Despite a near-record amount of Canadian investor money held in mutual funds, most mutual fund providers are failing to keep up with clients’ needs.
A recent study by financial services strategy and research firm Dalbar Inc. found that a majority of mutual fund providers don’t provide mutual fund statements that meet investors’ basic expectations.
Dalbar vice-president Anito Lo said, “We’ve been researching this for more than a decade, and one of the things we were hoping for was an improving trend, but what has been shown is that momentum has stalled.”
According to the study, investors want specific information in their statements, including:
- a summary of fees charged by fund companies;
- sections that track investment goals and account growth;
- asset allocation of investment accounts, and;
- an investor’s overall rate of return on his or her investments.
Investors were most interested in getting a statement with their overall rate of return, but the study found that 68% of fund providers don’t provide this important piece of information.
Lo said limited information systems could be why some companies can’t provide the information. She noted, however, that other segments of the investment industry servicing higher-net-worth clients have been far more successful in providing the kinds of information mutual fund investors want.
“We also look at the managed portfolio industry and, in that sector, all the companies we studied provide overall rate-of-return information.”
Leslie Wood, executive vice-president and Northwest and Ethical Investments LP, noted that some fund companies don’t provide investor-specific information because much of the information is usually provided by an investor’s financial or investment adviser.
She noted that investors might become more confused about their portfolio’s performance if they receive detailed information only from a fund company rather than having a document that includes rate-of-return information for their entire portfolio.
“They might also own GICs or other investments in their portfolio. You can’t just look at a statement from one fund company and have a full assessment of your financial position.”
Northwest and Ethical Investments ranked second this year in the Dalbar study, a significant improvement from last year’s ranking. Wood said a contributing factor was the decision to offer the expanded disclosure that Vancouver-based Ethical Funds was providing prior to its 2007 merger with Northwest.
“For Northwest, we had a lot of nominee-held business with the dealer world and didn’t provide statements for end investors. For companies like ours, you don’t produce a lot of statements, so it’s hard to make that investment. Whereas on the Ethical Funds side, we have a lot of client business and were obligated to send statements to them.”
She noted that prior to its merger with Ethical Funds, Northwest ranked poorly in the Dalbar study. “But as a combined entity, we decided to adopt the Ethical Funds statement look and feel and it’s been really well received.”
Wood noted that increasing disclosure to clients is a continuing trend, but whether more companies will invest in providing more detailed statements will depend on the financial advising community’s needs.
“The industry has debated this for a long time. Generally, the end relationship with the investor is with the adviser, and an adviser never wants to be blindsided by information on a client statement.
Generally, advisers get a copy of the statement with the client, but if a client isn’t seeing the whole picture, it can sometimes create a lot of extra work for the financial adviser.”