How many financial advisors are in Canada?
To give you a rough idea as to the number of financial advisors in Canada as a whole, there are about 75,000 MFDA advisors (mutual fund sales reps), 125,000 Life-Licensed advisors (insurance agents) and 25,000 IIROC advisors (licensed to sell individual stocks). Those are rough numbers for a few reasons: I’m going by memory (which may be flawed) for the life-licensed advisor number, and there are many advisors who are dual-licensed (MFDA + Life License or IIROC + Life License). Further, not all life-licensed advisors sell investments (for them, this would be segregated funds and annuities for the most part).
So let’s call it about 125,000 to 150,000 financial advisors in Canada who are giving investment advice to investors.
How many advisors are licensed to use options?
In order to buy, sell or advise on options (puts and calls) you not only have to pass additional licensing exams, it is only available to IIROC advisors which we have seen is a pool of about 25,000 advisors. I don’t know the exact number of options licenses there are out there, but going from experience I would say that perhaps 1 in 5 IIROC advisors were options licensed and of those that were licensed maybe 1 in 4 actually engaged in any option related activity.
That leaves us at about 1,250 advisors (give or take, and based on unconfirmed estimates by yours truly) who are using any kind of option strategies with clients. That’s about 1% of the total advisor population.
Now, this post is not intended to persuade everyone to trade options, but I do believe that option strategies can play very important roles in portfolios. There were actually invented to reduce risk, but have become associated with risk taking for laypeople.
Portfolio Insurance as just one example
A simplistic strategy would be the purchase of put options to protect the value of a portfolio from black swan events such as the credit crisis. Purchasing a put option essentially means that you buy the option to force someone to buy your investments at a certain price for a certain period of time. Think of it as portfolio insurance (indeed some people promote the strategy as such). For a cost of a few percent of your total portfolio value per year you could limit the possible decline in value for that year. Again, this is a simple strategy being described here, but for people who were a few years from retirement and therefore in that “retirement risk zone” you could have selectively insured your portfolio for a few years, trading off the annual “premiums” for guarantees against catastrophic loss when you most needed that protection/assurance.
There are plenty of other option strategies, and again this isn’t meant to be an endorsement of this particular strategy for everyone but if more people had been asked or informed of these strategies I think that would’ve been a good thing (for clients and advisors).