This is the first chapter from a report, which this news service is launching today, on the crucial area of client reporting.

Client reporting must fulfil a range of purposes, from detailing transaction costs to tax positions, but while a number of boxes must be ticked, many wealth managers seem to be missing the most important one of all: engaging clients in how their money is being run. 

This feature forms part of WealthBriefing’s new research report, “Client Reporting – Regulatory Burden or Client Engagement Tool?”, produced in partnership with Computershare Communication Services. Subsequent chapters will be run on this news service in coming days.

Wealth management is a fiercely competitive sector globally and particularly so in mature markets like the UK, where hundreds of institutions vie for HNW individuals’ business while also having a plethora of fintechs snapping at their heels. It would follow, then, that firms would seize upon any opportunity to differentiate themselves. But when it comes to client reporting, our expert panel believe that many are still entirely missing the opportunity to really engage well with clients and prospects.

James Day, managing director of Peritus Investment Consultancy, is particularly well placed to comment and his verdict is withering. “The quality of client reporting is generally mediocre, with only a few stars in this field,” he said. Of the hundreds of institutions that we work with, I can only think of ten who have invested capably in their reporting and communication process.”

A broad spectrum of reporting quality
In fact, “the variance between basic valuation reports is immense”, according to Day. At the worse end of the spectrum, many reports do not show book costs, and yield and income are very challenging to read; slightly more sophisticated firms provide reasonably robust asset allocation analysis broken down by country, sector and currency, and better firms will also include a fixed income analysis of the bonds by yield, maturity, duration and credit rating. Fewer still are providing money- or time-weighted performance analysis against the correct benchmark or peer group, in his experience.  

For Greg Davies, head of behavioural science at Oxford Risk, “performance reporting is still largely stuck in the dark ages”, “clunky” and often not fit for purpose due to account-by-account construction or a focus on legal ownership. “Reporting generally doesn’t tell clients what they need to know and what they should know,” he said. “There’s no high-level overview of their wealth and assets together.” 

For a sector predicated on holistic advice, this state of affairs is paradoxical but perhaps understandable too. Compliance and cost pressures have meant that, in Day’s words, “investment in reporting is often lowest in the food chain and so some firms have not upgraded their approach for 10-15 years.” 

The spectre of legacy systems looms large too. “For many organisations it’s extremely expensive and cumbersome to change anything, and so reporting, which may be seen as ‘OK’, follows other enhancements far more slowly,” said Davies. 

But while implementation issues, costs and, in all likelihood, change fatigue stand as significant barriers to investment, the gains from better reporting offers are compelling. That underinvestment is so widespread also means that wealth managers are missing a huge opportunity to stand out from their peers.  

“Absolutely a differentiator”
According to a recent WealthBriefing reader poll, 71 per cent of wealth management professionals today see enhanced reporting capabilities as a key way for wealth managers to attract and retain clients. This is certainly borne out by the experiences of Lee Goggin, co-founder of online matching service findaWEALTHMANAGER.com, who has seen hundreds of new clients weighing up potential providers, and existing ones searching for a better service. He believes that firms should pay more heed to the sector appearing opaque, brand recognition and trust often being low; consequently investors find differentiating between firms difficult. 

“Wealth managers telling themselves that reporting isn’t a really important driver of clients’ choice of provider, and of their ongoing loyalty, are far behind the times,” he said. “Clients are looking very closely at things which might make one firm better than another in the long term and those that have shown strong sample reports in initial meetings have certainly helped themselves win business in our experience. Clients want to see full transparency and a get a sense the firm does things in a way that suits the individual investor’s needs, not simply what’s easy for them to serve up.”

Correspondingly, high-quality reporting is also vital in cementing new relationships as clients naturally view reports as the first indication or 'proof-point' of excellent communication skills and detailed fund monitoring. “Poor reporting really is a missed opportunity for firms to show they’re doing what they said they would and that they care clients get something easy to understand and engage with,” he said. “Although sub-par reporting alone may not be enough to drive a client away, I’ve certainly heard this cited as a factor on numerous occasions.” 

A similar warning comes from Tim Tate, head of customer experience, Barclays UK, who argued that clients quite rightly “just want to know how they are doing”. “If investors can’t clearly see the performance of their portfolio and understand the information they have been given, then they will take the pain of moving a relationship to ensure they can,” he said. “It is absolutely a differentiator and I actually think dissatisfaction with reporting is one of the biggest drivers that will prompt a move.”

As the late Steve Jobs is remembered for saying, “marketing is about values”. So too are all communications, especially reporting in an industry delivering undeniably complex services largely to laypeople, where buying decisions involve extremely high-stakes. True client-centricity in reporting may be difficult to achieve, but blinding investors with science should never be firms’ fall-back position, our experts said. Clearly, it is incumbent on wealth managers to make reporting meaningful to sustain their businesses, as much as to comply with ever-more stringent regulations. 

"Communications across the client lifecycle are a pivotal extension of your brand and the bedrock of increasing satisfaction, loyalty, wallet share and advocacy. The future of the industry is going to be around multi-faceted digital interactions, which is why we’re evaluating HTML5 reporting seriously now,” said Chris Brown, wealth management and private banking sector head at Computershare Communication Services. “You need to be communicating with investors on their terms to engage them.” As he explained, these terms of engagement cover the look and feel of reports, their customisation potential, and when and how clients have access. 

Yet, as ever, the devil is in the detail – or rather in how to deliver the optimal amount of it. As Brown and others observed, the UK wealth management market is overwhelmingly discretionary in nature and the knowledge that most investors have chosen to delegate control of their investments to the professionals has to underpin firms’ communications strategies. 

Offering assurance
On this point, Client D, a £750,000 ($968,178) investor aged in the sixties interviewed for the report, advocated back-to-basics thinking around what clients actually want to read and will value. “Most people simply want assurance a good job is being done for them, so it’s a question of what that assurance needs to look like,” the client said. 

For Davies, this needs to be very much about tracking progress towards financial goals and high-level views, rather than ever-finer detail. In his opinion, not only is this likely to be a turn-off for all but the most knowledgeable and interested clients, it can also create psychological discomfort and encourage self-defeating investment behaviours. 

“From a behavioural perspective, a lot of the progress in reporting systems is going in completely the wrong direction to pump ever more information at investors,” he said. “What we should be seeking to provide is useful information that helps them visualise information in a way that is aligned to their objectives and which helps them make better decisions.”

Of course, none of this is to say that granular detail should not be on offer; some clients like a great deal of oversight and it is not uncommon for previously “hands-off” investors to want to dig further in as they get more free time. As our experts argued, it is more a case of ensuring that the basics of reporting are done really well first and then allowing investors to go deeper when they choose. In the words of Emma Bennie, head of discretionary at Saunderson House, “Generally, it is still far too difficult for investors to clearly judge how well their portfolio is performing at even a basic level.” Correspondingly, many firms are falling at the very first hurdle of offering assurance and fostering trust. 

As Davies argued, psychological comfort along the investment journey is a key determinant not only of client satisfaction, but also the eventual financial results. It is also a major factor in firms’ own operational efficiency and profitability. Short-term market moves may prompt panicked calls and even outflows from confused clients who feel in the dark. In contrast, those who are better informed and treated as partners on an investment journey are likely to fare far better, in both emotional and financial terms, it was said. 

“In theory, getting clients really engaged with how their money is being run should be the easiest thing in the world, but the reality is that all too often they’re completely confused or turned-off by the reports they receive,” said Brown. “It’s difficult not sound a little evangelical about what enhanced reporting can achieve, but we do believe it can have a truly transformative impact on how clients relate to their money and their wealth manager.”

So, while wealth managers may have had more pressing issues around compliance and technology to attend to hitherto, the case for better reporting capabilities is becoming compelling on a number of fronts. The question, then, is how long can firms afford to leave reporting enhancements at the bottom of the investment pile - and miss out on what is evidently a huge client engagement opportunity?

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