Using portfolio reporting as your edge

JAN 01, 2012
For the past decade, high- and ultrahigh-net-worth investors have been asking their banks and financial advisers a seemingly simple question: “How do you expect me to understand and track my portfolio from these reams of statements?” The unavailability of great portfolio reporting continues to be a source of client risk and frustration, representing both a threat and opportunity to advisers. Increasingly, clients have multiple relationships with banks, managers and advisers, and utilize multiple asset classes. The resulting multitude of statements and mounds of data make conducting efficient, regular reporting far more difficult. And since many registered investment advisers and multifamily offices aggregate and organize the data manually, it quickly becomes an expensive and slow process, leaving plenty of room for mistakes.

A BETTER WAY

Highly cost effective reporting solutions that allow clients to easily digest and understand what and why something happened within their portfolio, as well as its impact, are now available. Firms offering such portfolio reports transform themselves from a reporting “sweatshop,” where reporting is done in a cumbersome, error-prone manner, into one offering accurate, efficient reporting that results in increased clarity, and consequently, better advice. This, in turn, causes a ripple effect for the RIA or multifamily office, revolving around greater efficiencies, decreased operating costs, better relationships and, ultimately, greater share of a client's wallet. Firms that offer clear and comprehensive reporting have a powerful differentiator to win new clients. We have seen many advisers say, “Let's start this relationship by only doing the aggregated reporting. If we see something that we can comment on and suggest a better approach, we will.” If the information contained in a consolidated portfolio report is highly informative and organized clearly in a manner that it is easy to spot risks, excessive fees, poor decisions and tax inefficiencies, it almost always leads to preserving and building wealth — and as a result, more business. Since advisers who own the data own the client relationship, advisers who can use reporting to retain top clients, and most importantly, cement their position as the “alpha adviser,” often where a client uses many banks and has many advisers. Seeing the whole picture when others can see only their slice is a massive advantage. We often see a 10% shift of assets in the adviser's favor within the first year of utilizing comprehensive and clear aggregation and reporting. Of course, flexibility in how reporting is presented to different audiences is critical. These audiences include highly informed family chief investment officers and financially astute advisers, who need attribution and risk information; certified public accountants, who need accurate, tax-ready information; and family members ranging from adult and near-adult children of clients to family matriarchs and patriarchs. Advisers should tailor their account reports to suit their various audiences. One audience in particular, young adults between 15 and 25, needs a different tool set to spend, save and build assets, as well as to give. These young adults are forecast to inherit about $1.5 trillion in assets in the next decade, and they aren't sufficiently equipped or engaged to make this intergenerational wealth transfer successful. It also is worth noting that upon inheritance, about 90% of this next generation of high-net-worth individuals switch advisers. Advisers who can create reports that specifically speak to a younger investor will have a better shot at both retaining them as a client and earning a larger share of their wealth.

LACK OF CLARITY

It is tough to get clients' attention in the midst of this market and geopolitical chaos, but it is an ideal time to highlight the lack of clarity in their portfolio reporting and the active role that an adviser can take to rectify this huge industry oversight. Lack of clarity can cause poor decision making and ultimately result in very costly mistakes. These are the best times in which to take different, disarming and highly valuable actions to build value and trust. Norman Jones ([email protected]) is chief executive of WealthTouch Inc., an ultrahigh-net-worth portfolio-reporting company.

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