The Top Three Mistakes in Client Reporting

Top_3_mistakes_in_Client_Reporting.pngThis is the second post describing some of my key takeaways from Osney Media’s Client Reporting and Communications Conference, which I chaired at the end of November. Last week’s post looked at whether it’s time to rethink the overall approach to regulations. This week’s post looks at the growing disconnect between investment managers and their clients, in the context of client reporting.

At the conference I chaired several panel sessions where the panellists were senior representatives from a range of institutional investors. It was clear to me that a disconnect is developing between managers and their clients. And so I have summarized my main takeaways from these panel sessions as the top three “mistakes” that managers are making with client reporting.

The Fundamentals of Client Reporting

Many of you reading this will be very familiar with the client reporting process, but bear with me while I take a step back and remind ourselves of the fundamentals, because it’s crucial to understand where the root cause of client reporting issues actually lies.

The client reporting process has two primary objectives:

To provide transparency – detail about where the client’s money is invested and about transactional changes that have occurred since the previous report (sales, purchases, dividends, coupons, etc.)

To provide explanation – information about what the client’s investments are worth, how that has changed since the previous report, why it has changed, and whether the investments are on track to achieve the client’s objective.

There was a time, 20+ years ago, when all investment managers produced the same reports for all their clients; the same content was presented in the same format and delivered in the same way (i.e. in an envelope). But the world is more complex now. The expectations of investors are more sophisticated, more diverse, and more demanding. Different clients want different content in their reports; they want it presented differently, and they want it delivered at different frequencies via different channels.

Client reporting is no longer a one-size-fits-all process.

Some managers seem to think that clients are being contrary, or overly fussy, or even unreasonable in asking for more tailoring in the reporting process to align it more closely to their needs. And some behave as if the demand for more customized reporting is a just fad, a transient issue that will go away if it is ignored with conviction.

But they are missing the fact that the issues and challenges they are facing with client reporting are deeply embedded in the fundamentals of the reporting process.

The asset management industry is more transparent than it was 10 years ago and the trend towards greater transparency is irreversible. And investors of all kinds want more explanation and reassurance about what’s happening with their investments and whether they are on track to meet their objectives.

So, it is the fundamentals of the client reporting process that are being recalibrated by investors. They are on a journey to a more transparent, open and informed relationship with investment managers. Unfortunately, some managers aren’t going on the same journey. And so a disconnect is developing.

The Top 3 Mistakes in Client Reporting

To correct the reporting disconnect, managers need to address their three main failings.

Failure to empathize. It is common for institutional clients to have 10+ investment managers; large pension schemes can have as many as 30-50 managers. Managers look at the reporting process from their perspective; so they see one report being sent to each client. But they need to look at it from the client’s perspective; each client is receiving a report from each manager, which could mean that they are receiving anything between 10-50 reports in each reporting period. That’s an awful lot of data and information. And some trustees represent multiple pension schemes, so they are receiving 10-50 reports for each scheme. And then take into account the fact that institutional clients also receive reports from custodians, fund administrators, and investment consultants. That’s an unmanageable quantity of data and information.

Failure to adapt. An institutional client is a multi-faceted entity, there are different roles within client organizations that want to see the information in client reports. But they do not all want to see the same information. Institutional clients have more complex operating models than they did 20 years ago and their information requirements have evolved accordingly. But managers have failed to adapt their reporting processes to keep them aligned. They are still operating a process with a single reporting channel. Trying to cram everything that everyone might want to see into a single report is simply wrong. The resulting reports have too much content for any individual role. Some clients, operating in complex organizations in a fast-moving world, want exception-based reporting: a high-level summary of what has happened; performance basics; attribution; outlook; and actions that will be taken.

Failure of vision. The client reporting process should be one component of a broad communications strategy. Reports are clearly important but managers need to position them within a broader context in which information is distributed via multiple channels: phone calls, video conference, videos, and face-to-face meetings. One of the main grievances that I hear time and again from clients is the failure of managers to be pro-active. Pro-active communications are key to developing strong relationships and building trust; failure to be pro-active sends negative signals and erodes trust. Relying on the same forms of engagement that were used 20 years ago is symptomatic of a lack of vision on the part of managers. A lack of vision that is keeping the client reporting process rooted in the past where pro-active communications were the exception rather than the norm.

There Ain’t No Silver Bullet

A lot of people are looking for a client reporting silver bullet. They want a simple solution to a complex problem; e.g. a standard reporting template that will meet the needs of most clients and that just needs a little tweaking here and there to satisfy everyone.

But they’re missing the point. The fundamentals of client reporting have been re-calibrated by their clients and it is no longer a one-size fits all process. The requirements of their clients have evolved, but they have not adapted their reporting processes accordingly.

Managers can’t continue trying to address the client reporting challenge in the way they have been. They are just running faster and faster in the wrong direction.

Success_Story_Client_Reporting.pngThe BI-SAM B-One solution offers professional, timely and accurate client reports with automated workflows, customizable reports and flexible delivery options. Read this related BI-SAM Client Success Story to learn how a global asset manager improved their external and internal reporting processes.


Related Posts:

The Butterfly Effect in Client Reporting
The Investment Risk Knowledge Gap
Moments of Truth

Topics: Reporting

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