What Survey Data Shows About Mutual Fund Factsheet Design

Asset managers have been building factsheets for as long as they have had investment funds to sell. But how good are these documents at performing the job they are meant to get done: equipping the buyer with the information they need to make a purchase, and building trust and credibility in the fund and the manager?

The answer matters—and not just because factsheets can help (or hinder) a sale. Around the world, financial regulators are pressing for more transparency and greater clarity in investor communications. It’s easy to create ineffective or even counterproductive communications. It can be surprisingly difficult to create investor communications that engage and educate the buying customer.

Financial products can be inherently complex. But communicating their value can be made both simple and clear with careful enrichment and presentation of the underlying data

Factsheets detail critical information on fees, risk, and historical returns. Analyzing fees on an investment product is critical since high fees significantly impact overall returns. 

Conveying this complex analysis with simplicity requires thoughtful data enrichment and intuitive design. 

The result is a client engagement tool that facilitates confident decision-making for advisors and their end-clients.

We put four factsheets to the test in the United Kingdom market with twelve invested and advised individuals. Each had at least £100,000 ($126,000) in investable assets and some had more than £600,000 ($756,000).

We tested three factsheets, two from well-known global asset managers and one from Morningstar. We created the fourth one ourselves, based on our own understanding of best practices. We sent two factsheets to each investor, asking them to mark up what they liked about them, and what they didn’t. We then interviewed each investor one on one.

Although our mocked-up factsheet scored the highest with our panel, there was plenty for us to learn too about how investor communications can build or erode trust during the purchase process.

Here are some of the biggest takeaways.

Consumers expect that understanding investor communications will be challenging. Nevertheless, too much text and data can create a psychological burden that discourages engagement.

About half of our panelists reacted to what they judged to be too much detail by second-guessing whether the fund might be suitable for them. Others interpreted it to mean that the communication was for a professional audience and not for them.

“When I first looked at it and saw all this writing, I thought this is for a financial advisor,” said one panelist. Some associated data density and volume with terms and conditions rather than marketing information for investors.

Morningstar's mutual fund factsheets are between 1-3 pages in length before disclosures.

Use simple language to communicate key facts. Technical language, acronyms, abbreviations, codes, and industry jargon can all become barriers to understanding.

Most panelists didn’t understand basis points, trailing returns, or equity bias, for instance.

“Moderate biased equities…I’m not really sure what that actually means,” said one. “There’s so much ambiguity, there’s so much uncertainty that I don’t understand what the fund strategy is.”

Let investors know that you have designed your factsheet template for them with a succinct summary of investment objectives.

Objectives should include:

• The purpose of the fund or portfolio
• How it is managed and who manages it
• The risk level associated with it
• Factors influencing risk and returns
• Where to find more details on risk, return and performance in the rest of the document

“The header and fund objective are an essential grounding of what you’re looking at,” said one panelist. “I [like when there] is a focus on the actual people behind decisions. You can get a sense of the ethos. And that aligns with the rounded things I’m looking for from an investment as well as getting returns.”

Present performance data in context with a category benchmark. That shows how performance compares that of other, similar investments.

Performance data should include:

• Granular-level percentage data of cumulative performance against the relevant benchmark.
• Combined cumulative yearly data displayed in line graphs.

Investors expect to be able to assess mutual fund performance net of costs and charges.

Some panelists missed that they were looking at gross returns. Others became frustrated when they realized that returns were not net of all costs.

“I didn’t like the fact that what they were showing me was not my actual return, net of all charges,” said one investor. “They’re treating me like a commodity. I feel like this is basically saying, ‘if you want to know what your actual returns are, you need to work it out for yourself.”

Morningstar portfolio reports often show the following datapoints on total mutual fund fees, with explanations of how they're calculated:

• Average net expense ratio
• Average gross expense ratio
• Potential capital gains exposure
• Estimated mutual fund expenses amount

Templates should use fonts, colors, boxes, and dividers to group and label related content clearly.

“You can see where one bit of information ends and another begins,” noted one panelist about a fund factsheet she liked. “You know what you need to take in to be able to form that particular part of the picture…just looking in this ‘bit,’ you’re going to get ‘this’ information.”

Use progressive disclosure (or “layering”) to reveal deeper and more detailed levels of information gradually: a clear and informative headline, a concise summary, then more detail. Allow your customers to choose what information they need, and how much of it.

Choose data visualizations that support your goals:

• Graphs can help investors assess performance and understand nuance.
• Tables can convey key facts and performance information in a structured format.
• Graphics capture attention and guide focus.

Ratings, scores, codes, and weightings can be powerful tools to net out information for investors. But most investor communications do a poor job explaining what they mean, the credibility or independence of the data, or how scores or ratings are calculated.

Without explanation, our panelists speculated about the independence or credibility of the data, or were simply baffled. “What are they telling me?” asked one investor as she looked at a table of a fund’s weightings. “We are in these regions and these sectors? Is this good, bad, or indifferent?”

Another struggled with a list of holdings that showed two Morningstar-rated gold star funds, one silver and three bronze. “I can see that nearly a fifth of the fund is only bronze,” she noted. “So, is that a good thing to have if it’s not a gold star? Why have we got a fifth of it in that investment?”

Like words, data is a language. All too easily and without intent, we end up speaking a language that obscures, confuses, and overwhelms our intended audience. The good news: we know how to create more effective investor communications. We can learn how to enrich data through careful curation and presentation to simplify, clarify and build a shared understanding.