Client Reporting Insights, Fund Research & Insights
Days are numbered for quarterly client reporting.

I read with interest the FT’s recent article ‘The long and short of the quarterly reports controversy’ (Owen Walker, Monday July 2, 2018). The article reflects on how Paul Polman, on his first day as chief executive of Unilever in 2009, bravely ditched the FTSE 100 company’s quarterly earnings reports and with it all the other short term-focused KPIs normally included. Polman’s argument, in short, was that for a firm focused on long-term value creation, quarterly reports were both meaningless and misleading. Since 2013, the requirement for quarterly reports from public companies has been abolished in Europe in favour of half-yearly statements, though the three-monthly practice persists in the US.

It got me thinking about a similar viewpoint I have maintained concerning my own industry, client reporting software for investment managers. I believe that there are parallels between company reporting and client reporting: are staged quarterly and monthly reports from asset managers to investors really appropriate any more? Can the same logic from security level reporting be applied to segregated accounts, formalised mutual funds and unit trusts?

The argument in favour of the long-term perspective applies equally to client reporting as it does to company reporting. My viewpoint is that the big superannuation funds could quite happily live with half-yearly reporting on their investment portfolio, provided that on an interim basis there is an efficient data-pull mechanism whereby the asset owner can retrieve the data that it requires, whenever it requires it. It could even be argued that if an asset owner has sustained a dip during a half-year period, does that really matter in terms of a five or ten year horizon?

Is a typical pension fund’s reliance on monthly and quarterly reports (providing information on precisely the same data parameters) the best approach, especially during periods when the market is fairly flat and the numbers are more or less the same every time? Or is it more valuable for investors to be in a position to retrieve the information they want, so that they can effectively self-serve during periods of turbulence. In this way, investors would receive negligible amounts of data on their investments when markets are steady and more information when they need it the most.

I foresee a future where asset owners log into their own highly personalised portal, where their asset managers present information to them on what their portfolio looks like from a number of different perspectives. The portal would draw the client’s attention to the areas of the portfolio holdings that had significantly changed and those that are important to the client, based on the client’s own specifications or usage analytics (or even relying on AI to generate the reporting data based on the criteria that it has ‘learned’ the investor is most interested in). In this way, the focus is on the right areas of asset allocation, with the information of most interest being highlighted. This kind of insight is where asset managers need to prove their value to the asset owners..

Of course, the pension funds and life companies are the clients of the asset managers, so the key relationship is between those two entities. As such, an asset manager will have a different perspective from a software vendor. I asked David Sellors, Head of Performance and Client Reporting at Old Mutual Global Investors, for his viewpoint.

“The hard or soft copy report is more than just a periodic account but a segue into maintaining a client relationship. It is almost an excuse to contact the client, especially if the report is not just a factual one but also a thought piece or viewpoint on the current portfolio,” says Sellors.

“The old argument of push versus pull reporting is pertinent in this respect. Is it better for the client to go into a portal or and pull a report (and perhaps misinterpret the content), or for the asset manager to push the report and follow it up? The asset manager wants the client to understand the investment process and the themes of the investment strategy. In challenging times from a performance point of view, this approach will make the client more ‘sticky’. Once a client becomes too remote, both from a relationship and investment understanding perspective, the client may become less loyal. The incidence of reporting is therefore crucial, especially as face-to-face meetings are becoming infrequent,“ adds Sellors.

“Clearly, daily reporting at one extreme is too much and would most likely be irritating for the client. Annual is too far apart. As such quarterly still appears the most appropriate period for reporting. Ultimately, knowing the client and what they expect from an investment and relationship standpoint is key, so that any communication can be customised to their needs. If you asked me whether quarterly client reporting would persist beyond five years, I would say ‘definitely’. Will it last until 2030? Who knows, but that is only 12 years away. Perhaps it will be the next generation that will end the practice.”

I wonder what the trustee community of, for example, the large pension funds would say, as they are the real beneficiaries of the reports that are duly generated by asset management firms. Are the days of short-term client reporting numbered? At present I cannot see asset managers moving to annual performance reports only, but certainly at a pooled portfolio level – for investors in it for the long haul – the monthly and quarterly reporting cycles could eventually become a relic as the shift to on-demand data gathers pace.

Abbey Shasore, CEO, Factbook


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