A relatively predictable bull market doesn’t pose significant challenges to investment managers short of making the best possible investments. Assuming one has embraced a decent platform and mission-critical systems are in order, investment managers don’t need to think too hard about reporting or much else during a boom. Investment management firms are money-making machines, and in a bull market, most tend to do that well.
When markets and returns are kind, client reporting doesn’t get much scrutiny. This is a point exemplified by the fact that during these times some clients don’t even bother to open up their statements. In more challenging times, client reporting gets a level of attention that has the potential to be bad for business. And yes, I know – even during those times – there are still clients that don’t look at their statements.
Over the years, report designers like myself have created a number of dazzling client reports that can look … well … not so dazzling when returns approach zero, or worse, become negative. In the design process, most of the time is spent looking at accounts that paint a pretty picture. Those are the accounts that get used in sample reports, so it shouldn’t be surprising when investment managers see how ugly an account with poor performance can appear.
A survivor bias naturally minimizes any attention these accounts might receive, but in the meantime, those reporting on accounts with sub-zero performance need to make decisions like “Should we show the floor of the graph when the account is negative?” and other presentation details that most investors would rather not contemplate.
No one I have worked with says, “We want our bad performance to look good.” They just don’t want it to look any worse than it actually is. Though some of the changes we make to reports are purely cosmetic, most of the report enhancements we implement are designed with one thing in mind: presenting performance fairly.
Some specific examples of modifications we have made include:
- creating a truly representative custom index for each account
- producing comparative index returns and risk
- isolating managed asset class and sector returns to produce select time period performance
- providing comprehensive performance summary reports that help the clients of investment firms put occasional anomalies in perspective
Flashback to Q1 2016
Coming off a relatively flat 2015, traditional investors were likely dismayed to see double-digit negative returns just two weeks into 2016. Since many of these same investors were drafting their investment commentaries explaining the past quarter, calendar year 2015, and the outlook for 2016 (ahem), these market conditions likely spurred some very focused thought about existing client reports and how they might look next quarter based on January’s performance to date.
As a result of this come-to-Jesus moment, my phone was ringing more than usual. In January of 2016, I fielded a number of calls from firms in a few different countries and across the US. In almost every case, decision-makers were ready to pull the trigger. They wanted new reports and they wanted them done quickly.
Investors planning on replacing their platform with a higher-cost alternative that ultimately might address the shortcomings of existing client reports may have reconsidered those decisions for the immediate future due to concerns over time to implement, predictability and increased costs. I have made the point in the past and I’ll make it again here: it is typically much easier to replace your reports than your portfolio accounting system.
In simple terms, it generally takes hours, days or weeks to create new reports for Axys and APX users regardless of the content. In contrast, the time required to change your portfolio accounting system in order to leverage pre-existing reports or make new reports on a different platform is more likely three to six months. In some cases, investors that switch to another portfolio accounting system with new reports in mind find that they still don’t have those reports a year later.
These fundamental truths along with market conditions no doubt led investors that use Advent Software products to seek out and retain the expertise of replang and SSRS report designers like me to create and implement a variety of new performance reports designed to address concerns about their existing performance reports.
In my own experience, one prospect provided me with the specifications for their new performance summary report and requested that the report be done in a week. In another instance, I was tasked with facilitating a reclassification of securities, regeneration of performance history, and creation of a new performance report based on the reclassification before the end of January. In each of these engagements, working as a team with responsive and motivated clients, we were able to start and complete large-scale, high-impact projects in an accelerated time frame.
As a seasoned professional services consultant, I do my best to address the needs of my retainer clients – that keep me in business – first and any new prospects second, so these non-retainer clients were fortunate that I was able and willing to commit to projects that required fast tracking on short notice. Though I regularly take on new projects, the most interesting thing about that quarter’s new business was the timeline imposed.
There was definitely a sense of urgency associated with these reporting projects that usually isn’t there, and though consultants like me appreciate new business opportunities, investment managers cannot usually expect those results if they haven’t forged a relationship with a consultant ahead of time.
With an established, highly-motivated expert on retainer, you can call that person on impulse, have a high-level conversation in minutes with someone that is familiar with your systems, get a responsive quote for additional work if necessary, and potentially have a new report or automation created before you might be able to effectively start a dialog or get an adequate response from an alternative source.
When the financial markets take a turn for the worse, one might assume that folks like myself who make a living off of providing software products, custom reporting solutions and consulting services aimed at automating and integrating investment management systems would suffer a downturn in business.
While that is ultimately true, should the market ever become so difficult that my customers become distressed or go out of business, it is not true of “corrections” that occur in the market. These events force the hand of investors – making them scramble to take stock of reporting, trading and any other systems that their businesses rely on with an aim to enhance, automate and improve.
The best run investment firms are constantly striving to improve their mission-critical systems and willing to retain the talent that empowers them to make changes to those systems whenever it becomes necessary or advantageous.
Investors dodged a bullet in Q1 of 2016, but doing so in the future may require changes to your client reports. I am hopeful that 2019 will be another banner year for investors, but sooner or later something is bound to change.
About the Author: Kevin Shea is the Founder and Principal 
Consultant of Quartare; Quartare provides a wide variety of technology solutions to investment advisors nationwide. For details, please visit Quartare.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@quartare.com.