Brokerage and custody statements may not be sexy but they’re at the heart of every financial advisor’s client-communication strategy. Experts in the field say that beyond their function as vital sources of performance and allocation data, attractive and legible statements can underline a firm’s commitment to transparency.
Brokerages and custody providers know this. Their interest in understanding how their statements stack up to the competition's is why Boston-based research firm Dalbar publishes an annual ranking of brokerage and custody statements on the criteria of clarity, content and design, which are the main elements that contribute to the end client’s understanding of his or her investment performance, according to Dalbar’s Jared Licklider.
“When it comes down to it, a brokerage statement doubles as a marketing tool,” says Licklider. Besides featuring their names and logos prominently — for this purpose custody statements are usually white-labeled for RIA branding along with the custodian’s information — “firms often use them to link to online tools and calculators the firms really want to promote,” he adds.
These links are direct in online statements; in paper statements, they’re web addresses — and just how clear those paper-to-internet instructions are factors into Dalbar’s assessments.
Another brokerage-statement priority for firms is "transparency," especially "around fees" — often a challenge for firms that don't want to send out "400-page statements," Licklider jokes. Although a lot of transactional detail can be shunted to readily available online statements, paper statements have to feature enough disclosure to satisfy investors “who aren’t web savvy” — and the regulators who protect them.
Merrill chief Andy Seig is tickled to see the firm’s “statements recognized for setting the industry standard,” he says in an email exchange with FA-IQ. “Straightforward access to fees and other information is important to our clients and advisors, and we’ve worked hard to deliver it, both online and on paper.”
Though Licklider points out Merrill has been at the top of Dalbar’s statement rankings “for the past six, maybe seven years,” he’s quick to say the competition “is really tight at the top.” In fact, it would be hard to slide a blade between Merrill, Pershing, Morgan Stanley, Edward Jones and Baird. “One little thing they might add” in the course of a year to improve their statements might upset the order or put more distance between rivals, he adds.
Pershing, the brokerage-clearing and RIA-custody unit of Bank of New York Mellon, is a case in point. Though in second place this year, as for the last several years running, it has widened the distance between it and number-three Morgan Stanley “by a pretty substantial two points,” says Licklider.
Jersey City, N.J.-based Pershing did that mainly by revamping the look and feel of its statements. In particular, it changed the ink color and fonts on its statements to boost legibility and it made better use of white space and headings to help readers spot top-of-mind information without having to sort through a lot of minutiae first, according to Licklider.
Assisted by an outside "information design" firm, Pershing has in fact been working for the past few years to revamp its statements, according to Andrea Beske, who focuses on investor communication as part of the firm’s financial solutions team.
“We hadn’t redesigned our statements in several years, so we used a lot of Dalbar’s feedback to make sure we’re on the leading edge,” says Beske. Another source of ideas for improving the look, feel and consistency of statements: “Advisors give us a lot of feedback,” she adds.
In fact, FA feedback led Pershing to rush in a change several months after the official 2017 roll-out of its new statements. “Our enhanced statements didn’t include new paper,” Beske shares.
But after advisors started to suggest the new look deserved a better shade of paper, “we switched to ‘Blue Ombre,’” Beske says, referring, it turns out, to the color of the paper. “Feedback can be a powerful thing.”
But feedback from FAs on client statements is limited to the information available to them.
For instance Mark Smith of Vision Wealth Planning in Glen Allen, Va., uses Schwab as his custodian, so its statements “are my point of reference.”
Still, Smith is pretty happy with Schwab's statement. In particular, he likes that they comes with an option for customization.
“What we look to accomplish with statements, for clients who actually review them, is as clear and straightforward listing of monthly activity and holdings as possible,” says Smith, who manages about $30 million and charges on an hourly and project basis.
On the premise that “making that statement easy to understand is key,” his firm strips out “any market performance data where possible” such as tallies of the S&P 500 and Dow Jones Industrial Average as information that’s “irrelevant in the context of a monthly statement.”
On the other hand, Smith is less than thrilled with how statements tend to categorize holdings. “The custodian’s method of grouping is often out of sync with what an asset really is and how we are using that asset in the portfolio.” says Smith.
Smith gets around that by telling clients “the custody statement is to give you a third-party accounting of activity and holdings valuation, a very important function,” he says. But, he adds, he cautions clients not to "expect the statement to provide context for our investment strategy. That's the job of our quarterly reporting.”