Fee-only advisors push for improved client statements

A group of fee-only financial advisors calling themselves the Investor Awareness Project is urging investors to sign a petition, demanding brokerage firms and banks be required to issue monthly statements that include basic performance measurement statistics like annual returns and benchmark comparisons.

Current reporting standards are inadequate, they say, since there is no way to track portfolio performance and determine if a client’s retirement plans are on track without annual return numbers.

“We want the Ontario Securities Commission to require brokerage firms and banks to provide investors with the important performance measurement statistics they deserve and which they need to make informed decisions,” according to the group’s website. “Industry participants, banks and brokerage firms will likely object to changes (and recommendations put forward by the Registration Reform Project) and unless the voice of the consumer is heard, these important changes may never be implemented.”

Changes being called for include implementation of Fair Dealing Model recommendations like performance disclosure on client statements for the current year and since account inception, rules requiring firms to provide performance reporting on an annual basis at a minimum and the recommendation that an appropriate and meaningful benchmark should be provided whenever possible.

“Past and current performance statistics are vital. If an investor can’t keep score of their actual return, they can’t know if they’re on track to achieving their goals,” writes Ken Hawkins, vice president of research and development at Second Opinion Investor Services. “In the world of institutional investors performance measurement is an important part of their ongoing investing process. It would be unheard of for professional managers to go to a meeting with their client and not have all of the relevant performance benchmarks close at hand.”

The group has some support in regulatory circles but might face some opposition from the industry, even though technologies exist to provide the relevant information these advisors are asking for.

At a question and answer session with regulators at the recent Investment Industry Association of Canada (formerly the IDA Industry Association) conference, industry members objected to comments made during a presentation about the Registration Reform Project, saying the costs of performance reporting on a regular basis would be substantial, particularly with smaller clients.

In response, panelists, including David Wilson, chair of the Ontario Securities Commission, told the group that the issue of costs is an old concern, one that can and should be easily dealt with using technology to create the calculations.

“Institutional investors get very detailed quarterly reporting for their investments, why should retail investors get any less? Maybe not quarterly, but at least annually,” says Wilson. “They have the right to know how their portfolios, their risk capital is doing.”

Technology providers like Equisoft and Quantum Portfolios already have applications in place and in the works that allow advisors to compare client portfolios to model portfolios that correspond to established risk profiles, and group mutual funds by benchmarks being used by the fund’s managers, rather than simply grouping the funds by asset class.

The Registration Reform Project is a Canadian Securities Administrators initiative intended to harmonize, streamline and modernize the dealer registration process. In addition to developing registration and firm categories, creating disclosure documents, common proficiency and conduct requirements and establishing a list of obligations for both clients and advisors engaged in different advisory relationships, the group is also looking at the issue of performance reporting and benchmark requirements.

To marshal support for recommendations made by the CSA working group and the reform project, the Investor Awareness Project association plans to send its petition to the Ontario Securities Commission as soon as 100,000 signatures are confirmed. Investors can sign the petition by visiting www.showmethereturn.com.

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com