As Canada’s financial services industry faces criticism for the sale of increasingly esoteric products, a study from an investor advocacy organization has found that retail investors are more likely to care about being treated fairly than innovation and new products.
On Thursday, FAIR Canada released the results of a survey it commissioned Innovative Research Group to conduct this May. It asked 1,500 Canadian retail investors which securities regulatory outcomes mattered most to them.
Researchers found that 56% of investors ranked being treated fairly — defined as fee transparency and financial advice that is suitably tailored to each individual and avoids conflicts of interest — as one of their top three priorities. That was followed by regulatory compliance at 53% and advisor qualifications at 49%.
Just 21% of investors ranked innovation as one of their top three priorities, while 13% prioritized new product development. Those categories were the lowest ranked regulatory outcomes across most segments of the investor population, including advised, DIY and hybrid investors.
Jean Paul-Bureaud, FAIR Canada’s executive director, president and CEO, said the findings are a wake-up call for the financial services industry, especially since regulators have lately been focused on expanding retail investor access to higher-risk products such as private-asset funds and prediction market contracts, though study participants weren’t asked about the latter.
“What the investors in this survey want is for the industry to get the basics right,” he said in an interview. “They’re not necessarily looking for more innovation in terms of products and services, so I think that is something for the industry to sit on and think about.”
In fact, the survey found that more investors (51%) supported restrictions on higher-risk or complex investment products such as crypto assets, options or exempt-market products than easier access to them (43%).
A separate survey of 1,001 Canadian adults from CIBC Investor’s Edge, conducted this April and released Wednesday, found that 74% of Canadians viewed prediction markets trading as being more like gambling than investing. Also, 57% of participants in that poll said this form of trading shouldn’t be available on investment platforms.
Despite there being greater support for restrictions around some products, the FAIR Canada survey found that few Canadians have a thorough understanding of the securities regulatory system. About one-third (31%) said they were unsure if there was a regulator responsible for regulating financial investments and even fewer (16%) could correctly name one.
Bureaud said this is problematic because few investors know where and how to lodge a complaint.
“They don’t have a very good understanding … of where to turn to when things go wrong, so they’re much more reliant on that one-to-one relationship with their dealer or advisor,” he said, noting there’s a “real risk” that this may prevent some from coming forward if they feel they’ve been treated unfairly.
Researchers also learned that more investors placed importance on regulatory compliance than on enforcement, highlighting a desire for more proactive versus reactive regulatory action. One of the study participants said that if a regulator only had the funding to hire one more person, they would want that person to be hired in the compliance department rather than in enforcement.
“[Regulators] should assess whether they’re getting sufficient resources into compliance,” Bureaud said. “Are the oversight or the compliance programs properly designed to promote the outcomes of fair treatment? You don’t want a tick-the-box kind of approach to compliance reviews. You want to make sure that you can test and measure outcomes.”
The study also found that 72% of advised and hybrid investors believed their advisor put their interests first.
While this was a fairly high level of satisfaction, Bureaud said advisors need to focus on closing that nearly 30% gap where clients aren’t confident that their advisor is acting in their best interest.
“It’s just a very good reminder that we need to keep our focus on the fundamentals as opposed to trying to chase the next big trend,” he added.