Morningstar VA data: A tale of two displays

After adviser notes differences between adviser and client reports, Morningstar Inc. may review the way it displays returns on variable annuity subaccounts.

Morningstar Inc. may consider reviewing the way it displays information to advisers and their clients about returns on variable annuity subaccounts.
InvestmentNews learned from an adviser that the way Morningstar depicts the VA subaccount returns on customer reports differs from reports on the same funds’ performance in the Morningstar Principia program.
“We would show someone actual year-by-year performance versus the other investment, but [the report] doesn’t show it to them in a cumulative way or in the form that they’re most used to,” said Mark Cortazzo, a principal of MACRO Consulting Group. “It requires more explanation.”
Brian Cullen, product manager for Principia, said that the information on both the client report and Principia was the same, but merely are displayed in a different manner and are not discrepancies.
Point-to-point performance over a year, 3-year, 5-year and 10-year period is displayed numerically for advisers, while clients see the same performance, without fees being deducted, in graph form, he said. Clients see performance net of fees in a table adjacent to the graph.
When measuring fund performance, the customer reports for trailing returns assume liquidation at the end of the one-year, three-year, five-year and 10-year intervals, and take into account surrenders and contract charges.
The performance report in the Principia program doesn’t assume liquidation and doesn’t show the surrender and annual fees. As a result, the fund performance seen on the client report is different from what the adviser sees on his or her Principia report.
Finra and the Securities and Exchange Commission require that client communications depict returns adjusted for loads and surrenders, Mr. Cullen said. “This can be used in sales situations and with prospective clients, so it’s important to show them this information,” he added.
Mr. Cullen said Morningstar will review adviser feedback on the issue and evaluate it.
Making a change in the way the data are displayed “is something we’d consider, but it’s not necessarily a priority,” he said.