL COMFORT ZONE FRAMEWORK. 50

The FCZ, Canada’s HNW Investors and Financial Advisors. 50

HNW Investors and Understanding Important Financial Matters. 51

Perceptions of Necessary Financial Knowledge. 52

HNW Investors and Their Interest in Personal Financial Matters. 53

HNW Investors & The Fear of Outliving Finances. 54

HNW Investors & The Attraction to Short-term Investment Opportunities. 55

HNW Investors & The Feeling of Financial Defeat 56

HNW Investors & The Feeling Protected Against Financial Disaster 57

HNW Investors & Risk Tolerance. 58

HNW Investors & The Feelings of Security in the Face of Income Loss. 60

HNW Investors & The Organization of Their Financial Records. 62

HNW Investors & Confidence in Ability to Evaluate Financial Advice. 63

HNW Investors & Confusion with Financial Jargon. 64

 

  1. PRODUCT MANUFACTURERS & HNW LOYALTY TO ADVISORS. 65

AGF Users’ Loyalty to their Advisors. 67

CI Investments Users’ Loyalty to their Advisors. 69

Dynamic Users’ Loyalty to their Advisors. 70

Fidelity Users’ Loyalty to their Advisors. 71

Mackenzie Users’ Loyalty to their Advisors. 72

Manulife Users’ Loyalty to their Advisors. 73

RBC Mutual Fund Users’ Loyalty to their Advisors. 74

Sentry Users’ Loyalty to their Advisors. 75

Sun Life Global Investments Users’ Loyalty to their Advisors. 76

 

  1. CONCLUSIONS. 78

 

 

 

1. INTRODUCTION

Research Objective & Report Structure

This report develops a broad profile of Canada’s High Net Worth (HNW) investors.  It is the product of research that was undertaken by Credo and TC Media with the specific intent of helping members of Canada’s financial advice community better understand and appreciate the 5% of Canadians who control more than 80% of the wealth in the country.  These are individuals who have accumulated at least $1mn in investable assets.  To be sure, they have substantial wealth both individually and as a group.  They should not be confused, however, with the illusive Ultra HNW group; a small sub-segment of the HNW market comprised of individuals who have accumulated more than $10mn.  The Ultra-HNW are a needle in a haystack.   The HNW, by contrast, are a knitting-needle in the same haystack.

This study uses a number of frameworks for assessing the Canadian investor market:

  1. The Price of Financial Advice Framework is comprised of questions that explore Canadian investors’ demand for and satisfaction with the financial advice they currently receive. It explores investors’ loyalty to their advisors and their advice consumption behavior.  It also explores the importance of various matters that have tremendous financial implications for the investor at various stages of their existence.
  2. The Wheel of Life (WOL) Well-being Framework enables the production of a profile of a complimentary profile of Canadian investors. It looks more broadly at Canadians in terms of their overall well-being.  The WOL framework enables us to explore the relationship between investors’ financial circumstances and their personal feelings of well-being.
  3. The Financial Comfort Zone (FCZ) Framework includes an extensive battery of questions that enable the production of a deep psycho-social profile of any well-defined sub-set of the population. Its focus, understandably, is on financial matters.

 

 

Methodology

  1. A random sample of survey panelists is invited each month to participate in the study.  The panel used for this research is designed to mirror the Canadian population.
  2. Each month, 1,000 panelists participate in the FCZ study. Panelists are locked-out of participation for a 12-month period.
  3. The results presented in this report are based on a survey of 21,004 Canadian investors. The margin of error produced by a sample of this scale is +/- 0.70 %-points 19 times out of 20.  Beware, however, that statistics presented in this report are often based on subsets of the collected data. Accordingly, the margins of error around these statistics differs from the margin of error reported for the study overall.
  4. The survey is conducted on-line in either English or French, depending on the respondent’s language of choice.
  5. The question set was established cooperatively with the involvement of TC Media, Credo and members of the Canadian financial community. It remains largely consistent, month-over-month, to enable the tracking of numerous dimensions related to investors.
  6. From time to time and for the benefit of clients of Credo and TC Media, questions are carefully nested in the questionnaire for short periods to take measurements with respect to specific social issues or financial matters.
  7. Questions regarding methodology may be directed to:
    Hugh Murphy, Credo Consulting, (905) 919-1926

 

 

Select Key Insights

  1. Though they are only half as ignorant as the rest of the investing public, many HNW investors remain unaware of the way that they pay for financial advice. Though it is true that financial advice compensation models are numerous and somewhat confusing for investors, when more than 5% of HNW investors are simply uncertain with respect to how they pay for the advice they receive, we cannot deny that the potential for a significant problem exists.
  2. HNW investors are disproportionately male.
  3. HNW investors are smart:
    1. They are better educated than others
    2. They are more financially literate than the rest of the population
    3. They feel they have the knowledge they need to build their own financial security
  4. HNW are more confident than other investors. Combined with the fact that they are particularly smart, Credo infers that they will thus be more challenging clients for financial advisors
  5. HNW investors appreciate the implications of risk; they are both more risk tolerant and more risk averse than other investors.
  6. HNW investors have had exposure to a far broader range of financial instruments than other investors
  7. HNW investors are well-off… and they know it. Their feelings of well-being exceed other investors on every dimension in our “Wheel of Life” Wellbeing model.
  8. HNW investors certainly have better feelings of financial well-being than other Canadian investors. But, their use of financial advisors cannot be confirmed as a driver of those heightened feelings of financial well-being. Among HNW investors, there is often no difference in the levels of feelings of financial well-being between investors who have advisors and those who don’t.  Other investors, however, benefit substantially from their involvement with advisors.  The service bar is set so high among HNW investors that a financial advisor’s ability to distinguish themselves relative to others is very limited.

 

 

 

 

2. THE BASICS OF HNW INVESTORS IN CANADA

Depending on who you speak with, you’ll get different definitions for the term High Net Worth (HNW) investor.  For the purpose of this report, Credo defines HNW Investors in Canada as those individuals who have at least $1 million in investable assets.

Much of this report focuses on creating a profile of these individuals.  It does so largely by comparing this small subset of Canadian investors to other investors – those whose asset accumulation is currently less than $1 million.  In some cases, we also compare them to individuals who prefer to withhold their information about their wealth.  These people Prefer not to say what level of assets they have.

In Exhibit 1 below — The Gender Split and Canadian Investors — each of these three groups is represented by a horizontal bar graph.  The top bar graph is labeled “1M +” and represents investors who have $1 million in investable assets or more.  This is the group we define as HNW investors.

 

Some Basic Demographic Dimensions of the Canadian HNW Investor in 2017

 

Gender and Canadian HNW

Many more members of the current HNW population are men than women.  Currently, more than 2/3 of HNW investors are men.  By contrast, the rest of the investor population is far more similar to the general population where men and women are relatively evenly balanced.

Exhibit 1. The Gender Split and Canadian Investors

Women comprise a disproportionate percentage of individuals who Prefer not to say what level of assets they have. We should bear this in mind as we consider the analysis overall.  Were we able to properly redistribute those respondents who indicated that they prefer not to say what level of assets they have into the two fundamental categories – HNW and Other investors – the apparent disparity between men and women would be alleviated somewhat.

This preliminary finding of women being relatively predisposed to secrecy around their wealth status speaks to the mindset of women investors, to begin, and to the difference between men and women investors.  Women are generally less forthcoming about financial matters.  They are reticent to disclose or to speak of their financial situation to a greater degree than men.  This is evidenced by Exhibit 2 which shows clearly that women are less comfortable than men having conversations with financial advisors.

Exhibit 2. Gender difference and comfort speaking with financial advisors

This has obvious communication and relationship development implications for financial advisors.  Advisors need to take a more measured and careful approach with women clients or, certainly, a different approach than they take with men.

Although we find a clear difference between men and women generally, the difference in comfort levels speaking with advisors disappears completely when we focus on HNW women and men.  Among HNW men and women, Credo found no statistically significant differences between the genders.  Further, we found that both genders are much more comfortable speaking with financial professionals than other investors.  Exhibit 3 below shows that 70% of HNW women and 67% of HNW men indicated a high level of comfort in having conversations with their advisors about financial matters.  Less than 10% of either HNW men or women indicated that they have a low level of comfort speaking with financial professionals.

 

Exhibit 3.  The HNW and Gender differences in comfort speaking with financial advisors

Getting past a critical comfort barrier with HNW investors is essential for financial advisors.  These research results show that comfort in having conversations is certainly attainable for most HNW investors and that it is equally possible with both men and women.

 

Age and HNW

It is clear from the analysis below that the HNW Investor tends to be 55+ in age.  A full 65% of HNW investors are at least 55 years of age.  An additional 28 % of HNW investors are between 35 years of age and 54 years old.  Fewer than 10% of HNW investors are under 34 years of age.

Exhibit 4.  The HNW and Age

It obviously takes a good part of a lifetime for most people to accumulate wealth.  Though individuals who are younger will build wealth over time, marketing to individuals who are currently among the HNW involves understanding an older and more seasoned clientele relative to younger HNW individuals.

Credo explored the relationship between a HNW individual’s age and their feeling that their life revolves around making money.  We found a clear relationship between the two.  Despite the fact that all of the investors we examined were classified as HNW – with at least $1mn in investable assets – younger HNW investors were substantially more likely than older investors to feel wrapped up in their efforts to make money.

Exhibit 5. Age and The Focus of Life Being Around Money among the HNW

As people age, they gain an appreciation for life itself and the importance of making money diminishes.  This isn’t to say that it ever becomes unimportant.  But, there is a clear relationship between the feelings of a need to make money and age.

A challenge that comes with the preponderance of HNW investors being older is the fact that as people age, many of them become set in their ways and comfortable with their existing routines.  They neither enjoy change nor accept it readily.  This is evidenced in our analysis that shows older and higher-net worth individuals are reticent to change their financial advisors – a matter that is discussed later in this report.  The loyalty that advisors experience among their clients is, in part, a function of older investors not being interested in change.


Geography and the HNW

When we analyze net worth relative to geography, we find that a plurality (43%) of HNW investors reside in Ontario.  This should not surprise anyone too much; Ontario is the most populace province in the country.  About 38% of Canada’s HNW reside in Western Canada and some 14% reside in Quebec.  Atlantic Canada has only 5% of Canada’s HNW investors.

Related to geography is language. Some 92% of respondents who participated in our study did so in English while the balance (8%) responded in French.  It is worth pointing out that our survey is currently only conducted in these two languages.  In the future, we may opt to administer this study in other languages because we have found a significant proportion of the population has origins outside of Canada.  In particular, Asian communities continue to develop extensively in Canada.  Within these communities, HNW investors are certainly present in increasing numbers.  Accordingly, the demand for financial advice related to new Canadians’ situations will continue to grow, too.

 

Ethnicity and HNW in Canada

Though the majority (56%) of HNW investors in Canada characterize themselves as having their roots based in North America, analysis confirms that much of Canada’s wealth is driven from the Canadian-resident Asian and European communities.  This is confirmed in our statistical testing.

What is evident from this analysis is the fact that few other cultures play significant roles in the control of wealth in Canada.  Individuals whose origins are African, Latin, Caribbean or from the Middle East control very little of the wealth in Canada.  As a result, Credo believes that few financial advisors will place a focus on delivering the kinds of knowledge and service that are needed for members of these communities to develop financially.  While those that do will find themselves differentiated from other advisors, these other communities are likely destined to remain grossly under-served.

 

 

 

Marital Status and HNW Investors in Canada

Marital status is clearly and significantly linked to wealth.  The vast majority (83%) of HNW investors indicate that they are married (73%) or common-law (10%) while only 9% of Canada’s HNW investors are single.

This study confirms what many others have indicated before now; that the institution of marriage, be it seen as secular or not, is a strong catalyst to wealth development at the individual level.  Of course, with marriage come many complexities.  And, many of these complexities often have financial implications.

As a result, financial advisors need to understand wealth management from a relationship perspective.  The ability to offer an HNW individual guidance with both relationship and wealth management implications in mind creates value for the client.  While an advisor is certainly not required to be a relationship guide, Credo’s extensive research with financial advisors makes it clear that the technical dimensions of wealth management are simply a starting point for advisors. Many successful advisors appreciate that their guidance must be delivered within a uniquely human context, appreciating that the client’s interests are seldom about money alone.  More frequently, HNW investors are interested in managing money for both their own benefit and for the benefit of their close relations.

Successful HNW advisors study communication techniques and develop sensitivities to their clients human and familial need.  While few are formal communications specialists, each appreciates the importance of effective communication to their business.  Each appreciates the opportunity to hone and improve their communication skills and their ability to relate to clients.

 

 

 

Family Composition and HNW in Canada

The composition of a HNW investor’s family in Canada is driven, largely, by life-stage and marital circumstance.  HNW investors are older than the average Canadian and as a result, they are likely to be a part of a household where the kids have grown up and left the home.  Being part of a household where marriage is often understood, it is not surprising to see that HNW investors are substantially less likely than others to have No Children.  Only 26% of HNW investors are a part of a household with No children while the households of Other investors are 42% likely to have no children – so many more of these households are singles.

For a financial advisor, understanding a HNW investor’s family composition is of critical importance.  Few HNW investors are “islands.”  It is far more often the case that they have complex lives that are influenced by numerous members of their family.  So many HNW investors are empty nesters who have the complex financial needs of aging individuals who have grown children.  Estate planning

 

 

Education and the HNW

The HNW investor is far more likely to be well-educated than other investors.

 

 

Household Income and the HNW

It should surprise no one that HNW investors are generally high income earners.  Some 71% of HNW investors are categorized as earning a high level of income.  Only 7% of HNW investors indicate that they reside in a low-income household.  By contrast, considering other investors, only 25% reside in high income households and a much larger proportion (36%) exist in low income circumstances.

 

Sense of Financial Circumstance & HNW Investors

Canada’s HNW investors know that they are well-off; only a very few HNW investors don’t feel that they are at least on par with other Canadians, from a financial perspective.  A full 30% of the HNW indicate that they feel well ahead of other Canadians financially and an additional 56% feel ahead of others.  Interestingly 9% feel only on par with other Canadians despite having at least $1mn on investable assets banked.

Only a very small proportion (4%) of the HNW feel behind other Canadians.  However, although this small group of HNW feels financially behind other Canadian investors, we should appreciate that having control of a substantial asset base may also come with considerable pressure.  For instance, on average, HNW investors have debt loads that are five times the level of investors who have not accumulated enough assets to be considered HNW.

Exhibit XX.  HNW and feelings of being ahead or behind, financially.

Financial Products and Canada’s HNW

The exhibit below offers perspective on the HNW investor’s financial product profile.  It shows clearly that the HNW investor is far more likely than other Canadian investors to have assets tied up in various financial instruments than other Canadians.

Looking quickly down the list of instruments/financial products in the exhibit above, we see that the light blue bars that represent HNW investors extend much further across the graphic toward the right than other investors’ teal-colored and green bars.  Private Equity, Real Estate, ETFs, Fixed Income instruments and both Stocks and Mutual Funds figure far more prominently in an HNW investor’s product profile than in the profiles of other Canadians.

When we index product usage, we see that HNW investors are infinitely more likely to have Principle-protected notes (PPNs) or Hedge Funds in their portfolios than other Canadians.  They are also about 8-times more likely than other investors to have investments in Private Equity than other investors.  Even with products that would be considered somewhat more mainstream – corporate bonds, ETFs and real estate – HNW investors are far more likely than other members of the investor community to have these in their portfolios.

This analysis shows that HNW investors are substantially more likely to be users of almost every financial product type than other Canadians.  The interesting, notable exceptions are mortgages.  With HNW investors indexing at 0.69 against the usage of mortgages, we can infer that the probability that an HNW investor has a mortgage is 31% lower than the average Canadian investor.

 

 

 

What Matters to the HNW Investor

As an important part of the research exercise, we ask investors to indicate just how important various matters are for them from a financial perspective.  The exhibit below shows haw important these many matters are to HNW investors.

Exhibit XX. The importance of Various Matters to HNW Investors from a Financial Perspective[1]

It is clear from this exhibit that Investments and Retirement are the two most important subjects for the HNW in general.  With Scores of 8.67 and 8.63 out of ten, these two items distinguish themselves from all others with respect to their average importance to the HNW investor.  By contrast, at the other end of the spectrum, Weddings and Child Care are of relatively little importance to HNW investors.  On our ten-point scale, these two items scored 2.63 and 2.64 respectively.

After investments and Retirement, Housing, Healthcare and Taxes are of considerable importance to the HNW.  For and advisor, understanding the potential financial implications of each item on this list is important, regardless of whether it resides at the top of this importance list or at the bottom.

HNW Indexed on the Importance of Various Dimensions

It is useful and informative to compare the HNW investor’s perspective to the perspective of other investors.  The Exhibit below shows that the HNW investor indexes much higher than other Canadians with respect to the importance of their Investments.

With an index score of 1.20, the average HNW investor is likely to rate Investments as 20% more important other Canadian investors.  Vacation properties index at 1.17 for HNW investors.  This indicates that vacations properties are a substantially more important financial topic for HNW investors than they are for other investors.  HNW investors are likely to rate the importance of a vacation property as 17% more important than other Canadian investors.

 

Exhibit XX. Indexing HNW against The Importance of Various Financial Dimensions

At the other end of the spectrum, HNW investors see child care as a significantly less important financial issue than other investors; its index score of 0.76 falls well below the Canadian investor average of 1.00.  This makes intuitive sense when we consider that HNW investors are significantly more likely to be over 55 years of age, i.e., past the age where child care is a very important part of their lives.[2]  HNW investors are also more likely than others to reside in a household where the kids have grown and flown the proverbial coop.[3]

 

 

Brand Personality: How do Investors perceive their advisors?

We asked investors to identify personality traits that they would use to describe their advisor.

 

 

 

 

 

3.  THE PRICE OF ADVICE FRAMEWORK: Cost vs Value

With so many important financial matters weighing substantially on the minds of Canadian HNW investors, it becomes even more important to examine the value proposition that the financial advice community brings to the table for investors and for the HNW in particular.  In this section of our report, we explore various dimensions of the HNW investor’s comfort zone with particular respect to their use of financial advice and the cost/benefit that advice delivers for them.

 

Canada’s HNW Investors and Their Advisors

To begin, we must appreciate that Canada’s HNW investors are indeed advice consumers.   HNW investors are about 50% more likely than other investors to have sought the guidance of an advisor.  Also, about ¾ of HNW investors indicate that they work with a professional financial advisor.  In fact, the HNW investor is likely to indicate that they have two financial advisors and not simply one.

Exhibit XX.  Incidence of Having a Professional Financial Advisor

Effectively, HNW investors outsource their need for knowledge about financial matters to others.  This is because of either

  1. The scarcity of knowledge, interest, time or comfort within themselves; or,
  2. because they are sold on the idea of needing advice by those who would profit from conveying that advice.

HNW Advice Rejecters: Those Who Say No to Advice

The 26% of HNW investors who are not professional advice users are a unique group that we will consider specifically… later.  Suffice it to say, at this stage, that they share many of the psycho-social characteristics of the HNW who do consume advice… and that only a small proportion (5%) of these investors have actively turned to robo-advice as an alternative to more conventional financial advice channels.  Most of these individuals manage their finances themselves.

 

HNW are Satisfied and Loyal Clients… Generally.

Credo’s research demonstrates that HNW investors are currently in a content place with respect to their personal financial advisors.  With a rating scale that runs from zero to ten, where zero represents maximum disagreement and ten represents maximum agreement, the research found that HNW investors are very comfortable (score = 8.01) discussing questions and concerns with their advisor.

Exhibit XX. HNW Investors and Their Financial Advisors

HNW investors are also generally very satisfied (score = 7.89) with the level of communication they have with their advisors and they trust them greatly.

Exhibit XX below shows that HNW investors are substantially less likely than other Canadians to be hunting for a new advisor.  Where the average Canadian investor “indexes at 1.00” on any dimension that we measure, the average HNW investor indexes at 0.83 with respect to the item, “I am considering finding a new financial advisor.

Exhibit XX.  Indexing HNW Investors’ Perceptions of Their Advisors

Indexing[4] at 0.83 indicates that the average HNW investor is 17% less likely than the average investor to be “considering finding a new advisor.”  Credo infers from this that it will continue to be very challenging for advisors to wrestle HNW clients away from their current advisors.  Certainly, without a highly compelling reason to change advisors, the HNW investor will likely remain with their current advisors.

Deeper into HNW and Loyalty to Their Advisors

Despite the fact that most HNW investors are satisfied with their advisors, not all are advocates of their advisors.  Credo estimates that only about 25% of HNW investors are actually loyal advocates of their advisors – supporters who would recommend their advisor to friends and family.  This does compares favorably for the advisor population when compared with investors who have not reached our HNW asset level threshold.  Among investors who have less than $1mn in investable assets, only 21% are advocates for their advisors.

Exhibit XX. Loyalty of Investors to Their Advisors by Asset Levels

Some 42% of HNW investors don’t fall into the advocate category but remain strong proponents of their advisors.  Among other investors, about 38% are proponents.  So, with 67% of HNW investors being either proponents or advocates for their advisors, we can infer that HNW investors feel more positively about their advisors than other investors.  This is corroborated by an analysis of the end of the advisor loyalty spectrum that is clearly disappointed with their advisors.  Some 15% of NTOIs are not at all likely their advisors to others, rating them between 0 and 4 on our scale.[5]   We characterize these investors as being in “The Switch Zone.”  We call this end of the spectrum the switch zone because of the high correlation between poor scoring on this item in our study and the item that rates, “I am considering finding a new financial advisor.”   Only 11% of HNW advisors were classified as being in The Switch Zone.

 

Fee Discussions and the HNW

Canada’s financial advisors are actively having discussions with their HNW clients to a greater degree than they are with other investors.  Fully 28% of HNW investors had a conversation about fees with their advisor in the last month.  By contrast, only 18% of other investors had a similar discussion about fees with their advisor in the last month.

Exhibit XX.  Recency of Discussions about Advice Fees and the HNW Investor

A relatively large percentage of HNW investors (22%) indicate that they have either never (5%) discussed fees with their advisor or that their last conversation about fees occurred more than a year ago (17%).  Further, an additional 13% of HNW investors indicate that they haven’t had a conversation about fees with their advisor in the last six months.

 

Price of Advice Awareness

One component studied in The FCZ Study explores investors’ awareness of the cost or price of financial advice.  Credo found that many investors remain unaware that financial advice has a price associated with it.  And, though HNW investors are significantly more likely to recognize that advice is not “free,” some 37% of HNW investors remain unaware that their advisor charges them for their services.[6]  Exhibit XX below shows that 63% of HNW Investors indicate that their advisor charges them – in some manner – for their financial advice.  By contrast, only 35% of other investors who use advisors indicate that their advisor charges them for their advice services.  65% of other investors indicate that their advisor does not charge them for their services.

Exhibit XX.  Awareness that Financial Advice Has a Price

Regardless of error that will exist in Credo’s measurement tools, there is a difference in investors’ appreciation that there is a price for advice that is driven by wealth levels.  Investors with HNW are significantly more likely to be aware that they are being charged for advice than other investors.  Still, HNW many investors remain oblivious to the fact that they are being charged somehow for advice.

Digging deeper into the matter of the price of advice reveals a considerable level of uncertainty about this matter, both with investors overall but with HNW investors, too.  In Exhibit XX below, we see that all investors – the HNW included – indicate with considerable frequency that they are uncertain about the format by which their advisor charges for their services.  Because there are many models of payment for financial advice, Credo offered Canadian investors the opportunity to consider a number of relatively common models and indicate whether or not their relationship with their advisor involved the model they were considering.  Of course, an investor might work under more than one model with their advisor. So, in the exhibit below, a count of all the “yes” responses across compensation models will not simply add to 100%.  This is because the investor could say yes to multiple models.

The left-hand-end of each bar in the exhibit reveals the proportion of investors that are uncertain if their advisor charges them using the specific cost-model in question.  It shows that at least 5% of HNW investors either simply don’t know or don’t fully understand the price for advice models that advisors use in Canada. By contrast, 12% of other investors don’t know if they pay their advisor a set amount.[7]

A cursory exploration of Exhibit XX shows that HNW investors are about ½ as likely to not know how they are paying their advisor relative to other Canadian investors.  Credo won’t say that this is a good circumstance because any uncertainty about one’s personal finances and about how much an investor is paying their financial advisor should raise concerns; ignorance on this front is unacceptable.

The right-hand-end of each bar shows the proportion of investors who believe they do pay their advisor under the relevant cost model.  For instance, we see that 30% of HNW investors indicated that they pay their advisor a set amount while 41% of other investors believe they pay their advisor this way.  46% of HNW investors believe they pay their advisor fees for trades they make while only 24% of other investors believe they pay fees for trades.

Exhibit XX.  Awareness of How Advisors Charges for Their Services

 

The Value of Financial Advice

Cost and value are two very different things.  Credo asked investors how they feel about what their advisor charges. We found that a strong majority of all investors feel they get either good or great value from their advisors.  We also found no difference between the perceptions of value between HNW investors and other investors.  In both cases, 21% of investors indicated that their advisors delivered great value for the money they spend.

Exhibit XX. Investors’ Perceptions of the Value of Advice They Receive.

 

The Value of Advice by Geography

Although there is little difference between the perceived value of advice between HNW investors and other investors when we look nationally, there is substantial difference geographically.  Quebec-based HNW investors are more likely to feel that they derive high levels of value from their advisors than HNW investors in the West or Ontario or in Eastern Canada. In exhibit XX below, we see that about 30% of HNW investors feel they derive great value from their advisors.  By contrast, only 19% and 21% of HNW investors in the West and Ontario, respectively, feel that they get great value from their advisor.

Exhibit XX. The Value of Advice by Geography

 

 

 

4.  THE FINANCIAL LITERACY & WELLNESS MODEL

Credo uses a battery of questions to assess financial literacy.  Some of these questions are very simple.  Other are more complex. Is the approach we take perfectly correct?  Certainly not. The matter of financial literacy is far too complex to address with a single, short and simple battery of questions.  We recognize this.  The subject matter Credo covers with its financial literacy test, however, are important for most, if not all, Canadians.  And the test is administered in a consistent manner each month.  Accordingly, we are convinced that it provides a unique benchmark of Canadian financial literacy.

 

Financial Literacy and the HNW

HNW investors are significantly more financially literate than other investors.  Because of this, conversations between HNW investors and their financial advisors may be considerably more sophisticated than conversations between advisors and other investors.

Exhibit XX. Financial Literacy of Canadians, Their Wealth and Advice Usage

With their higher levels of financial literacy come higher demands for quality guidance and, in some cases, clearer and deeper explanations of the advice they receive.  Most advisors argue that they want engaged clients who understand their own financial needs; HNW investors are far more likely than others to fit this bill.

 

 

The Wheel of Life and HNW Investors

The FCZ Study uses different frameworks to help profile various segments of the population.  One of these frameworks is “The Wheel of Life” (a.k.a. The WOL) framework.  With the WOL framework, we ask people to indicate their current state of fulfillment on nine dimensions that examine the many corners of an individual’s life:

  1. Financial Well-being
  2. Inner Growth & Spirituality
  3. Home & Location (including their physical environment)
  4. Community & Social Relationships
  5. Close Relationships
  6. Health & Physical Fitness
  7. Leisure & Recreation
  8. Purposeful Pursuits (including employment but also unpaid work); and,
  9. Intellectual Engagement

When we create a WOL profile of investors and separate HNW from others, we immediately see that the well-being of HNW investors is generally in a better place than the rest of the population.  HNW investors score higher than other Canadians on every dimension in the WOL.  Money may not buy happiness, but it’s apparently very closely related.

Where other investors score, on average, in the 69 to 70 range with respect to feelings of Financial Well-being, HNW investors score significanly higher at and average 84.72. This is seen clearly in Exhibit XX on the following page.

 

 

Exhibit XX. The Wheel of Life Framework: Scoring of HNW and other Canadians

 

 

 

 

Exhibit XX. Indexing HNW Investors against the WOL Framework

The indexing of results quickly enables us to see how much “better” or “above” the rest of the population HNW investors are.  Note that indexing renders the average Canadian to a score of 1.00.  People who score above the average on any specific dimension will have an “index score” that is greater than 1.00.  People whose scores fall below the population average will have index scores below 1.00.  So, in Exhibit XX above, we immediately see that HNW investors index above 1.00 on every dimension of the WOL framework.  This is significant in itself; the probability that every one of the WOL dimensions should index above 1.00 for any given group of people is very small; it’s evidence that Canada’s HNW are indeed different from the rest of the population.

The average HNW investor indexes at 1.09 with respect to financial literacy.  This is simply 9% above the average investor’s financial literacy score.  And, while this may seem like a small difference, when we’re speaking about something as important as financial literacy, this difference may actually have a dramatic impact on the HNW investor’s opportunities and circumstances over the course of their existence.

Financial well-being is another matter.  HNW investors index 20% higher than other Canadians with respect to feelings of financial well-being.   They may or may not know they are better off than others, but there can be no doubt that they feel considerably better than others from a financial well-being perspective.

With Canadian HNW investors being in so much better a place than others, financial advisors are challenged to raise the bar further for this special segment of Canadian society.  A part of that challenge involves recognizing that these measured averages – these index scores – are certainly not immutable truths.

 

 

 

HNW Investors and the Effect of Advice on Financial Well-being

Although HNW investors have higher Financial Well-being scores than other investors, the research indicates that the difference in financial well-being is unrelated to whether they have a financial advisor or not.  HNW investors WITH an advisor scored 84.96 while those without scored 84.04.  The negligible difference could certainly have happened by chance alone.  As a result, Credo cannot say definitively that financial advisors’ efforts actually contribute significantly to HNW investors feelings of financial well-being.

This is not to say that financial advisors do not contribute to the feelings of financial well-being among Canadian investors.  Indeed, they do… among other investors; those who have not achieved HNW status.  Investors who have lower levels of wealth AND an advisor have significantly better feelings of financial well-being than investors with lower levels of wealth WITHOUT an advisor.

What are the implications of this for advisors who serve the HNW investor?  Firstly, these advisors are in a challenged situation because the service delivery bar for them is raised considerably.  Their HNW clients have already achieved an exceptionally high level of financial well-being.  Raising it further should be challenging.

 

 

 

HNW Investors, Intellectual Engagement and Advice Use

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HNW Investors, Purposeful Pursuits and Advice Use

 

 

 

 

 

HNW Investors, Leisure & Recreation and Advice Use

 

 

 

 

 

HNW Investors, Healthcare & Physical Fitness and Advice Use

 

 

 

 

 

HNW Investors, Close Relationships and Advice Use

 

 

 

 

 

HNW Investors, Community & Social Relationships and Advice Use

 

 

 

 

 

 

 

HNW Investors, Home & Location and Advice Use

 

 

 

 

 

HNW Investors, Inner Growth and Advice Use

 

 

 

 

 

 

5.  THE FINANCIAL COMFORT ZONE FRAMEWORK

The Financial Comfort Zone (FCZ) is an ongoing research exercise designed to explore Canadian investors perspective and behaviors.  It is comprised of a series of questions that are put to a random sample of individuals.

 

The FCZ, Canada’s HNW Investors and Financial Advisors

Over the following pages we analyze many of the questions that underpin the Canadian Financial Comfort Zone.  We do this systematically.  We separate each analysis first by whether the investors have an advisor or not.  Then we separate them further by the level of assets they have – either above $1mn, qualifying them as HNW, or below that mark, qualifying them simply as Other Investors.  In each analysis, we also include a representation of individuals who refused to indicate the level of assets they have saved.  After these two separations (by having an advisor or not and by wealth level) we categorize respondents as having offered either, a Low level of agreement with each FCZ benchmark statement or a high level of agreement with the statement.  A third, medium level of agreement is also presented in each analysis.

Within each graphical analysis:

  1. HNW Investors are represented as 1M+
  2. Other investor are represented as Under 1M
  3. Prefer not to say are individuals who prefer not to disclose their level of wealth
  4. No (HIGHLIGHTED IN YELLOW) represents investors who indicated they do not have an advisor
  5. Yes (In Yellow) represents investors who do have an advisor.

 

By comparing the levels of agreement of the various investor types, we can determine the relationships between variables.  This is to say, we can determine whether there is a relationship between respondents’ answers and their having (or not having) an advisor.  Further, we can determine whether HNW investors are significantly different from other investors, regardless of them having an advisor.

These analyses thus produce insight about investors mindsets.  In turn, this enables us to better understand HNW investors and, ultimately, serve them more effectively.

 

 

 

HNW Investors and Understanding Important Financial Matters

HNW investors are significantly more likely to indicate that they have a good understanding of the financial matters they need to address at their current life stage.  A full 70% agree strongly with the statement, “I have a good understanding of the financial matters I need to address at this stage of my life.”

Exhibit XX.  The HNW Investor’s Perceptions of Their Own Understanding of Important Financial Matters.

Certainly, the fact that HNW investors tend to be older and more experienced individuals will have a substantial bearing on our finding.  Still, a substantial 30% of HNW investors offered either a medium level of agreement with this statement or disagreed with it.  Accordingly, there exists opportunity for Canada’s advice community to help HNW investors come to terms with the complexities of financial matters that come with being a HNW investor.

It is somewhat concerning that the difference between advised and unadvised individuals is so small.  One might have hypothesized a more substantial difference based on advisors’ efforts to help their clients appreciate and understand the financial implications of various important financial matters.

Perceptions of Necessary Financial Knowledge

The majority of HNW investors also feel that they have the knowledge they need to build their own financial security. In fact, they are almost twice as likely as other investors to feel strongly that they have the necessary knowledge.

Exhibit XX.  The HNW Investor’s Perceptions of Their Own Understanding of Important Financial Matters.

While more than half (54%) of HNW investors feel they have all the necessary knowledge, a full 10% feel certainly that they don’t have what they need.  It’s likely for this reason that so many HNW investors obtain professional financial advice.

 

 

 

HNW Investors and Their Interest in Personal Financial Matters

Credo has long believed that three ingredients are necessary for people to be able to look after their finances properly:

(1) Time

(2) Knowledge and

(3) an Interest.

Credo uses investors’ agreement with a bellwether statement, “personal financial matters are of no interest to me,” to assess investors’ self-declared interest in their personal financial matters.  Of the HNW investors we interviewed, overall, 82% dismissed the idea that they are not interested in matters of personal finance.  84% of HNW investors who do not have financial advisors offered a low level of agreement with the statement and 81% of HNW investors who are advise users offered a similarly low level of agreement.

Only 7% of advised HNW investors indicated a low level of interest in their personal finances while a comparable proportion of unadvised HNW investors a slightly lower at 5%.  Among other investors, the proportion of advised investors who are uninterested in their finances was measured at 8% while a comparable number for unadvised investors was 5%.

The valid inference that HNW investors are generally more interested in matters of personal finance than other investors is derived more from the differences in proportional agreement at the low end of our scales than from the high end.

 

 

 

HNW Investors & The Fear of Outliving Finances

The simple fact that an individual is classed as HNW does not mean that they will not have a concern about outliving their finances.  In fact, the research shows that fully 10% of HNW investors have a strong fear of outliving their finances and more than 20% of HNW investor have at least a moderate concern about the matter.  This is the case with both advised and unadvised HNW investors.

Other investors, by contrast, have significantly higher levels of concern about outliving their finances.  This is the case, too, whether the investors are advised or not.  An investor’s decision to maintain a relationship with an advisor or not is apparently independent from their fear of outliving their finances.

Though we could infer that, if currently advised investors were not to have sought advice, they might be more fearful of the prospect of outliving their finances than they currently are and that having an advisor has enabled this group to achieve a level of comfort that unadvised otherwise enjoys… there is no evidence in the data to suggest that this is the case.

 

 

 

HNW Investors & The Attraction to Short-term Investment Opportunities

HNW investors are at least as likely as other investors to indicate that they are attracted by ideas to capitalize on short-term investment opportunities.

We found no significant difference between advised and unadvised HNW investors with respect to the statement, “I am attracted by ideas to capitalize on short-term investment opportunities.” Exploring the degree to which HNW investors’ advisors assist in their ability to leverage such opportunities fell outside the scope of our study, however.

 

 

HNW Investors & The Feeling of Financial Defeat

Although HNW investors are significantly less likely than others to feel a sense of defeat with respect to their finances, some 17% of these well-to-do Canadians still feel either moderately or very defeated with respect to their financial matters. This provides a benchmark for the financial advice community – a challenge for advisors to address the sense of defeat that HNW investors feel and to help them gain perspective on their financial circumstances.

Analysis shows that advised HNW investors appear slightly more likely to feel a sense of defeat when they think of their personal finances than unadvised HNW investors. The 6% compared to the 5%, however, is not a statistically significant difference.  Nor is the proportion at the other end of our agreement spectrum where 82% of advised HNW investors offered low levels of agreement with the statement about feelings of financial defeat… and 84% of unadvised HNW investors offered similarly low levels of agreement.  These differences could easily have happened by chance alone.

On the basis of this comparison we can infer that the simple state of having an advisor, as a HNW investor, doesn’t really affect whether you feel a sense of financial defeated or not.  Rather, other factors are at play; wealth levels themselves, for instance.

It is worth pointing out that there IS a significant difference in feelings of financial defeat between HNW investors and other investors.  And, it’s worthy of note that, among other investors, advice does make a statistically significant difference. Other investors who have an advisor feel significantly less defeat3ed, from a financial perspective.

Advisors are hard-pressed to affect this dimension with HNW investors, but they generally make a difference with other investors with respect to quelling feelings of financial defeat.

 

 

 

HNW Investors & The Feeling Protected Against Financial Disaster

Almost ½ of HNW investors (49%) feel strongly that they are well-protected against potential for financial disaster and an additional 42% are in a relatively good place with respect to this measurement dimension.  About 8% of HNW investors do not feel they are well protected against the potential for a financial disaster, however.  If there is any consolation for the HNW, it’s that they feel significantly better protected against the prospect of financial disaster than other investors; among other investors, 33% don’t feel well protected against the potential for financial disaster.

 

 

 

HNW Investors & Risk Tolerance

Credo posed several questions that address the matter of risk tolerance.  From the exhibit below we learn that HNW investors are actually considerably more risk tolerant than other investors.  The research shows that HNW investors are dismissive of NOT taking financial risks; they apparently appreciate the idea that one needs to accept a degree of risk in order to be afforded the opportunity to earn returns.

When we assessed agreement levels against the statement, “I make investments only when I’m guaranteed not to lose my money,” the majority (51%) of HNW investors dismissed the idea with a low level of agreement.  By contrast, only 31% of other investors disagreed with this statement.

At the other end of the agreement spectrum, only about 15% of HNW investors offered strong levels of agreement with the statement while approximately 26% of other investors agreed strongly with the statement.

From this we infer that HNW investors recognize the need to assume some degree of risk in order to earn a return on their investments.  We could also infer that the difference between these two groups is driven by concerns about the possible losses relative to the level of assets they have; investors with smaller levels of assets cannot afford to lose their savings by making investments in non-guaranteed investments.  HNW investors, by contrast, appreciate that the base of assets they already have affords them the opportunity to assume more risk.

It is notable that the involvement of financial advisors appears to have little effect on investors with respect to this dimension. The proportional divisions in agreement levels that we see among HNW investors who have advisors is very similar to the proportional divisions we see for HNW investors who don’t have advisors.  The same is the case to other investors, too.

An even more direct question was posed to investors: Agree or Disagree: “I like taking financial risks.”  The results are seen in the following exhibit.

HNW investors offered the strongest level of agreement on this measure as well as the lowest measure of disagreement.  Between 48% (without advisors) and 50% (with advisors) of HNW investor offered low levels of agreement with this statement. These are considerably lower levels of agreement than is seen among other investors.  Other investors are between 58% and 66% likely to have offered a low level of agreement with the, “I like taking financial risks,” statement.  HNW investors also offered levels of strong agreement with the statement that exceeded

 

 

 

HNW Investors & The Feelings of Security in the Face of Income Loss

Not too surprisingly, HNW investors feel considerably more financially secure than other investors.  Credo explored investors’ levels of concern using the bellwether statement, “If I were to lose half of my income, I could still manage.”  The levels of agreement with this statement were vastly different between HNW and other investors.  They were not significantly different, however, when comparing advised and unadvised HNW investors.

Almost ½ of HNW investors indicated that they could manage even if they were to lose half of their income.  Only 14% indicated that this would me a problem.  By contrast, among other investors, the situation was almost exactly reversed: 47% indicated that losing such a substantial portion of their income would really be a problem and only 17% indicated that they could still manage.  From this analysis, we infer that on a relative basis, the HNW investor feels considerably more secure around the matter of the threat from potential income loss than other investors.

In a similar vein, we asked if a complete loss of income for a two-month period would cause a substantial problem.  We found that more than 80% of HNW investors wouldn’t feel that a brief temporary loss of all income would set them back.  Only about 8% of HNW investors felt that this might affect them in a really substantial way.  By contrast, more than ¼ of other investors (29%) indicated that a two-month loss of income would put them in a bind.  Only 43% of other investors feel that they could weather such an income loss without too much trouble.

 

 

 

 

When we integrate the question, “Do you have a financial advisor?” a new layer of insight results.  Firstly, we again see that there is very little difference between HNW investors who have advisors and those who don’t have financial advisors.  By contrast, among other investors, we see considerable difference.

Fully 35% of other investors who don’t have an advisor indicated that missing income for two months would be problematic while 38% of this group indicated that it wouldn’t make too big a difference to them.  Other investors who have advisors, however, are in a better state.  Only 23% of these investors indicated this would be problematic and fully 47% indicated that it would pose little problem.  So, among the HNW, concerns about short-term income situations are of little concern, but among other investors, financial advisors are related to investors being in better situations financially.

 

 

 

HNW Investors & The Organization of Their Financial Records

Credo explored whether or not investors feel that they have well-organized financial records and the relationship between this and whether or not they have a financial advisor.

We discovered that having an advisor produces value in keeping an investor’s records organized for investors who have not yet reached HNW status.  But, among HNW investors, there was really very little difference in being financially organized that seems to have resulted from the investors having a financial advisor.

About 70% of HNW investors who have a financial advisor indicated that they strongly feel that they have well-organized financial records.  Among HNW investors who don’t have advisors, a comparable number is 69%: no significant difference at all.  Fortunately for the financial advice community, though we found

 

 

 

HNW Investors & Confidence in Ability to Evaluate Financial Advice

HNW investors are significantly more likely to indicate that they feel confident in their ability to evaluate any financial advice they receive relative to other investors.  More than 60% of HNW investors strongly agree with our bellwether statement, “I am confident in my ability to evaluate the financial advice I receive.”  And, only a very small proportion (3%) of HNW investors indicate that they really lack confidence in this.  This is the case whether the HNW investor has a financial advisor or not.

Among other investors – those who are not classed as HNW – confidence is relatively lacking.  42% of advice users are confident in their ability to evaluate financial advice while only 32% of other investors who don’t have an advisor feel confident in this regard.  These levels are significantly below the levels (60%+) we found with HNW investors.  At the “we lack confidence” end of our spectrum, 9% of other investors who have an advisor indicated a low level of agreement with our statement.  By contrast, 19% of other investors who don’t have an advisor indicated a similarly low level of agreement.  These numbers compare unfavorably with the 3% we found among HNW investors.

It is clear that an investor’s level of wealth is strongly related to their confidence in their ability to judge the quality of the financial advice they receive.  What’s not necessarily clear from this analysis is whether:

  1. having higher levels of wealth drives the confidence in judging advice; or, the other way around,
  2. having confidence drives the investor’s ability to accumulate wealth.

It may be a combination of the two.

To the extent that an investor’s own confidence in their ability to assess financial advice is a driver of wealth accumulation, efforts to educate investors with respect to financial matters could pay both financial and social dividends.

 

 

 

HNW Investors & Confusion with Financial Jargon

There can be no question that the realm of personal finance is full of jargon and terminology that is peculiar.  This is a source of challenge for many investors; the HNW included.  Overall, 11% of HNW investors strongly agree that they find the jargon of personal finance confusing or intimidating.  Those HNW investors who have a relationship with a financial advisor are significantly more likely to indicate that they are challenged with jargon than are HNW investors who have opted against have an advisor.

Only 6% of HNW investors without an advisor indicate that jargon is a strong challenge while more than twice that level (13%) of HNW investors who do have an advisor feel strongly that jargon is intimidating or confusing.  Those HNW investors who opt against having an advisor are 73% likely to indicate a low level of intimidation or confusion with jargon.  By contrast, HNW investors who do have advisors are only 57% likely to indicate only a low level of agreement with this issue.

The question, then: do HNW investors seek advice because they find jargon confusing? Or do they find jargon confusing because they have sought financial advice?  Though the answer to this has tremendous policy implications, we prefer to believe that they seek advice in order to alleviate their confusion.

It is interesting to note that among other investors, there is no significant difference between the group of investors who have advisors and the group that does not have advisors.  Among both groups, 17% indicated strong agreement – almost 55% greater than among HNW investors – with the issue of confusion or intimidation with jargon.  And, approximately 40% indicated a low level of agreement with our statement, “I find financial jargon and terminology confusing or intimidating.”

 

 

 

6. PRODUCT MANUFACTURERS & HNW LOYALTY TO ADVISORS

Is an investor’s use of Manulife products – or the products of any other manufacturer – related to the loyalty they have to their advisors?  Credo research has shown that advisors have a significant influence on investors’ financial portfolios.  They have a significant influence on the set of manufacturers that an investor will have in their portfolio.  Accordingly, it is important to explore the relationship between the product manufacturers investors have in their portfolios and the level of loyalty they have to the advisors who, presumably over time, have influenced the investor in the selection of various instruments.  Does a product manufacturer’s brand effectively support advisors by driving investor loyalty to the advisor?  Or might an advisor be better served by the use of other product suppliers.  This is the exploration in this section of our report.

In a set of questions that are nested within the FCZ Study – questions that are asked quite independently from any questions about satisfaction and loyalty – Credo asks investors about their usage and awareness of their financial product suppliers.  We ask investors to tell us what financial product manufacturers they:

  1. use
  2. are aware of but don’t use; or
  3. are unaware of.

By combining the results of our loyalty questions with the results from our usage & awareness questions, we can explore the relationship between these two matters.

To appreciate the analysis that follows the reader should understand that we ask investors to rate their advisor on a scale that runs from 0 to 10… where 0 represents “no likelihood” that the investor would recommend their advisor to others and 10 represents the ideal situation for the advisor, where the investor would “certainly recommend” their advisor to others.  Likelihood to recommend (aka: L2R) is used by Credo as a proxy for loyalty.

We classify investors who offered responses of either 9 or 10 as Advocates – those who feel most positively about their advisor. By contrast, investors who score their advisor between 0 and 4 are classified as being in The Switch Zone, at greatest risk of being fired or replaced.  Investors who scored their advisor either 5 or 6 were deemed to be in a Stasis position – unwilling to fire the advisor but certainly not thrilled with the advisor.  Finally, investors who scored their advisor either 7 or 8 were classified as Proponents – supporters, yes, but not the avid supporters that Advocates are.

Using this approach, we have established a baseline level of loyalty that investors have with their advisors.[8]  Here, however, we use the baseline to study the effect of various financial product manufacturers on the loyalty to advisors of investors.

Among HNW investors 25% are Advocates for their advisor.  An additional 42% are Proponents of their advisors while 21% sit in our Stasis classification.  Only 11% of HNW investors are in The Switch Zone, where their advisor is likely at risk of losing the investor to another advisor.  By contrast, among other investors, only 21% are advocates for their advisors.  38% are proponents of their advisors while 27% are classified in a stasis position with their advisors.

Throughout this section of the report, recall:

  • Advocates – those that are very or extremely likely to recommend their advisors
  • Proponents – those that are likely to recommend their advisors
  • Stasis – those that are unlikely to recommend their advisors
  • Switch Zone – those that are so unlikely to recommend their advisors that the relationship is at threat.

 

 

 

 

 

AGF Users’ Loyalty to their Advisors

HNW investors who have their money with AGF are effectively as loyal to their advisors as the industry average.  28% of AGF’s HNW investors are advocates for their advisors and an additional 44% are proponents of their advisors.  These figures compare favorably with the industry average of 25% and 42%, respectively.  At the undesirable end of the spectrum, only 10% of AGF’s HNW investors are in the switch zone with their advisors and an additional 18% are in a state of stasis with their advisors.  Comparable industry average figure are 11% in the switch zone and 21% in stasis.

Even among other investors, AGF has a lower than average percentage of its investors in the switch zone – 11% as opposed to the average for all companies, which sits at 15%.  This is clearly favorable for the AGF brand.  Investors who use AGF are less likely than average to indicate that they are not at all likely to recommend their advisor to others.

 

 

CI Investments Users’ Loyalty to their Advisors

 

 

 

Dynamic Users’ Loyalty to their Advisors

Fidelity Users’ Loyalty to their Advisors

 

 

 

Mackenzie Users’ Loyalty to their Advisors

 

 

 

 

Manulife Users’ Loyalty to their Advisors

 

 

 

 

RBC Mutual Fund Users’ Loyalty to their Advisors

 

 

 

 

Sentry Users’ Loyalty to their Advisors

 

 

 

 

 

Sun Life Global Investments Users’ Loyalty to their Advisors

Credo found that 16% of HNW investors who use Sun Life products are advocates of their advisors.  An additional 48% of HNW investors who use Sun Life products are proponents of their advisors.  22% of HNW investors who are users of Sun Life products are in a stasis position with their advisors while 14% are in the switch zone.

When we compare this to investors who are aware of Sun Life but who are not users of Sun Life products Aware Non-users – the situation appears unfavorable for advisors who have elected to have their clients use Sun Life products.  28% of aware non-users of Sun Life are advocates of their advisors.  This figure is 75% higher than the figure for Sun Life users.  Further, only 10% of Sun Life’s ANUs are in the switch zone for their advisor while 14% of Sun Life users are in the switch zone with their advisor.

 

 

 

 

7. CONCLUSIONS

Canadian HNW investors differ considerably from other investors.  Advisors who are interested in cultivating relations with HNW investors must appreciate this and they must tailor their relationship development and marketing efforts to meet their unique needs and interests.  The bar has been set at a very high level with respect to HNW investors’ expectations of knowledge and service.  We have found that HNW investors are loyal to their current advisors, largely.  Only a small minority are in the market for a new advisor.  And, with the service expectations bar being as high as it is, recruiting new HNW clients will be a challenge even for the most focused advisor.

 

[1] The scale used for this question runs from 0 to 10, where zero represents “No importance at all,” and ten represents “Extreme importance.”

[2] See also Age and HNW elsewhere in this report.

[3] See Family Composition and HNW elsewhere in this report.

[4] Credo’s indexing approach to analysis is designed to make it easier for the reads to appreciate the degree to which people are out of the ordinary.

[5] Our measurement scale ranged from 0 to 10, where 0 was equated with no likelihood of recommending their advisor to others and 10 represented extremely high likelihood of recommending the advisor to others.

[6] Unless, of course, some advisors have elected to not charge HNW investors for their guidance… but Credo doesn’t believe this is the case any more than we believe in flying monkeys.

[7] If this seems contradictory to the analysis presented above, where we discussed awareness that advice has a price and Exhibit XX., appreciate that these are separate and distinct questions in the study.

[8] This approach was discussed earlier in this report in another context.