If there were fewer mutual funds, would there be less money invested in mutual funds?  Probably not.  As behavioural economics tells us – too many choices results in no decision being made.  Possibly if there were fewer funds, more money would flow into the funds.  People would be able to make a selection rather than giving up in utter exhaustion or frustration from the seemingly endless list of similar funds.

The mutual fund industry continues to forge ahead, unaware or uncaring of how complex and downright dull their mutual fund line ups are.  The ETF industry seems to be following a similar path.  A January 2013 poll1 by ING Direct produced results that were not unexpected – Canadians don’t pay attention to investing:

A recent ING DIRECT survey revealed Canadian mutual fund investors spend, on average, 3.4 hours a year planning their mutual fund investments. By comparison, they spend more time planning a major technology purchase such as a smartphone, television or computer (5 hours), a vacation (6.6 hours) or a car purchase/lease (9.2 hours).

The confusion of mutual fund names:

Mutual funds names are confusingly similar and for the most part do not have much meaning to most people.  I’ve witnessed a number of instances where financial professionals became confused over their own firm’s mutual fund or portfolio solutions names.  Look at the similarity of a ‘global equity fund’, a ‘European equity fund’, and an ‘international equity fund’.  Portfolio solutions (a bundle of mutual funds) were created with the intention of making investing easier.  They don’t really solve the problem either.  There isn’t much  difference in the names ‘managed balanced portfolio’, ‘managed monthly income balanced portfolio’ and  ‘managed balanced growth portfolio’.

I realize that there are risk and return differences for these various funds but in reality it is indecipherable.  The client isn’t being served.  As Canadians age they are going to have no patience for this confusing approach.  But even after retirement people need to continue investing their portfolios to guard against longevity and inflation.  The increasing trend of DIY investing will increase the demand for streamlining product families.  A few options, appropriately named and simple to understand will make investing seem achievable to more people.  This is the way to help Canadians get the job of investing done.