The time-consuming and complex nature of financial reporting is likely to trigger a "major exodus" in family offices outsourcing this duty, Rob Fiore of Private Client Resources recently told Family Wealth Report.

The time-consuming and complex nature of financial reporting is likely to trigger a "major exodus" in family offices outsourcing this duty - a move that would free up time and boost efficiency across the industry, Rob Fiore of Private Client Resources recently told Family Wealth Report.

According to a recent study by Family Office Exchange, an overwhelming 80 per cent of family offices provide their clients with a quarterly financial report, yet the task of doing so consumes almost a third of the average family office's time. Meanwhile, although paper remains as the preferred medium, as stated by 67 per cent of respondents, a growing number (21 per cent) are now sharing information electronically.

Speaking to this publication, Rob Fiore, president and chief executive of PCR, estimates that 80 per cent of wealth management businesses manage their own client reporting and associated aggregation internally, which he says is basically a "complex assemblage" of people, portfolio accounting software and third-party data providers.

Businesses are needlessly relying on Excel to generate reports which could be produced in a fraction of the time and at a lower cost via other methods, he says. But as outsourced private wealth providers continue to demonstrate their competitive advantages over in-house rivals, there will be a "rapid and significant" shift towards the use of specialists for client reporting and data aggregation, he says.

In recent years, the wealth management industry as a whole has faced an increase in compliance and related costs which also 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, FOX’s findings also demonstrated that offering "truly customized" reporting for each client remains a challenge.  

Eliminating the bulk of the work

Fiore highlights that the bulk of the work involved in compiling financial reports concerns data aggregation. Eliminating this process would therefore free up a lot of time that could be used on other crucial areas such as one-on-one meetings between advisors and their clients. With this in mind, it is perhaps unsurprising that less than half (42 per cent) of office staff surveyed by FOX said they meet with their clients "on demand", while 26 per cent said quarterly, 19 per cent annually and a mere 7 per cent monthly.

"There's a lot of work that goes into actually managing the data, and making sure the data received from various feed sources is properly captured, validated and reconciled," Fiore explains. "If you remove the necessity of compiling the data, you're actually freeing up a lot of time to then analyze it and have discussions with your clients about the trends and issues."

PCR was established in 2000 by private wealth clients and currently serves over 1,600 ultra high net worth end-clients from its private bank, family office and RIA relationships. The firm has institutionalized all the processes of gathering and analyzing data via Palette Platform, which was launched in 2011 and built to provide a range of tools to generate full financial reports that are customizable, and, perhaps most crucially, can be accessed online at anytime.

Palette Platform deploys a range of additional capabilities such as benchmarking tools, risk analysis, pro-forma planning, integrated CRM systems and document management to deliver the analysis and reporting service. It can also create reusable templates, making it easier to assess trends over time but with the option of making adjustments to the variables when needed or desired. 

Importantly, the service doesn't eliminate the need for an advisor to be reviewing and understanding the reports before they deliver them to the ultimate client, Fiore adds. "The information that we're gathering and reporting on are the consequences of investment decisions that were made by the advisors - they can almost predict the outcome of the report. So if it differs from what they expected it to show, that allows a basis for discussion and analysis to understand what happened."

Highlighting how demand for such services has grown over the past year or so, PCR currently aggregates over $70 billion in assets (of which $20 billion are alternative assets) - a figure which is up from $8 billion and $35 billion three years ago and in 2011 respectively.

This week PCR announced that it has partnered with Argus Research Group, allowing users of the Palette Platform to add independent analyst-driven research on over 400 US equities when conducting risk analyses, constructing portfolios and implementing strategy decisions. 

Scalability

Fiore explains that for PCR it is economically feasible - given the volume of clients involved - to invest and provide a secure data center with full disaster recovery and business continuity. Such data centers must be able to withstand the scrutiny of independent audits that occur throughout the year, for example.

For a family office or RIA on the other hand, "there needs to be enough volume and assets to generate the income to offset the cost of that investment," he says, adding that family offices would "probably prefer" to produce a monthly report but are held back by restraints on resources.

At a time when access to a range of information is available at our fingertips, wealth management clients are demanding the tools that will enable them to instantly review their financial holdings and related performances as market conditions change or news enters the marketplace in between the quarterly - or indeed monthly - financial report.

Instant gratification is part of our human make-up

Fiore acknowledges that it's not necessarily something new within the industry, but part of our human make-up to want instant gratification and have access to real-time information.

"However, I think the technology and the services available today are making it possible for clients to realize the opportunity of seeing that information immediately," he says. "As a result that trend [outsourcing financial reporting] is picking up, as end-clients realize that there are services and capabilities out there where they can get more timely information."

However, Fiore says the greatest challenge is educating a prospect on the benefits of migrating from "outmoded practices" in favor of outsourcing to a specialist. Indeed, many prospects recognize the advantages of outsourcing to a specialist, but others still find it difficult to bring to a close an internal practice that they so heavily invested in previously, he adds. "It took time for modern refrigeration to overtake the widespread use of blocks of ice. It’s a similar situation trying to replace in-house client reporting," he said.

"In our estimation, the tipping point will occur when an additional 10 per cent of the market is working with private wealth specialists. We are projecting this to occur over the next three years," he concludes.