Insight May 2009 Monthly Update

A recent survey of global Internet banking habits indicates that Canadian financial consumers have embraced online banking more vigorously and more extensively than clients in countries such as the United States, the United Kingdom and Australia. Sooner rather than later this movement out of bank branches, the home of advice around deposits and mortgages, was bound to expand to take in the investment activities of these consumers. Recent data collected by Investor Economics confirms that this expansion is well underway, with a record number of new online brokerage accounts being opened in 2008 and even more growth being seen in the first quarter of 2009. To some, this enthusiasm for managing personal finances through the click of a mouse heralds the demise of the traditional mutual fund advisor and a burgeoning career for those who design portfolio construction software. Not so fast. At the end of 2008, despite the market drubbing, $456 billion of mutual fund assets was held in accounts maintained in the advice channels. That is the equivalent of 76% of total mutual fund assets, a penetration rate higher than that recorded at the height of the recently departed bull market. Given these somewhat conflicting trends, we thought it time to take a closer look at how mutual funds are doing in the online brokerage channel. To complement the data gathered on the discount platform, we interviewed several executives at both online/discount firms and mutual fund manufacturers. The May Trend Lines article examines the market reaction to the tax-free savings account (TFSA), which has been available since the beginning of the year.