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Friendly, long-term service pays off for Investors

But some critics say firm should focus on fund performance, not client satisfaction

MUTUAL FUNDS REPORTER

Investors Group Inc. is going steady with middle-class Canada.

From kitchen tables in Prince George, B.C., to family rooms in St. John's, the mutual fund giant has forged long-term financial relationships from coast to coast. Cradle-to-grave care has made Investors one of the country's most successful and resilient financial service providers.

That custodial image is a favourite target. Criticism about high costs and mediocre fund performance continue to dog the Winnipeg firm. But it's client satisfaction -- rather than number crunching -- that's the best measurement of value, counters Murray Taylor, the company's newly appointed president and chief executive officer.

"Well over 90 per cent of our clients are very, very happy," said Mr. Taylor, who argues that critics fail to appreciate the depth of the company's services.

"The value of what we do is easy to measure if you participate in the process," he said.

One financial planner describes Investors as the McDonald's of mutual funds. It's a fitting metaphor. If there's a mutual fund company that best emulates the fast-food industry, Investors is it: About one million Canadians have been sold a menu of about $42-billion in assets.

The engine driving growth is Investor's team of financial planners. The well-trained force of 3,200 work on commission and, like real estate agents, constantly network to drum up business. Each Investors client becomes a captive marketing opportunity for Power Corp. of Canada, the Montreal conglomerate whose assets include Investors, sister firm Mackenzie Financial Services Inc. and Great-West Lifeco Inc. An Investors client can buy mutual funds, insurance, and take out a mortgage or loan in the comfort of their own home. The personalized one-stop shopping model has become the envy of the finance services sector.

"It's not the mutual fund market share they're after, it's the share of wallet," said Rudy Luukko, investment funds editor with Morningstar.ca. And unfortunately for Investors unitholders, it's profit -- rather than competitive management costs -- that drives the company, he said.

Take, for example, the Investors dividend fund, the country's largest equity fund with a whopping $7.6-billion in assets. The fund has an annual management expense ratio of 2.75 per cent, about 20 basis points above the average dividend fund MER of 2.53 per cent. (A basis point is 1/100th of a percentage point.)

"This is a company that has very significant economies of scale and has made a strategic decision to not pass the bulk of those economies along," Mr. Luukko said.

Investors fared poorly in a Report on Business analysis of mutual funds. Twenty-three Investors funds surveyed had an average MER of 2.88, more than 20 basis points higher than second-worst Dynamic Mutual Funds Ltd. (In August last year, Investors trimmed some MERs, lowering its average cost to 2.72.) The Investors family had the worst performance too, reporting an average five-year return of a measly 5.44 per cent.

Several industry sources contend that Investor's model does little to inspire its fund managers to excel. Investors clients can only buy Investors funds.

"The funds have a poor performance record," said one analyst, noting that returns from the firm's dividend fund have trailed the group average for the past year, five years and 10 years. "If a product doesn't have competition, what happens to the product? It becomes crap."

These are familiar jabs for Mr. Taylor. He quickly rattles off research in the company's defence: Investors fund MERs, when measured by asset class, are in the middle of the pack; redemption rates are below the industry average; about 40 per cent of funds have four- and five-star rankings from Morningstar.

What's more, critics fail to note the competitive measures Investors has taken, he said. Outside managers have been brought on to manage many funds. The MERs on 19 funds were cut an average of 20 basis points a year ago. To keep its best consultants happy, Investors has improved compensation.

But most importantly, Investors' detractors dismiss its model, financial handholding for middle-class Canada that stresses long-term returns and limited risk.

"If the bear market taught people anything, it was do-it-yourself wasn't quite what you thought it was," Mr. Taylor said. "The kind of work our people do is extremely honourable, I'll even use the word noble, in terms of working with their clients, assessing their needs and helping them fulfill those needs."

© 2007 The Globe and Mail. All rights reserved.

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