Acknowledging both that change and impact, Boston-based DALBAR Inc. has outlined what it considers to be criteria that ensure that those statements are calculated to be understood, while at the same time minimizing costs in its annual Trends and Best Practices in Investor Statements.
Topping the list of 47 defined contribution statements were offerings from T. Rowe Price, while PFPC, Charles Schwab, Merrill Lynch, Scudder, Securian, and CIGNA also received an “excellent” designation from DALBAR.
To help ensure that the statement is “designed to be understood, “DALBAR says it should:
- Answer participants’ primary questions about the account , including a presentation of the total value of the account, identifying vested versus non-vested balances, presenting the value of individual holdings, an allocation of assets, as well as presenting changes that impact the value or allocation of those assets during the reporting period. Furthermore, DALBAR says answers to participants’ primary questions should be distinguishable at first glance by use of bold and large fonts, shading, borders, white space, and graphics.
- Indicate whether changes in the account’s value are reasonable and expected , by including benchmarks to help participants compare their results.
Still needed: DALBAR says in its analysis that no firm personalizes market index performance to match individual participant cash flow and timing.
- Track participants’ progress toward meeting personal goals for the account to help counteract negative reaction to negative returns, to help them focus on longer-term goals, and to remain aligned with those enrollment kit messages that inspired participation in the first place.
Still needed: DALBAR says that none of the firms it examined currently allow participants to select a personal financial goal that can be tracked on the statement, and says that statements that give prominence to the goal selected by the participant, rather than on “rear-view” measures of performance such as rates of return or investment performance, would be more appropriate.
- Ensure that statement content is accessible to participants by using language and explanations appropriate for the average statement recipient – avoiding industry jargon, legalese, or technical abbreviations – as well as adopting disclosure language that doesn’t cloud valuable information. DALBAR also suggests avoiding content that is irrelevant to the individual – content that lengthens the statement, detracts from relevant content, and increases drop-off in readership.
Still needed: DALBAR suggests including a brief message on the statement, such as “Please call us at 800-xxx-xxxx if you need additional explanations of anything on the statement.”
In addition to content, DALBAR also said that paying attention to key design elements can enhance readability, such as the use of different size fonts, bolding, and italics to highlight important content, including sufficient white space to avoid an overcrowded and overwhelming appearance, and the use of graphics/charts to highlight important information.
Additionally, DALBAR notes that the Web can be leveraged to increase both the effectiveness of the statement and the efficiency of its production. DALBAR suggests that:
- customers be registered to use the online access during the new account application;
- the hard copy statement should prominently document the content available on the Web;
- all Web-based statement content be in a single, readily located section of the site with a single URL;
- the hard copy statement offer detailed instructions for accessing the Web statement content.
Additionally, when the hard copy statement is sent, DALBAR says providers should consider sending an e-mail to the participant that includes single-click access to Web statement content.
On an annual basis, DALBAR's Trends and Best Practices in Investor Statements program guides financial services firms in delivering statements that meet the needs of consumers and financial professionals while minimizing costs and maximizing effectiveness. The results show the ranking of statements, analysis of customer needs, and industry best practices. For more information, you can e-mail DALBAR at mailto:info@DALBAR.com