Raising the standards for investment statements

Statements don't always supply much detail—but are investors demanding more?

Jess Morgan 16 November, 2015 | 6:00PM

A new study shows that while the vast majority of Canadian investors are regularly updated on their portfolio's performance, they don't always get all the facts--or understand what those facts mean.

In its Smarter Investor Study, the British Columbia Securities Commission (BCSC) found 96% of investors receive periodic statements about their portfolios. A majority of Canadians report that their statements include their portfolio's current balance, an itemized list of their investments, a record of their deposits and withdrawals, and the portfolio's overall rate of return over the past year or less.

Beyond that, statements vary wildly in terms of detail. Only 45% of investors are informed about their rates of return on a per-investment basis, and only 42% learn about their portfolio's overall rate of return over a period longer than a year.

Moreover, investors do not always read their statements, and not always in full. Sixty-two per cent of investors report they always read their statements, versus 17% who read them "often" and 15% who read them "sometimes." Two-thirds of investors report that they typically only scan the documents for key information.

Paul Bourque, executive director of the BCSC, says statements need to be both more comprehensive and more comprehensible.

"I think it's fair to say there is difficulty on the part of investors in understanding their statements when they do read them. The big issue, of course, is that they have to read them first, and many don't. But assuming that they do read them, it is still a challenge for the investment advisors to make their statements clear, plain-language and easy to read so that investors can have a good conversation with their advisor about how they're doing."

Readability is an important factor, as 53% of investors say they would read their statements more often if they were easier to understand, and 44% say they would read their statements more often "if they included more useful information."

Greg Pollock, president and CEO of the Financial Advisors Association of Canada (Advocis), says the key for advisors is to make sure that the numbers included in investment statements are useful to the people receiving them.

"Many find that they're receiving either too much information, or the information is too complex," Pollock says. "From our point of view, disclosure is important, transparency is important, but communication is about getting the information across, and what we have to do is ensure that our clients are receiving the information they want."

The study reports a similar finding: 34% of investors report that they only need "key info" from their statements, and prefer to ask their advisor directly for more.

Pollock says advisors have not reported a high level of demand from investors for more information on their statements.

"If anything, we hear the opposite. We hear that clients are saying, 'Just make the decisions on my behalf.' Well, that's not the way it should work, and we have to say it's important. We want our clients to be engaged. We want them to understand what advisors are trying to do on their behalf."

The least common numbers to appear in investor statements were the advisor's commissions and fees, both in total and on a per-investment basis. Only 23% of investors say they are informed in their statements about total fees paid, while only 12% are informed about fees on a per-investment basis.

This contributes to the study's findings regarding investors' understanding of advisor compensation. Twenty-three per cent of investors claim they are not sure how their advisor is paid, and a further 60% claim they have only inquired about their advisor's compensation "once" or "periodically." While most investors cite trust in their advisor as the reason they don't ask about compensation more often, 37% say they do not understand fees and commissions well enough to ask.

Bourque says new rules for cost and fee disclosure being implemented as part of the CRM2 regulatory initiative will help investors better understand how their advisors are paid. Before CRM2, only portfolio managers were required to disclose their commissions and fees; those rules will now apply to advisors, as well as registered dealers and exempt dealers.

"I'm glad it's in place now. I think that's a very good development," Bourque says. "We hope to see changes in advisor behaviour and investor behaviour."

Pollock agrees that CRM2's fee disclosure rules are a step in the right direction.

"There'll be some sticker shock, I'm sure, for some," he says. "But I think the vast majority of advisors out there feel very comfortable with the fees that they have been charging, and they're reasonably comfortable with positioning those conversations over the next year or so."

That comfort appears to be justified. The BCSC study shows 89% of investors trust their advisors, with 43% reporting a "very strong" level of trust.

"I think that's a very positive thing, and I think it reflects well on the industry," says Bourque. "But I think what investors need to understand is that trust can be a double-edged sword. So while you may trust your advisor, you still should do independent research."

About Author

Jess Morgan

Jess Morgan  Jess Morgan is the associate editor of Morningstar Canada’s website. She began her career as a television producer and freelance writer, often making appearances on TV and radio as a commentator on politics and culture. She holds a BA in communications from the University of Winnipeg and a diploma in Creative Communications from Red River College.