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Fund firms need to write more clearly

If you're scratching your head over your mutual fund statement, you're in good company, KEITH DAMSELL writes. A panel of industry experts we assembled found many of them leaving a lot to be desired


If your quarterly statement from your mutual fund company leaves you dazed and confused, you aren't the only one.

Each quarter, about 10 million Canadians receive financial statements from their fund companies. It's widely believed that the bulk of the data is ignored or, worse still, misunderstood.

Regulators are looking at ways to improve the information you receive from your mutual fund providers, but the efforts have been a case of one step forward, two steps back. This month, many of the country's largest fund firms said the Canadian Securities Administrator's policy to improve fund disclosure to clients is costly, poorly timed and awkward to implement. In March, regulators exempted more than 20 fund managers from mailing annual prospectus statements to unit holders.

Industry advocates argue part of the problem is the quality of the information sent out to customers. The Globe and Mail asked five experts who closely follow the sector to review quarterly statements from 12 fund companies chosen at random, and they found them lacking.

While some fund companies delivered better information than others, the average grade for the 12 statements the panel reviewed was a less-than-stellar C+.

The judges were: Levi Folk, president and managing editor of; Dan Hallett, president of research firm Dan Hallett & Associates Inc.; Ken Kivenko, investor advocate and member of the Ontario Securities Commission's continuous disclosure panel; Rudy Luukko, investment funds editor at; and, Glorianne Stromberg, a former OSC commissioner and fund industry critic.

The exercise was subjective, but the panel agreed on some key criteria for assessing fund statements: How easy is the statement to understand? Are fund performance and costs detailed in a meaningful way? How does the statement address the unit holder's investment objectives? In short, how well does it tell investors what they need to know?

There was a wide range of views. Mr. Hallett and Mr. Folk, for example, agreed some statements provided worthwhile disclosure. But Mr. Kivenko gave failing grades to all but one statement.

"Over all, everyone could be doing a lot better. There's a general lack of performance-based information," said Mr. Luukko.

Here's how the 12 companies did, in the eyes of our judges:

AIM Trimark Investments

Average grade: C

Mixed views from the panel. The statement was easy to read, and detailed the change in the value of the account with a bar chart. But, like the majority of statements, there was no disclosure on costs to the client, the personal rate of return or detailed fund performance.

BMO Mutual Funds

Average grade: C+

One of the better statements with plain and simple language. The panel liked BMO's detailed asset allocation, including advice to boost foreign content. Unlike many statements, it provided a personalized rate of return for a 12-month period. However, the statement lacked information on costs to the unit holder and detailed fund performance.

CI Funds

Average grade: C

CI's statement was typical of many reviewed. Lots of detail on quarterly transactions, account performance and contributions, but little context to the data and too much industry jargon. No discussion of costs, asset allocation, book value or personalized rate of return. "It's all a bit too rudimentary," Mr. Folk said.

Fidelity Investments Canada

Average grade: B

Fidelity offered more meaningful data than most firms. It presented asset allocation information and compared it with a wealth-builder model. Fidelity also provided a personalized rate of return and noted the client's risk profile. But the statement lacked detailed fund performance and costs to the investor -- surprising omissions given the fund company's track record on disclosure, the panel said.

Investors Group

Average grade: C

A mix of good ideas poorly executed. Top marks for detailed account activity, an asset mix pie chart and foreign content information. It disclosed management fee rebates down to the penny, but gave no sense of investor costs, personalized rates of return or factors affecting fund performance. Some panel members complained that much of the data was hard to decipher and lacked context.

Mackenzie Financial Services

Average grade: C+

A cut above many statements. The panel liked the firm's asset-mix pie chart and foreign-content detail. Ms. Stromberg found Mackenzie's highlighted notes "clear and user friendly." But the firm's quarterly summary lacked detailed fund performance, personalized rate of returns and costs to the investor.

Manulife Mutual Funds

Average grade: C

Considered an uninspired statement by the panel. Manulife provided quarterly transaction details, account performance, foreign content and contribution details. But there was a laundry list of missing information, including asset allocation, fund performance and costs to the unit holder. It was the only statement to feature art, including a picture of a cuddly baby.

Phillips Hager & North Investment Management

Average grade: C+

PH&N was commended for being the only firm to note its management expense ratio, the annual unit holder's fee expressed as a percentage of assets under management. Foreign content, book value and asset allocation information were clear, but there was little sense of fund performance or personalized rate of return.

Saxon Mutual Funds

Average grade: D

This was judged by all to be the worst example of investor communication. The bare-bones data had no information on portfolio allocation, foreign content, return rates, book value, risks or fees. "This is a skeleton," Mr. Folk said.

RBC Asset Management Inc.

Average grade: B

One of the better reports, it provided detailed foreign content, asset allocation and book value. It included a personalized rate of return and referred the client to the company website for a description of the methodology. But it lacked detailed fund performance and didn't disclose costs to the investor. RBC also lost marks for describing the RBC Precious Metals fund as a Canadian equity fund, rather than a specialty fund.

Standard Life Mutual Funds

Average grade: B+

This was considered by many to be the best of the statements reviewed. It got strong marks for readability, personal rate of return, asset allocation and book value. Standard Life was the only firm to note that its rates-of-return method is approved by the Investment Funds Institute of Canada. But it missed an "A" grade for failing to provide more detailed fund performance and the management costs bore by the investor.

TD Mutual Funds

Average grade: C+

It was a mixed bag. The statement provided book value for funds held, detailed foreign content available, a strong summary of year-to-date distributions and contact numbers in English, French and Chinese. But some panel members complained there was no detail on fund returns, asset allocation or costs.

© 2007 The Globe and Mail. All rights reserved.

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