The author of this item examines changes that are, or which need to be made, to client reporting service models.

What sort of forces shape how wealth managers report to clients? The business of how firms communicate with clients is crucial to a successful, long-term business relationship (much akin to any other walk of life, in fact). In this article, Peter Bambrough, senior consultant at Citisoft, a firm advising wealth managers and other firms on such issues, looks at some of the details. We invite readers to respond with their own views.

Much of client reporting has not changed in the last 30 years. Yes, if Asset Managers looked at their reports then and their reports now they should be seeing a difference in presentation style, their systems should be better, data should be properly managed and there should be workflow to make production and distribution more efficient. But in many cases the individual sections within the reports and the data items included will be much the same.

So why should the service model be changing now? Here are five good reasons.

Regulation
The sheer volume of regulatory changes that are currently being written, reviewed and implemented is staggering. Some of this is directly impacting the information that asset managers need to deliver to clients and some are reporting to central authorities, but they all require significant volumes of position and / or transaction data, and an efficient delivery mechanism.

Consider Pillar III of Solvency II where insurance companies are being obliged to know the investments they actually have and so are requiring asset managers to disclose the holdings in their retail funds. This is sensitive information which asset managers would traditionally not disclose in full, yet now need to provide on a timely basis and so need to have agreements in place with recipients about non-disclosure. Those managing funds of funds need to be able to provide data on those underlying funds – even where these are managed by a third party - which further complicates the issues of confidentiality and timeliness of data delivery/disclosure.

Within Solvency II there is no standard for the data items to be included and so a variety of output formats need to be supported by each asset manager. More than one asset manager we spoke to has felt that some clients are including data that they have been told they should want but don’t necessarily understand, whilst others are seeing this as an opportunity to ask for more data than is necessary under the banner of Solvency II so that the manager bears the cost of sourcing that data.

To meet the needs of Solvency II and other regulations an asset manager therefore needs good data management, a central repository of re-usable data, flexible report / data output and workflow management. In other words, all the ingredients of a good client reporting platform, plus the organisational structure to not only deliver the required data, but also to stay on top of changing legislation and regional differences. Organisations who already have this level of sophistication are much better placed to meet these new regulatory obligations - from a technical perspective at least.

Whilst some asset managers are looking to their existing client reporting teams to take on regulatory reporting to end clients, others are establishing new departments with specific responsibility for regulatory reporting.

Distribution models
Asset managers are generally increasing their international footprint and offering retail funds and institutional services to clients in multiple countries. If we look at Europe, this means not just the ability to report in multiple languages, but also follows on from the previous point as each country will have its own regulatory requirements and need different disclaimers, etc.

One recent survey by State Street found over 30,000 retail fund asset classes available in the European retail market. That equates to a frighteningly large number of factsheets and KIIDs being produced on a regular basis – and a major headache in keeping up with the different regulatory regimes in each country.

Another concern is the online sales of retail funds. This is where third parties are selling retail funds from multiple and the asset manager has little or no control over how their funds are marketed on those websites, how up to date their information is, and so on. Online sales will only increase requirements for more frequent publication of data to multiple jurisdictions.

Multi-asset
Recent surveys have indicated the rapid growth in interest in this type of mandate and this is certainly matches discussions we’ve had with a number of our clients. This is quite a different way of managing money and requires a different style, not just in portfolio construction but also in how it is reported to clients.

These portfolios are managed by putting together a number of investment strategies, where each strategy is a combination of securities to give a very specific exposure based on the asset manager’s views. It is not therefore appropriate to report at the security level, but rather at the bundle level.

When asset managers launch a new product, they should also decide how it should be reported and then determine how to do that rather than just applying existing standard reports. Existing data models and reporting platforms can struggle with some of these portfolios, e.g. having multiple positions in the same security in the same portfolio, but split across the different strategies.

Client demands
Clients are increasingly demanding more sophisticated reporting and analytics – and some of them even understand what they are asking for and what it actually tells them about their own portfolio. Again this ties in with the point on regulatory changes as more reporting and data is demanded of us.

Transparency is an overused word at the moment and the wider financial services industry is constantly being told that it needs to be transparent. However, it’s not just a case of preparing as much data as possible and making this available to the client so that nothing is hidden, as clients are saying that ‘less is more’ and that they only want to see the relevant data.

Standard reporting models are becoming less relevant where high levels of client service are required. In the institutional and ultra high net worth worlds it is becoming ever more common to deliver a bespoke service experience with client requests for customised reports being accommodated “as part of the service” – some organisations have being doing this for many years whilst others are now moving towards it.

Regardless of client size and numbers, a key requirement of a client reporting system or service is not the ability to produce a specific range of reports, but is instead the ability to readily customise and build new reports in a short space of time and without IT effort.

Technology
Paper is still here, and will remain for a while yet, but the convention today is to email a PDF to clients. There is still much attention paid to detail on colours, typeface, and so on, but now the printing is done by the recipient on a small desktop printer, often in black and white. This, of course, renders all the colours in the report into grey.

There’s a tendency to think of electronic delivery of a PDF as screen-based reporting, but the two are quite different. Screen-based reporting needs to be built around the size, shape and behaviour of the various screen-based devices that we all now use. Delivering an A4 PDF report to a phone is not a great approach, but delivering key headline data may provide a benefit.

Conclusion
In short, the perfect storm is brewing to drive change in the client reporting service model. Regulatory changes are increasing the range of what must be reported, Distribution is broadening the client base, the multi asset [approach] is changing how we need to structure our data and the associated reports; clients are more demanding in terms of timeliness, delivery mechanisms and breadth of data and technology is enabling new service channels.