An overwhelming number of firms serving as external CIOs for private families and family offices said reporting capabilities were “very important” to their clients. But the majority of them aren’t satisfied with the quality of the client reports they provide, a new report finds.

While an overwhelming 83 per cent of firms serving as external chief investment officers for private families and family offices said reporting capabilities were “very important” to their clients, the majority of them aren’t satisfied with the quality of the client reports they provide, a new survey has found. 

Almost half (46 per cent) of those questioned for The Family Wealth Alliance’s recent External CIO Study are “less than highly satisfied” with the quality of their client reporting services, while 38 per cent claim to have a list of related improvements they’d like to make but can’t.

Client reporting services that respondents would like to add include after-tax performance analysis; partnership accounting for family investment vehicles; online portals for client information access; better data aggregation; improved reporting on illiquid assets; more sophisticated performance attribution; and the ability to track investment performance versus financial planning goals.

According to the report, reasons behind the barriers to upgrading include legacy technology systems that are costly to modernize; the complexity of enhancements such as after-tax reporting or partnership accounting; and the difficulty in finding outsource technology vendors, among other factors.

The dissatisfaction in quality of reporting could be linked to the fact that - as other industry studies have previously suggested - wealth managers in the US are more tech-savvy and therefore target a leaner business model than their global peers.

“The US market tends to be driven by investors that are more technologically savvy and demanding,” Ryan Hicke, a managing director for the SEI Wealth Platform, previously told Family Wealth Report. Meanwhile, FWA also said that the “many mentions” of online and real-time reporting reflect client demands for better technology. 

However, making enhancements is “neither cheap nor easy,” the firm noted.

Enhancements neither cheap nor easy

A considerable 71 per cent of respondents believe that the importance of client reporting has increased in the last two years. Indeed, last year Rob Fiore of Private Client Resources told this publication that the time-consuming and complex nature of financial reporting is likely to trigger a “major exodus” in family offices outsourcing this duty over the next three years.

As recently noted by Bob Leaper, head of business development at DST Global Solutions, wealth management firms are “rethinking their business models,” resulting in increased interest in client reporting tools that enhance transparency and client satisfaction (view article here).

“Even as technology improves, new reporting needs appear and ratchet up expectations,” said Robert Casey in FWA’s report. “More so than ever, cutting-edge reporting technology can be a differentiator for wealth managers, particularly where younger clients are concerned. Yet the costs and risks of cutting-edge status are formidable,” Casey said.

It is also worth nothing that in recent years the wealth management industry as a whole has faced an increase in compliance and related costs, which consume a hefty chunk of organizations’ time. And while various technologies claim to offer effective and cost-efficient solutions to address and comply with new standards, other recent findings suggest that providing “truly customized” reporting remains a challenge for many industry players.  

Additional insights

In other significant findings from FWA’s latest report, marketplace awareness - as regards participants’ own firms and the external CIO service model itself - remains as the top challenge for external CIO firms (as was the case in the two previous studies), FWA said.

After this was managing assets in “turbulent markets” - although this declined in importance relative to marketplace awareness compared to last year - while third biggest overall business challenge reported by respondents was managing client relationships and expectations, followed by technology and reporting.

A total of 38 firms providing external CIO services took part in this year’s study, with assets under management of $416.4 billion as of year-end 2012.

The Family Wealth Alliance noted that while no “generally accepted” definition has yet been established to cover the external CIO function, it typically involves giving “top-level” outsourced investment portfolio advice and execution.

“The trend is toward fully discretionary investment advice, though many external CIOs operate with partial or no discretion,” the firm said.