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Why Is the Investor's Personal Rate of Return Missing on Financial Statements?

Only 25% of statements across the annuity, mutual fund, and brokerage sectors include a "personal rate of return," Dalbar's annual survey says.

Did you ever open a financial statement and hunt for the rate of return on your investment? Your eyes rapidly scan statement details on different share classes -- X shares, R shares, O shares -- along with the market value of your account, the quarterly performance of the fund against the S&P 500 or Russell 1,000, and the fund's expenses. But you still are unsure if your account made or lost money.

If this situation seems familiar, you are not alone. In a national survey of 374 investors announced this week, Dalbar Inc. found that investors place a high degree of importance on seeing their personal rate of return. However, only 25% of statements across the mutual fund, annuity, and brokerage industry include personal rate of return, according to Dalbar's 2014 Trends and Best Practices in Investor Statement Study.

"Its a specific question we do ask them to understand how important it is," Kathleen Whalen, managing director at Dalbar, told us.

The independent financial industry research firm reported that 50% of investors with $1 million of assets considered overall rate of return "critically important," Dalbar said, and 37% considered it "important."

Participants in the survey were over the age of 25 and had income of at least $50,000 and investment portfolios worth more than $100,000.

As part of its research, Dalbar evaulates statements from the industry. "We have copies of the statements from across all of the companies," Whalen said. "We go through them and look for that rate or return."

Investors want to know whether their account has produced a sufficient return and whether they are hitting their goals. "Their trust and confidence is being compromised when that figure is a mystery," Whalen said in a press release announcing the survey results.

She told us that several financial institutions are providing the overall rate of return in their statements. "Edward Jones recently started doing that, and they do a good job." BlackRock and Raymond James also provide the personal rate of return.

Then why do 75% of the financial statements keep the rate of return a mystery? "Yes, there's absolutely a desire and a demand for it from investors." However, "financial firms have trepidations about a number of factors," she said.

For example, "if it shows poor performance, how angry will that investor be if it's not illustrated in the context of everything else?" Essentially, financial firms are worried about the number being misunderstood, and they are cognizant of the fact that investors have a relationship with their adviser. "And so, they want to make sure the adviser is in the loop, so they can provide the whole story. The fear is that an investor would take that one figure out of context and not understand the whole portfolio." Hence, financial firms would prefer that the adviser walk investors through the results in the broader context of how their portfolio and the market are performing.

What else is important on financial statements?
Despite the emphasis given to this feature, overall rate of return has dropped from the No. 1 statement feature in the 2010 survey to No. 2 in this year's survey. Investors ranked the yearend statement as the single most important feature, with 50% of respondents calling it critically important.

Investors also felt that the summary of fees was as important as the explanation and the reasons for the fees on a statement. Whalen found it interesting that 60% of firms in these industry sectors provide a summary of fees, but only 12% give an explanation for the fees. "So if you give the summary, why wouldn't you put in the context?" Firms feel it's the adviser's responsibility to explain the fees, since the adviser is supposed to take care of the investor.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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