The Investment Performance Summary by Account is intended to provide your clients with a snapshot of their investment performance at the account level, and does not identify or reference specific investments or holdings. It consolidates your clients’ holdings within an account to give them a means of assessing the overall performance of their account.
This statement generates a 12-month period overview, with retrospective information on certain performance aspects since the account was created (and is sometimes further broken down into 1, 3, 5 and 10-year reference periods). Information is provided in a combination of text, tables and charts that describes the content of the statement and how it can be used to assess performance as well as the changes in value reflected in the report.
There are five sections to the Investment Performance Summary by Account:
1. Introduction and Header
2. Total Value Summary
3. Change in Value Summary
4. Personal Rate of Return
5. Referenced Definitions
This guide will provide you with a simplified breakdown of what you will find in each of these sections, including some tips for how you can personalize it for your firm.
1. Introduction and Header
(a) Contact Information:
At the top of your Investment Performance Summary by Account statement, you will find the logo for your firm, to ensure the statement is recognizable to your client as being specific to your organization. Immediately below that, you will find the name and address of the client, followed by the date of the Investment Performance Summary by Account statement (the generation date), as well as the name and contact details for their current advisor.
(b) Customizable Statement Header:
Below the contact details is a header that you can customize to provide additional information to your client. This header is a global disclosure for all clients of your firm and is not customized to specific clients or holdings. To edit this section, visit your administrative settings and select the “Statement Settings” tab. Note that this customized statement header will be added to all statements.
(c) Statement Period and Purpose:
Immediately below the header, your client will find the date range for the Investment Performance by Account statement as well as a short statement explaining the nature and purpose of the statement. The date range will always show as the 12-month period preceding the high-date you specified when generating the statement.
An important note contained in this explanatory language is that “all currencies have been converted to the currency of the account”. To ensure that Exempt Edge is able to perform the necessary calculations, all transaction information for the client’s account must be represented in a single currency. If your firm distributes investments of more than one currency (for example $CAD and $USD), you may need to activate and use the Foreign Exchange Module (“FX Module”) available within Exempt Edge to automatically convert currencies and ensure calculations are performed accurately. If your firm is manually tracking exchange rates VIA the FX module, it is very important to ensure that this information is kept up to date, since inaccurate foreign exchange conversion rates can have impacts on the reliability of calculated data points shown in the Investment Performance Summary by Account statement.
(d) Account Details:
Details for the account shown in the Investment Performance by Account statement is displayed on the left hand side, the custodian or trust company holding custody of the assets is shown, along with the account plan type (such as an “OPEN” or “RRSP” account). This data is pulled from the account settings for the client and will update automatically if the client’s account is updated to reflect any changes. If no trustee or account is in place and the account is held directly, only the account type (such as an “OPEN” or “CASH” account) will be shown.
On the right hand side, additional details of the account is shown. The “OWNER” of the account will display the client’s name, even when held through a custodian or trust company. The acronym “IPF” (which stands for “investor protection fund”) identifies whether or not the investments or account are subject to an investor protection fund. “TRADE AUTHORITY” identifies whether or not the firm/advisor have trading authority over the account of the client. In the majority of cases with exempt market dealer firms, both of these are set as “no”, but can be updated in the account settings for the client if needed.
2. Total Value Summary:
The Total Value Summary section provides an overview of the client’s investment activity and performance within the account.
The first statement under this section identifies whether the total investment value (in reference to “current market value” or “CMV” for all investments) has increased or decreased since the account opening date. This figure is calculated by identifying the initial holdings of the account as of the account opening date and contrasting it with the current market value of the holdings as at the high-date for the Investment Performance by Account statement, excluding contributions and withdrawals from the account.
This is followed by a statement identifying the total amount contributed into the account [less withdrawals] (typically the aggregate purchase cost – see below for details) and a statement showing the total investment value in the account as of the statement high-date.
A graphical representation of this data is then provided to show clients the difference between their contributed cost (net of withdrawals) since the account was opened, compared to the current market value retained in the account.
In some cases, a client may have generated sufficient income or proceeds of sale/redemption to bring their total contributions below zero, resulting in a negative value. This will occur when a client has had return of capital (by way of dividend, income, redemption or sale) that exceeds their total purchase cost. The purpose of this is to show total value return from a performance perspective. To understand this better, it should be viewed as an indication that the client has already received realized value in excess of the cost of their investments and still also holds unrealized investment value within the account. Their total return is the amount below zero that has been contributed plus the current market value shown.
Important Note on 'Contributions and Withdrawals': The concept of “contributions and withdrawals” is fundamental to performance calculations using a money-weighted rate of return methodology. Traditionally, “contributions” and “withdrawals” are deposits into or withdrawals out of a bank or custodial account administered by the dealer for the benefit of the client. This allows for account performance reporting to include cash balance holdings and their impact on investment performance. For exempt market client-name holdings (where a client holds their investments directly on the records of the issuer or in a self-directed account not under the administration of a nominee dealer or portfolio manager), such as those reported in the Exempt Edge System, there is no formal “account” and therefore no ability to track “contributions” and “withdrawals” in a traditional sense. In order to address this while maintaining the ability to report performance, Exempt Edge deems all purchases and transfer-in activities to be “contributions”, while sales, redemptions, income, dividends and transfer-out activities are deemed to be “withdrawals”. By doing so, the system is able to approximate an actual “account” by creating a presumption that immediately prior to a purchase of an investment, sufficient cash has firstly been deposited into the account to make the purchase. In the case of a deemed “withdrawal”, the system presumes that the proceeds of redemption, dividend or income (as applicable) are first paid into the account before being withdrawn by the client into their personal or self-directed account. As a result, client performance matches to crystallized cost and value without skewing the rate of return values.
It is important to note that while a dividend or income is theoretically paid into the account before withdrawal, this is not considered a “contribution” because it is not initiated by the client and is instead of a result of ongoing investment performance. |
It is important to note that while a dividend or income is theoretically paid into the account before withdrawal, this is not considered a “contribution” because it is not initiated by the client and is instead of a result of ongoing investment performance.
3. Change in Value Summary
The “Change in Value” Summary shows the change in account value in two columns: the 12-month period set out in the Investment Performance by Account statement (“Period of XX-XXX-XX to YY-YYY-YY”) as well as since the creation of the account (“Since you opened your account on ZZ-ZZZ-ZZ”). This information is displayed in five rows of containing different data sets:
(a) Market Value at Beginning of Period
This row displays the market value of all investment holdings in the account at the start of the statement time-period. To calculate this figure, the current market value of each investment in the account is aggregated as of the start of the period date. Where an investment was determined to have a “non-determinable” market value (which is set within the offering details of the investment) it is deemed to have a nil value.
Market value includes the attributable market value of any reinvested dividends or distributions, as these amounts are not included in the “withdrawal” section of the chart.
This amount is typically set at zero at the date of account opening because all transactions (including Initial purchase) are shown in the purchase of securities section, below.
(b) [Purchases of securities, transfers into the account or deposits of “cash” with [Dealer] but not including re-invested distributions]
This figure displays the total “contributions” into the account for the given time-period. Typically, this is representative of the aggregate purchase cost of investments in the account. This value does not contain withdrawals, and will include the total cost of investments that have exited fully.
(c) [Investment exits, income, redemptions, transfers out of the account, and return of capital, but not including re-invested distributions]
This figure displays the total “withdrawals” out of the account for the given time-period. Typically, this is representative of the aggregate redemption proceeds, dividends and income generated from investments that formed part of the account. This calculation does not include contributions.
Reinvested dividends are not included as withdrawals, and are instead represented as part of the market value of the account holdings until such time as they are separately redeemed, sold or otherwise withdrawn from the account.
(d) Income or distributions which have been reinvested, including through a dividend (this amount is also reflected in the change in market value below)
This figure displays the total reinvested distribution units, this amount is also reflected in the change in market value.
(e) Change in market value of your investment with [Dealer]Including reinvested distributions
Change in market value during the period shows the increase or decrease in the account value (including attributed value to income and dividends). This figure is calculated as:
i. the market value of all investments in the account at the end of the Investment Performance by Account statement period (see 3(e))
MINUS
ii. the market value of all investments in the account at the start of the Investment Performance by Account statement period (see 3(a))
MINUS
iii. the “contributions” into the account deemed to have occurred by an investment purchase or transfer of securities into the account during the period
PLUS
iv. the “withdrawals” out of the account deemed to have occurred by an investment redemption, sale, dividend, income or transfer of securities out of the account during the period (not including re-invested dividends and distributions)
(f) Market Value at End of Period
This figure displays the current market value of all investment holdings in the account at the end of the given time-period. To calculate this figure, the current market value of each investment in the account is aggregated. Where an investment is determined to have a “non-determinable” market value (which is set within the offering details of the investment) it is deemed to have a nil value.
Market value includes the attributable market value of any reinvested dividends or distributions, as these amounts are not included in the “withdrawal” section of the chart.
Personal Rate of Return
“The Personal Rate of Return” section of the Investment Performance by Account statement contains the investment performance information applicable to the client’s account on a total percent return basis, net of fees and charges, using a money-weighted rate of return basis.
The Personal Rate of Return section of the Investment Performance by Account statement contains a paragraph explaining the performance calculation methodology. A money-weighted rate of return (sometimes referred to as a “personal rate of return”) differs from a traditional time-weighed rate of return takes into account the timing and amount of contributions and withdrawals (purchases, sales, redemptions, dividends and income in the Exempt Edge system) that occur during the period being evaluated. The timing and amount of these cash flows can have a significant impact on the money-weighted rate of return because they affect the amount of capital that is available to generate returns. This is calculated using a function similar to the “XIRR” function available in Microsoft Excel which calculates the internal rate of return (IRR) for an irregular series of cash flows.
Following this explanatory paragraph, the Personal Rate of Return section of the Investment Performance by Account statement contains a table that sets out the “Personal Rate of Return” (or money-weighted rate of return) for the client’s account on an annualized basis calculated net of charges. This information is provided for the 12-month period covered by the Investment Performance by Account statement as well as 3-year, 5-year, 10-year and since account opening periods. In the Investment Performance by Account statement, the account opening date is referred to as “Since Inception” since no formal account is opened and the user may wish to avoid confusion where a client holds investments in self-directed account which may have been opened prior to or after the forming of an investment relationship with the user.
After the table showing personal rate of return, this data is mapped in a chart to show a graphical representation of the same returns on an annualized basis for the applicable periods.
Important Note on “Money-Weighted Rate of Return” Contributions and Withdrawals Money-Weighted Rate of Return (MWRR) is also sometimes referred to as Personal Rate of Return (PRR) or Internal Rate of Return (IRR). A key aspect of this measure is to consider the timing of cash inflows and outflows, sometimes referred to as “contributions” and “withdrawals” in the context of an investment account. For a traditional investing account administered by a dealer or portfolio manager at a bank, trust company or custodian on behalf of a client, the contributions and withdrawals typically take the form of deposits and withdrawals of cash, or occasionally investments transferred in-kind.
The Exempt Edge system was designed to handle performance reporting for client-name holdings where there is no account administered by the firm, but investments are instead held in a self-directed account with a third party trust company or directly on the books and records of an investment issuer. In these cases, there are no transactions conventionally viewed as “contributions and withdrawals”, however the Exempt Edge system deems certain transactions to be contributions and withdrawals in order to approximate the timing of inflows and outflows of cash for the purpose of generating a money-weighted rate of return.
Exempt Edge deems all purchases and transfer-in activities to be “contributions”, while sales, redemptions, income, dividends and transfer-out activities are deemed to be “withdrawals”. This is based on a presumption that immediately prior to a purchase of an investment, sufficient cash has firstly been deposited into the account to make the purchase. In the case of a deemed “withdrawal”, the system presumes that the proceeds of redemption, dividend or income (as applicable) are first paid into the account before being withdrawn by the client into their personal or self-directed account. As a result, client performance matches to crystallized cost and value without skewing the rate of return values.
It is important to note that while a dividend or income is theoretically paid into the account before withdrawal, this is not considered a “contribution” because it is not initiated by the client and is instead of a result of ongoing investment performance. |
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