Investment Performance Reporting Methodology Disclosure
1. Purpose
This document sets out the methodology applied by Ai Financial in the calculation and public disclosure of investment return figures.
It is intended to promote transparency and consistency in performance reporting, and to provide clients, regulators, and other stakeholders with sufficient information to understand, assess, and replicate reported results.
This disclosure is maintained in accordance with applicable regulatory standards governing investment performance reporting for segregated fund distributors operating in Canada.
2. Performance Metric: Extended Internal Rate of Return (XIRR)
Ai Financial uses the Extended Internal Rate of Return, or XIRR, as the primary metric for measuring individual client investment performance.
XIRR is an industry-standard methodology for money-weighted return calculations involving irregular cash flows, and is consistent with the approach used in major financial applications including Microsoft Excel.
2.1 Definition
XIRR is a money-weighted rate of return metric that accounts for the precise timing and amount of each cash flow.
Unlike a simple or time-weighted rate of return, XIRR captures the economic impact of client contributions and withdrawals occurring at irregular intervals during the investment period. This provides a return figure that reflects the actual investor experience.
Mathematically, XIRR solves for the annualized rate r that satisfies:
Where Pᵢ represents each cash flow. Contributions are recorded as negative values, while withdrawals and terminal value are recorded as positive values. dᵢ represents the number of days elapsed since the first cash flow.
3. Cash Flow Definition
The following cash flow types are included in the XIRR calculation for each account:
| Cash Flow Type | Definition |
|---|---|
| Contributions | All client deposits and additional investments into the account, recorded at the gross amount contributed, meaning the full principal amount remitted by the client before deduction of any fees or charges. Contributions are recorded as negative values on the date funds are received. |
| Withdrawals | All client redemptions and partial withdrawals from the account, recorded at the net amount reflected in the account market value at the time of withdrawal, after deduction of all applicable fees and charges. Withdrawals are recorded as positive values on the date funds are disbursed. |
| Terminal Value | The current net market value of the account as of the calculation date. This represents the account balance after deduction of all applicable fees and charges, including management expense ratios, insurance charges, and any other costs embedded in the fund valuation. It is recorded as a positive value and serves as the terminal cash inflow in the XIRR calculation. |
All cash flow data used in these calculations is sourced directly from the insurance carriers with whom Ai Financial places client business. Ai Financial does not independently generate or estimate transaction data. The integrity of all inputs depends on data as reported by the respective carriers.
The following items are excluded from the XIRR calculation:
- Fees and charges are not modelled as separate cash flows. All applicable costs, including management expense ratios, insurance charges, and other fees embedded in fund valuations, are reflected through their effect on the account’s net market value.
- Internal fund distributions that are automatically reinvested are not treated as separate account-level cash flows, because they are already reflected in the account’s market value.
As a result, the XIRR calculation represents the net-of-all-fees return actually experienced by the client.
4. Calculation Period
The XIRR for each account is calculated from the account inception date, defined as the date of the first recorded contribution, through the current calculation date.
The calculation date is the date on which the return figure is generated. The terminal market value reflects the closing value of the account on that date.
Only accounts with a holding period of 12 months or greater are included in externally reported figures. Accounts with a holding period of less than 12 months are excluded from public disclosure, because annualized returns over short periods may not be representative of long-term investment performance.
No fixed annual or quarterly measurement period is imposed. Each account’s return is calculated on a since-inception basis, using the complete transaction history from account opening through the calculation date.
5. Portfolio-Level Average Return
Where Ai Financial discloses an aggregate or representative return figure across its client base, this figure is calculated as the simple arithmetic mean of individual account annualized XIRR values.
Each eligible account contributes equally to the average, regardless of account size. This reflects the return experience of a typical qualifying account rather than a capital-weighted portfolio return.
Where N is the total number of accounts included in the calculation, and XIRRᵢ is the individual XIRR for account i.
Accounts are included in the aggregate calculation only if they meet the following criteria:
- The account has a holding period of at least 12 months from inception date to calculation date.
- The account has sufficient transaction history for a valid XIRR to be computed, including at least one negative cash flow and one positive cash flow, inclusive of the terminal value.
- Accounts presenting data integrity issues, including missing transaction records, invalid or inconsistent dates, incomplete market value data, or other data quality deficiencies attributable to source carrier reporting, are excluded from the calculation until the underlying data has been verified and corrected.
6. Limitations and Disclosures
The following disclosures are material to a proper interpretation of reported return figures. Readers, including prospective and existing clients, should consider these limitations before making investment decisions based on disclosed performance data.
- Money-weighted methodology: XIRR reflects the actual investor experience, including the timing and amount of cash flows. It may differ materially from time-weighted returns reported by fund managers or benchmark indices.
- Net-of-all-fees basis: Reported returns reflect the actual investment experience of the client after deduction of applicable fees and charges. Because contributions are recorded at gross principal and all account values are recorded net of fees, XIRR implicitly captures the full cost impact.
- No guarantee of future performance: Historical returns are presented for informational purposes only. Past performance is not indicative of, and does not guarantee, future results. Investment returns are subject to market risk and may fluctuate.
- Unweighted average: The aggregate return figure is a simple arithmetic mean and does not weight accounts by assets under management or contribution volume. Larger accounts may differ materially from the reported average.
- Reinvestment assumption: XIRR implicitly assumes that intermediate cash flows are reinvested at the computed rate of return. Actual reinvestment conditions may differ, which may cause reported figures to diverge from realized returns in certain scenarios.
7. Regulatory Context
Ai Financial is a distributor of segregated fund products issued by Canadian life insurance companies. Segregated fund contracts are insurance products regulated under provincial insurance legislation in each jurisdiction in which Ai Financial is licensed.
As Ai Financial operates and may expand across multiple provincial jurisdictions, all applicable provincial insurance statutes and regulatory requirements are observed where relevant.
Investment performance reporting is subject to applicable disclosure requirements under the Insurance Companies Act (Canada), provincial insurance statutes, and any applicable guidance issued by provincial insurance regulators.
This document is intended to satisfy, in part, Ai Financial’s obligations with respect to fair, clear, and not misleading performance disclosure.
8. Contact
Questions regarding this document may be directed to:
Ai Financial
3000 Steeles Ave E #303
Markham, ON L3R 4T9