This is the third chapter from the research report this news service has issued about all aspects of client reporting.

Consolidation is well-recognised as a “holy grail” of client reporting. Now, a combination of changes in regulation, technology and client demand may mean it needs to be far higher on the industry’s agenda. 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. (See the previous chapter here.)

Although wealth managers pride themselves on providing holistic advice, often at a family level, generally, our expert panel believes the sector has fallen short of offering “core” HNW clients the high-level overviews of their entire wealth that would enable the best investment management and financial planning decisions to be made. Many are not provided with reports aggregating all their portfolios/products held at one firm, let alone being able to access account information from various institutions in one place. But regulatory and competitive pressures, alongside rising client expectations, mean that experts see real change now finally in view.  

Aggregation has been considered the “holy grail” of reporting for many years now, but technical challenges have held firms back from offering it at scale. It has, of course, been very much more the norm at the upper echelons of wealth, where expectations are higher and smaller business volumes make data issues (and even manual workarounds) more manageable. 

“Family office or UHNW clients will often receive more detailed attribution and the ability to merge different portfolios into one master consolidated one,” said James Day, managing director of Peritus Investment Consultancy. “Otherwise, they will employ an investment consultant who will do this as a matter of course.” 

But now, a combination regulatory change and technological advances are set to bring these “helicopter views” very much more into the mainstream. Indeed, a recent WealthBriefing reader poll found that over 60 per cent of wealth management professionals globally see rising demand for consolidated reporting.

Game-changing regulation
Of course, bank account aggregation has been gaining momentum for several years now after its advent in the US. Now, however, the effects of EU Payment Services Directive 2 are set to really start shaking up the wealth management space as well. Under this game-changing regulation, which came into effect in January 2018, banks must now open up their payments infrastructure and customer data to permitted third parties offering payments and information services – such as for reporting. Crucially, PSD2 requires data sharing via Application Programming Interfaces (APIs), rather than “screen-scraping” after clients have provided their account login details, in a bid to make it faster as well as more secure. 

Having come into effect at the same time as MiFID II and the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, PSD2 perhaps didn’t gain as much of overstretched institutions’ attention as warranted. But now there is increasing recognition that it is set to revolutionise the way wealth managers carry out holistic financial planning and put wealth managers under significant competitive pressure. As Chris Brown, wealth management and private banking sector head at Computershare Communication Services, put it: “Open banking represents a fantastic future opportunity for clients as more and more APIs become available right across the Wealth Management sector to combine a single view of all assets.”

It is easy to see reporting capabilities becoming a real competitive battleground under PSD2. It is possible, for instance, that a forward-thinking firm could offer prospective clients free portfolio aggregation and analysis services in a bid to wrest their business away from incumbents. 

Wealth managers will also need to be on their guard against fintechs which may leverage data aggregation to encroach onto their territory, particularly in markets which are hotbeds of innovation like the UK. The latest round of entrants into the Financial Conduct Authority’s regulatory sandbox was replete with possible threats, including: a financial planning service providing specific product recommendations to consumers; an automated advice proposition for retirees covering both their liquid and illiquid assets; and a pension consolidation and transfer tool. “Most wealth managers don’t seem well equipped or especially keen to consolidate information - especially from multiple sources - so we have to ask ourselves if that master of data aggregation will actually be an investment provider at all,” argued Greg Davies, head of Behavioural Science at Oxford Risk.

Richer investment experiences
As Richard Charnock, CEO of Standard Life Wealth observed, the aggregation of bank accounts, investment portfolios and pensions in one place would be “hugely convenient” at a time when many clients are having to manually input data from all their statements from various providers into a spreadsheet themselves. 

He also believes “there is absolutely no doubt that clients would have a much richer investment experience if everything they held could be seen through a single lens”. In his opinion, this single customer view is also likely to uncover “a massive misallocation of asset values” in many cases due over concentration in certain areas and overlapping investment strategies from different providers. While good wealth managers will of course take account of “away assets” when giving advice, the benefits of advisors and clients having real-time information are clear. 

Broader overviews should also become the norm in reporting for the core HNW segment in order to promote better financial outcomes, according to Davies. “Open banking will lead to more and more pressure to show people integrated information across their holistic, total wealth and indeed across families and couples,” he said. “For example, couples tend to have ISAs that are legally completely separate but which are thought about as collective wealth, so it makes sense for them to be shown together and for asset allocation to overarch them.” As his example suggests, tax considerations like ISA, Capital Gains and pensions allowances – not to mention inheritance – add even more weight to this argument. 

In the words of Davies, “data aggregation is going to be a huge trend because it will enable wealth managers to show clients something about them, rather than something about ‘accounts 1, 2 and 3’, and so get closer to their investors”. It is also clearly an opportunity to demonstrate the value that professional advice is adding, not only in investment performance, but for tax mitigation in the broader family context too. For many, tax savings are just as an important a part of wealth management as investment gains. 

There remains some debate about how far clients would wish consolidated reporting to go, however. As Tim Tate, head of customer experience, Barclays UK, argued: “For some clients the ability to see everything in one place would clearly have great appeal, but for others thought of one institution having total transparency over their entire portfolio would make them shudder.” Multi-institution reporting may not be for every client, then, although the case for consolidated reporting within each institution seems incontrovertible. Why then, is it not as ubiquitous as client demand and common sense would seem to predict? 

Technical barriers
According to Brown, the answer to this question – and most concerning reporting inadequacies – centres on challenges around underlying data and the perceived pain of change. “To address issues in client reporting, most organisations have to take several steps back and look at how they obtain accurate data in the first place,” he said. “At the worst end of the spectrum, we still hear of organisations working with spreadsheets and making calls to collect fund valuations; at the better end, data siloes and systems connectivity can be real challenges, particularly for larger organisations.”

Understandably, Brown sees firms often reluctant to make significant changes to their technology architecture – let alone undergo a hugely expensive re-platforming project unless regulatory issues have made this absolutely unavoidable. Computershare has therefore focused on overlaying existing technology so wealth managers can continue to get value from previous investments. “We focus on integrating with a client’s existing systems and working with what is available,” he said. “We know firms often want to stick with existing systems, rather than spend tens of millions and a huge amount of time on a new, all-encompassing one, so we lead on being pragmatic and cost-efficient.” 

As with so much of today’s technology trends, APIs are at the core of this approach. Yet these communications bridges between systems components are not necessarily cure-alls, Brown explained – something his company knows only too well from its own growth story. 

He said: “As a global business we’ve grown through strategic acquisition, this in turn has meant we have developed an array of capabilities to manipulate, aggregate, recalculate and output clean data received from multiple existing sources. 

“Our USP is we don’t need our clients to plug in a new system or re-platform to make our solution work as we work with what’s already there and then pull in data to fill in the gaps. For some of our clients we are repurposing as much as 50 per cent of the data received to get one clean data stream.”

So, creative solutions mean that the prize of being able to deliver consolidated reporting at scale is coming into ever closer reach. Yet wealth managers still need to be aware they may have to get their houses into better order on the data management front first. As our experts have argued, they are certainly not lacking motivators in today’s competitive and regulatory landscape.