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Grading Performance Reporting Solutions

Doug Fritz and Paul Boscacci, December 11, 2019


The following article is by Doug Fritz and Paul Boscacci of F2 Strategy, a consulting organization that helps HNW and UHNW firms improve their technical capabilities across the entire client and advisor experience. It is part of a series of articles drilling into the details of how wealth managers use technology and how they can improve their approach.

Here is another article in a series of wealth management technology articles from F2 Strategy (see previous example here), written by Doug Fritz, chief executive, and Paul Boscacci, senior manager, wealth operations strategist. The editors are pleased to share these insights; the usual disclaimers apply of course and we welcome feedback. These articles have already stimulated discussion from the industry.  

To get involved, email tom.burroughes@wealthbriefing.com or jackie.bennion@clearviewpublishing.com

Performance Reporting solutions, like all other technology applications, are becoming more advanced. Advisor and client expectations and requirements continue to grow. Solutions that were cutting-edge 10 or even five years ago are struggling to maintain relevancy as they face innovation and new entrants. Sorting out the differences, advantages and overall ‘fit’ for each firm is incredibly complex and often anxiety-inducing for many of our clients. 

We hope that the following analysis can provide a framework for assessing and selecting the right performance reporting solution for your firm.  

What are the characteristics of best-in-class Performance Reporting solutions?  

Below are the criteria we use to evaluate Performance Reporting Solutions in our practice.

Solutions are evaluated across a range of competencies including:

- Data aggregation/reconciliation
-- Analysis
-- Reporting
-- Digital Access
-- Integrations
-- Service
-- Sustainability
Data aggregation 
Quality data provides the foundation of analysis and reporting.  Without clean, reliable, data, literally nothing else matters. The ability to aggregate wealth across all investment types regardless of location has become table-stakes for holistic wealth reporting. Unfortunately, aggregation continues to be challenging. Best-in-class capabilities should include:

-- Digital Feeds – Direct feeds from custodians providing basic information including positions, prices and transactions. Cost-basis information including realized and unrealized gains and losses is becoming common place. Screen-scraping (aka: ‘enhanced HTML’) solutions fall short in this area;
-- Data Uploads – Ability to enter valuations and transactions to update held away assets (e.g. hedge funds and limited partnerships) through an efficient, scalable process. Importantly, the ability to also selectively block hedge fund and limited partnership data for duplicative assets held at custodians is essential; 
-- Unique Assets - Ability to build and maintain unique assets on the platform (e.g. real estate, cars, boats, planes, collectibles); 
-- Third-party aggregators – As a last resort, the ability to interface with third-party aggregators (e.g. ByAllAccounts, Plaid) for accounts where direct digital feeds are not available (e.g. checking, savings, and credit card accounts and 529 and 401k plans); and
-- Reconciliation – Demonstrated capability to download, reconcile and validate custodial data by market open, including the ability to correctly interpret and process corporate actions. 

The capability to provide a comprehensive set of metrics, market data and attributes in combination with an intuitive tool to provide investment analysis and operational oversight is key:

-- Ad hoc analysis – Ability for users to easily evaluate data across various dimensions by creating custom, sortable and exportable views. Ability to save queries and share queries with team members or publish firmwide; 
-- Filtering - Ability to exclude asset classes, security types, accounts, unmanaged assets, and concentrated positions and recalculate asset allocation and performance dynamically; 
-- Performance metrics – Availability of multiple performance metrics including time-weighted returns (TWR), internal rates of return (IRR), contribution, attribution and sources of change in market value.  Performance should be able to be calculated both net and gross of fees;
-- Benchmarks – Ability to assign benchmarks at various levels including portfolio, account, asset class, and security. Ability to create custom multi-asset-class benchmarks based on index components; 
-- Security level attributes – Ability to provide comprehensive security-level attributes including capitalization, sector, geographic exposure, and bond ratings; 
-- Custom attributes – Ability to create and populate custom attributes as well as the ability to create calculated attributes based on other attributes; 
-- Risk attributes –Availability of comprehensive risk attributes including standard deviation, Sharpe ratio, R-squared, alpha, beta, upside/downside capture; 
-- Market data – Availability of comprehensive index, benchmark, and security data from credible third-party sources; and
-- Target allocations – Ability to import or assign target asset allocation for comparison against actual portfolio allocations.

Client reporting is a principal component of client communication and an important opportunity to reinforce your brand and investment thesis. Done correctly, it tells a data-driven story about what happened, why and where the advisor added value, alpha and/or reduced risk. Reporting should be comprehensive, accurate, timely, scalable and, most of all, useful.

-- Design – An intuitive interface with the ability to build fully-customized reports combining tables, charts, and graphs that resonate with clients’ needs and expectations; 
-- Production – Ability to easily produce fully-collated reports for a single client, a subset of clients, or for all clients; and
-- Report delivery – Ability to deliver reports electronically via email or through a client-facing portal.

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