November 14, 2012 – The Canadian Securities Administrators (CSA) released both positive and concerning results from their survey that was conducted in May 2012 on investment knowledge, investor behaviour and incidence of investment fraud among Canadians.
Overall, the report shows that more Canadians are saving since 2009, and most Canadians are aware that they are just as likely to be a victim of investment fraud as anyone else. However, results highlight some concerning discrepancies over people’s judgement of their own investment decisions and their actual depth of understanding and investment knowledge.
More Canadians are saving and aware of the prevalence of investment fraud
The good news is that 72% of Canadians are saving compared to only 65% in 2009. Just over half of Canadians (55%) have securities outside of a company-managed pension plan, RRSP, or RIFF. Additionally, most Canadians are well aware of the prevalence of investment fraud, knowing they are just as likely to be a victim of investment fraud as anyone else. More than a quarter of respondents believe that they have been approached with a possible fraudulent investment, half of them indicating that their most recent investment fraud was encountered through email.
Investment fraud can happen to anyone but not everyone knows where to report
Despite these positive results, only 30% of those who believed that they have been approached with a fraudulent investment actually reported to authorities – police or RCMP being the most popular when asked to indicate where they would go to report. However, surprisingly, “don’t know where to report” had the next largest proportion of respondents.
Beyond not knowing where to report, many are also unaware that there is a provincial or territorial government agency responsible for regulating financial investments within their region. Only 8% of respondents reported to a securities commission or regulator and only 10% of Canadians have every visited their provincial securities regulator’s website.
Regardless of poor investment knowledge, many feel confident in their investment decisions and understanding of investment risks.
Survey results revealed a discrepancy between investor behaviour and knowledge. More than half of Canadians indicated that they are confident when it comes to making investment decisions and 81% believe they understand how risky their investments are today. However, 40% of respondents failed when they were asked 7 questions on concepts of simple and real compound interest, investment risk and diversification, mutual fund returns, warning signs of fraud, and the relationship between interest rates and bonds.
Based on survey results, 40% of respondents are considered to have low investment knowledge (0-3 correct answers), 34% have medium investment knowledge (4-5 correct answers), and 26% have high investment knowledge (6-7 correct answers). Furthermore, majority of respondents had unrealistic expectations of market returns or explicitly chose not to guess, and among those who do have financial advisors, majority have never done any form of background check on their advisors.
Trends show we need more diligence and awareness of risks
Although it is good to see that more Canadians are saving, the CSA report revealed that many are at greater risk to investment fraud than they actually perceive themselves to be. Not only do people have low investment knowledge, many also do not take precautions to minimize investment fraud, such as verifying the qualifications of their advisors and familiarizing themselves with their provincial or territorial government securities regulators along with the resources they provide. All these results point to a greater need for increased fiduciary duty and consumer protection.
Read the full survey results of CSA Investor Index.
For more information on this topic, read CARP’s Investor Protection articles.