Open up those investment statement envelopes!

One of my larger complaints while I was in public practice was the amount of unopened mail that would land on my desk during tax season. This included way too many unopened investment statements from clients. Generally, outside of gathering the fees that can be deducted for non-registered portfolios, those investment statements are more useful to you than they are to your accountant. So Please (!) Do yourself (and your family) a favour and open up those investment statements that are arriving right about now in your mailbox and get empowered with the financial information that they provide. Decipher not just how your investments did last year but also if your existing portfolio makes sense from an asset allocation, diversification and cost perspective.

Cheat notes for a thorough review..

With this task in mind for you, I thought I would provide some cheat notes to help you review those statements and highlight what to pay particular attention to when you review:

1. The Portfolio Value is the market value of your registered and non-registered investments as of the end of the reporting period. Any US investments are generally included at the Canadian dollar equivalent as of the statement closing date.
2. The Book value or cost will also be shown and this amount will be what you paid to purchase the investment plus any transaction charges related to the purchase, adjusted for reinvested distributions, returns of capital etc.
3. The Change in Market Value of your account which may or may not be net of fees indicates the impact of market fluctuations on your investments.
4. The Asset Mix will show how your portfolio is allocated between 3 asset classes and should be shown: money market (cash), fixed income (bonds) and equity (which could be broken down by region). Balanced funds and asset allocation funds will generally be split between the fixed income and equity category accordingly but I’ve also seen them just noted as “Balanced” which is not overly helpful to the exercise of ensuring your asset mix is reasonable
5. The Activity Summary will list all of the transactions that occurred in the portfolio during the period being reported. This would include new investments being made, redemption of funds held previously, fees, taxes or transfers to other accounts.
6. The holdings summary will list all of your holdings by portfolio. If you have some funds that may be subject to a deferred sales charge (DSC) upon redemption, they should be marked with an asterisk.
7. A personal rate of return section will detail the overall performance for each of your accounts based on performance over the past period (YTD), as well as one, three & five years and since you opened the account if your firm has this information available. Your personal rate of return will differ from the fund’s reported rate of return because your return will take into consideration your activity including withdrawals, contributions based on when the activity occurred as well as dividends and interest earned in the account This is collectively known as a money weighted rate of return versus a time weighted rate of return.
8. Your overall personal rate of return for your entire portfolio will be a reflection of the mix of investments and risk level of all of your accounts. It’s important to access your returns against your personal investment goals, the amount of risk you are comfortable with and a benchmark.
9. A fee summary may also be included in your statement to breakdown the money you paid for services received. This requirement only started in 2017, and is an annual requirement whereby the fees you pay either directly or indirectly for the services that you receive are reported. It’s been a long time coming (approximately a decade). If you have a fee for service account with F series funds, you will probably see the fee summary each reporting period. For commission based accounts a fee summary will most only appear annually.

Fee Disclosure – a long time coming ! 

This new requirement related to cost disclosure is a client focussed initiative to provide better transparency and accountability. However, it’s up to clients to measure whether they feel they are getting good value for those fees paid since fees can add up over time. Fees reduce your account’s performance and also the compound effect that the extra money would have made over the long term.

Fees paid are for services provided by the fund manager, the dealer and taxes. That might include the following:

1. Understanding and reviewing your financial situation and goals and determining your risk tolerance
2. Guidance to build and maintain a financial plan
3. Rebalancing of your portfolio based on your future income needs and ability to handle risk
4. Account statements and other information including detailed records about your account, information and access to your account online

What’s not on your statements – but not because it’s not important 

What your investment statement probably won’t show, but what you should consider reviewing with your financial advisor might include the following:

1. How did your investments perform against the benchmark? A benchmark is a standard against which you can measure the performance of investments. For example, if you are invested in Canadian equities a benchmark might be the S&P/TSX Composite Index.
2. Fund overlap-how similar are the funds that you hold similar to each other? Overlap or high “correlation” between funds means reduced diversification which can lead to an unwanted increase in market risk. 
3. Allocation analysis across asset classes but also geographies and sectors/ industries. 
4. Measuring your overall progress against your goals. If you’re not on track it might be time to make some changes.

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