What is it with Canadians? Americans get it. They noticed long before anyone the gap between what active fund management appears to promise and what it actually delivers. OK, it’s taken a while for the message to get around but, in recent years at least, they’ve deserted active funds in their droves.
North of the border, however, ignorance is bliss. According to Morningstar, passive market share is about the same today as it was five years ago, if not even lower.
Why is that? One word: banks. Canadians love their banks. And yet there’s mounting evidence that their affections are misplaced. Last month three employees of TD Bank Group told CBC News about what the “incredible pressure” to squeeze profits from customers by signing them up for products and services they don’t need. Since then, CBC News says it’s received nearly a thousand emails from staff at all five of Canada’s biggest banks saying how they too feel pressured to up-sell, trick and even lie to customers to meet unrealistic sales targets.
We’re not just talking about overdrafts and credit cards here. Banks are still where most Canadians go for investment advice. Do these banks recommend low-cost, passively managed funds? I think you can guess the answer to that.
Anyway, the good news is that, finally, the Canadian media seems to be onto this story. So too the political satirist Rick Mercer, who has produced this very funny video to highlight the issue. Please do share it. The sooner these powerful organisations realise that financial consumers will no longer tolerate the industry putting its own interests first, and customers second, the better it will be for all of us.
ROBIN POWELL is a freelance journalist and the founding editor of The Evidence-Based Investor. Based in Birmingham, England, he founded Ember Television and Regis Media, and he specialties in helping disruptive financial firms to grow. He also campaigns for a fair, transparent and sustainable investing industry. You can follow him on Twitter at @RobinJPowell.