Wealth industry figures recently gathered at the launch of a new research report by this publication to talk about improving how firms report to clients - and why the standards aren't yet good enough.

Improving client reporting may have sunk towards the bottom of wealth managers’ to-do lists for fairly understandable reasons, yet continued neglect is starting to look like a very dangerous strategy indeed – that was the message from industry luminaries gathered to launch this publication’s latest research paper, Client Reporting – Regulatory Burden or Client Engagement Tool?

Setting the scene was Chris Brown, wealth management and private banking sector head at Computershare Communication Services, who observed that in a compliance-dominated landscape many institutions have lacked the wherewithal – and will – to make enhancements. “Post-2008, the wealth management world has been completely driven by regulation and reporting has been seen as predominantly a regulatory piece as the industry hasn’t previously had to consider too much how well it engages with clients,” he said. “There’s been an attitude of ‘let’s not fix what isn’t broken'.”

Not broken from a strictly regulatory perspective? Perhaps. But our expert panel wasted no time in setting out why reporting is often not delivering everything it should to clients, and the multitude of business benefits complacent firms are failing to capture by not recognising it as the powerful differentiator it so clearly can be.

“As an industry, is reporting as good as it could be? The answer is clearly no - you only have to look at clients’ frustrations to see that,” said Tim Tate, head of customer experience for Barclays UK, who made it clear that obscure reporting is as much of an issue for bankers as it is for clients, acting as a barrier to best practice, better relationships and efficiency.

As Tate explained: “When you talk to clients, and to bankers, all too often people are spending their time explaining facts rather than having value-add conversations. Why are they doing that? Because often the reporting is failing to deliver the key messages to clients in a way that they can understand.

“Those key messages are: What have I got, how is it doing and how much is it costing me? If you answer those three questions really clearly you can get into those value-add conversations much quicker, rather than spending half the meeting explaining the latest statement. That’s obviously not working.”

Greg Davies, Head of Behavioural Science at Oxford Risk, put the generally parlous state of client reporting down to the fact that up until now it has never really been seen as a client engagement tool. The industry’s left-brained mindset, alongside technical and budgetary barriers, has cast a long shadow.     

“Many reporting systems were designed a very long time ago simply to play back a host of numbers, by people who are very comfortable with numbers, working under the assumption that everyone else also is and that’s what they want to see,” he said.

Emotional intelligence
In Davies’ view, the sector must recognise that from a behavioural perspective the information clients see on their portfolio performance is “a primary driver of their emotional state and therefore what they do next”; much mischief can come from the “huge disconnect” he sees between the information played back and that which is actually needed and useful.

“We as an industry tend to pump information in far too much granularity and covering far too short timeframes at people whose overall aim is growing their wealth in the long term,” he said. “When there is a disconnect between the information we show and clients’ objectives we are asking for an emotional response that will inevitably lead to untoward investment behaviours.”

Davies advocated a blurring of boundaries between reporting and engagement as personalisation, in line with investors’ financial personalities, to be brought to the fore: “At heart, wealth managers’ reporting should be telling a client that their portfolio is doing what it was intended to do – and presenting information in such a way as to make them feel comfortable with that so they stick with it.” Investors less sanguine about risk should be reported to less frequently and at a higher-level than those more comfortable with the markets’ ups and downs, for example.

The personalisation of investment commentary was also a significant theme, with Davies arguing that much of what is typically provided is “useless or even harmful”, and Tate exhorting firms to always think in terms of the client asking “So what?” as they attempt to pick through reams of generic content. As touched on during the debate and explored more deeply in the report, the industry needs to be moving towards commentary aligned with individual portfolios which is generated as automatically as possible. Fintechs are working on these kinds of capabilities now but, as Tate observed, they probably lie a long way off for an industry still broadly grappling with legacy systems.

A massive step further forward
In the view of Richard Charnock, CEO of Standard Life Wealth, much of the industry has become stuck at the stage of keeping pace with the regulatory requirements for reporting; grappling with changes like MiFID II’s ex-ante and ex-post cost disclosures, alongside the need to notify clients if their portfolio falls by 10 per cent, will have made many firms – particularly smaller ones – forget more substantive reporting enhancements for the time being.

He said: “Understandably, we get obsessed with the regulatory requirements that condition reports and getting them right within the rules. To do that you’ve got to get all the data to feed in from your platform to generate a compliant client report, which is challenging enough. Then to upgrade it - to refine it, finesse it, contextualise it and make it digital - is a massive step further forward.

“Reporting is a regulatory requirement in a lot of houses; to go to the next stage and meet the client demand is a big budget strain and a lot simply haven’t got the resources to do it.

There’s a very long tail in the private client industry and at the end of that tail – and in the middle too – spending the money required to get reporting right is really difficult.”

Spurs towards transformation
Yet however difficult it may be to muster the budget (and corporate energy) to embark upon yet another change programme, wealth managers must move with the times, our panel argued. Other sectors have set a bar for slick customer experiences that the wealth management industry must also reach in order to continue burnishing its aspirational, client-centric credentials. It must also vigorously fend off the fintech threat as millennial money comes to the fore.

More prosaically and yet even more importantly, Brown pointed out, are the need for increasing cost transparency and the ever-greater focus on value for money coming from both the regulator and clients. “We need to be thinking about what reporting would look like if Apple did it; digitalising is not just turning a paper pack into a PDF,” he said. “But even more than that, good reporting comes back to the demonstration of value – showing clients clearly what is being done for their investments and what they are ultimately getting from this service.”

As our expert panel observed, as yet there is no official model for what “good” reporting looks like from the regulator. It will be down to individual institutions to decide how willing they are to revolutionise - and digitalise - their approach to reporting to give modern clients what they want and need. But while the industry is only just beginning to wrestle with what ideal reporting should be, what it should not be is becoming abundantly clear – and that is a tick-box exercise that does little or nothing to engage HNW investors in how their money is being managed. As institutions vie to differentiate their offerings in an increasingly competitive market, unintelligible, uninteresting doorstoppers of paper are out and reports that really evince the USPs of wealth management are in.    

Client reporting is a hugely broad area covering compliance, client experience, cost-efficiency and more, and we would urge interested readers towards the research on which this panel discussion was based. Client Reporting – Regulatory Burden or Client Engagement Tool? draws together insights from C-suite executives, consultants, technology experts and HNWIs themselves to provide a comprehensive analysis of where this most important element of communications strategy is heading.

To view the report and download a copy, go to this link to the report, and complete your details at the field below.