Most Canadian mutual fund statements fall short of meeting the needs and expectations of clients, suggests a new report from the Toronto-based Canadian office of Boston-based Dalbar Inc.

Although a handful of firms are doing a good job in keeping up with clients’ needs, the report, entitled Trends and Best Practices in Mutual Fund Statements, says most are falling behind.

“With the downturn in the mar-kets over the past couple of years,” says Anita Lo, Dalbar’s vice president of Canadian strategy in Toronto, “consumers are paying much closer attention to those statement packages arriving in the mail.”

The most important element on a statement in the eyes of clients is the overall rate of return on their portfolios, according to consumer research conducted separately by Dalbar. And most mutual fund manufacturers fail to show the rate of return on their statements.

Only 32% of the statements studied by Dalbar for the recent report included a rate of return — a slight drop from previous years, when 35%-39% showed this information.

“We were expecting [the number of statements showing rate of return] to go up because we knew clients were looking for this,” Lo says. “But instead, we saw it go down.”

The drop could be attributable to system limitations at the fund companies, Lo says. Or, perhaps, the fund companies want to save financial advisors the embarrassment of their clients seeing negative returns.

Fees are regarded by clients as the second-most important statement feature. And the few mutual fund statements that do show fees present them in an unclear way, the study found. Fees are often presented as a single number, Lo says, whereas clients want them broken down to distinguish the various types of fees, such as product fees and administrative fees.

The Dalbar study analyzed 22 yearend mutual fund statements, scoring them out of a possible 100 points. Statements were then given a ranking based on their accumulated points: excellent (80-100 points); very good (70-79); and good (60-69). The majority of statement providers — 68% — did not receive any ranking because they scored below 60 points.

The study assessed the statements based on four main areas: how easily they can be understood by clients; primary content, including information required by regulators; secondary content, which helps give context; and overall appearance.@page_break@This year’s study varied slightly from the previous instalment, released in 2008. The 2010 study includes accessibility attributes, such as braille and large print for the visually impaired. The recent study also adjusted the point structure based on consumer feedback — rate of return is now worth more points because clients value it more highly.

Statements that did not list a rate of return could still rank highly on the report. This year’s top-scoring statement is from Toronto-based Dynamic Mutual Funds Ltd., which received a “very good” designation. Dynamic does not show the rate of return on its statements, says Andrew Yee, the firm’s director of statement and document production, but is considering adding it.

Yee attributes Dynamic’s first-place standing to its use of colour on its statements: “Colour helps with pointing out specific things that black-and-white images can’t. Investors can see right away how their money has been invested, how it’s grown.”

Dynamic’s statements have been in colour for about a year.

Toronto-based Northwest and Ethical Investments LP and Montreal-based National Bank Securities Inc. placed second and third, respectively.

There remains room for im-prove-ment as none of these firms reached the highest designation of “excellent.”

Yee, for one, says Dynamic is committed to the continuous improvement of its statements: “[Dalbar’s] criteria has changed over the past two to three years. So, when client expectations change, we need to be cognizant of what they want, and we talk to advi-sors and investors to make sure our statements are the best they can be.”

Client statements have been a point of complaint for clients and advisors for years, as Investment Executive’s own research confirms. Many participants in IE’s Report Card series express frustration with their firm’s client statements year after year.

“They’re very difficult to read,” says one advisor surveyed for this year’s Report Cards, “and clients like to see the long-term rate of return, which is not available.”

To help remove some of that confusion, Dalbar recommends fund companies give more depth and perspective to their statements. “As manufacturers, we need to move the statement beyond just a client reporting document,” Lo says, “and make it an engaging piece [so] dialogue can take place and meaningful discussions can occur.”

Lo recommends adding such elements as a goal-tracker and comparing the investments’ performance over a period longer than 12 months.

Julie Littlechild, president of Advisor Impact Inc. in Toronto, understands clients’ desire for more information. But, statements are only one part of the puzzle, and nothing can replace direct advisor/client communication, she says: “Only the advisor has the full picture. It’s never one mutual fund statement.” IE