First published by Family Wealth Report by Doug Fritz, CEO at F2 Strategy.

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 firm-wide;
  • 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.

The appetite to access current data is insatiable. Use of the internet and particularly mobile devices to access information continues to surge. Providing online access to data is not an option, it’s a necessity. Portal capabilities should include:

  • Curated content – Ability to create custom content and to select what content to share with each client;
  • Engagement – Ability to select custom date ranges, drill-down to greater levels of detail and export data;
  • Visualization – Elegant graphics and charts that tell the ‘story’ of the portfolio performance at a glance; and
  • File sharing – Ability to share reports and documents in a secure environment.

Performance reporting isn’t a stand-alone solution but rather an integral component of a technology ecosystem.

  • Best-in-class solutions – Ability to seamlessly integrate with the most popular and capable CRM, planning, accounting, and trading/rebalancing solutions; and
  • Proprietary systems – Ability to integrate external data and proprietary systems.

The level of service each provider provides is a differentiator. Service should be continuous from implementation, adoption through ongoing support and education. The service offering should include:

  • Experienced resources to lead conversion from legacy systems (including historical data conversion);
  • Ability to develop operational workflows to ensure data integrity and to support user satisfaction and adoption;
  • Ability to address routine issues and questions quickly and accurately; and
  • Ability to provide ongoing education and training for new users and to support new functionality.

How reliable is the service provider you are/intend to work with?  Many of the more modern providers have limited access to capital and may be relying on unrealistic growth projections to fund their existence. A prolonged market correction may have serious consequences for many of these firms. A best in class firm should have:

  • Cadence of innovation – Firms need to fund their own progression and not rely on their clients to pay for incremental changes;
  • Client/vendor partnership – Best in class firms will have a who’s-who of happy clients who are willing to act as ambassadors for them;
  • Financial stability – Especially critical going into 2020 (and a possible downturn) to always know who is funding a firm and what they intend to (or have shown a track record for) do with the firm in the coming years; and
  • Well-federated knowledge base - Many firms (even those with hundreds of employees) may have only one or two experts who really know how the tools work. Ensuring that these employees are well-paid and incentivized to remain is critical.

Closing thoughts

In the end, “high” marks are incredibly subjective and rely on unique perspectives and objectives. What features and capabilities that are critical to some may not be important to others. Some questions that may help you to shape your decision:

  • What types of investments need to be covered? (liquid, illiquid, unique, derivatives)
  • What is your investment thesis? (asset allocation, security selection, risk-mitigation, tax-optimization, wealth preservation);
  • Who are your clients? (sophisticated investors, entrepreneurs, endowments)
  • What types of entities do you need to support? (individuals, revocable trusts, irrevocable family-limited partnerships); and
  • What integrations are important (planning, CRM, trading/rebalancing, general ledger accounting, external data).

Ultimately the decision on which solution to adopt will be predicated on the criteria that are most important to you and your firm.