(April 28 – 17:40ET) – The Investment Funds Institute of Canada says that firms looking to provide personal rates of return to investors should use the Time-Weighted Rate of Return as defined by the Association of Investment Management and Research.
The IFIC working group that looked at the issue chose this method because it is reasonably easy to explain to investors and can be provided cost-effectively without delaying account statements.
To ensure consistency within the industry, IFIC has set out a list of practices to be followed by firms offering personal rates of return. They include:
> personal rates of return are optional
> reporting should be at the account/plan and/or fund level
> statements must include a description of the methodology
> numbers should be rounded to at least one decimal place
> use one (or more) of the following periods quarterly, year-to-date, 1, 3, 5, 10 years as well as from inception
> personal rates of return may include returns for other assets held by the client
> personal rates of returns are to be communicated to the client and/or the client’s advisor
> returns must be reported net of all commissions and fees charged to the account or to the investor
Numerous other conditions also apply, and others may be added. The methodology and practices are effective immediately.
-IE Staff