Wealth managers’ performance reporting is “shockingly bad,” said Scott Welch, Fortigent’s chief investment officer in “Talk Your Walk: Client Reporting in a Goals-Based Framework,” his March 21, 2013, presentation to the CFA Institute’s Wealth Management Conference.
Reporting is more important than you think
Welch cited statistics showing that reporting is important for both high net worth and institutional investors. On the institutional side, where the statistics are more straightforward, the following ranked among the top 10 service-related drivers of client satisfaction:
- Clarity of investment reports
- Timeliness of investment reports
- Reporting capabilities of website
Even more impressive was Fortigent’s experience with reporting, as reported by Welch. He discussed a case when his firm had, for example, $2 million of a $10 million portfolio, but provided consolidated performance reports on the $10 million. Within 24 months, his firm routinely captures 100% of assets in cases like this. The ability to offer advice on the entire portfolio is unbeatable, he said.
Use behavioral finance in reporting
Welch suggested that advisors take advantage of the lessons of behavioral finance. You should redo your reports in a way that speaks to the way that clients think and feel.
With clients who have enough wealth, Welch suggested dividing their portfolios into goals-based buckets and reporting performance by bucket. Welch’s pyramid, adapted from the work of Ashvin Chhabra, starts at the bottom with a layer of Personal Safety/ Minimum Wealth/ Lifestyle Maintenance, followed by Market Participation, and topped off by the Aspire level. He also described the Aspire level as “This is money you can roll the dice with.”
Some advisors tell clients they they’re managing their assets to achieve goals, but then they give clients performance reports organized by accounts, not goals. If you’re doing that, you’re not really delivering goals-based investing, in Welch’s opinion. “All you’re doing is you’ve slicked up your sales presentation,” said Welch. Instead, you need to make your reports align with your clients’ goals. This would be easy if each account were dedicated to one goal, but that rarely happens. Still, there are technology solutions out there, said Welch, although he did not name names.
Part of the solution involves adding another level of categorization to data. Go beyond security and asset classes to use super-classes in line with the pyramid’s three levels, suggested Welch.
Use goals-based reporting to communicate and you’ll have better, deeper conversations with clients, said Welch. This will also improve your client retention.