Each month, in an exclusive survey with Incisive Research, Real Adviser canvasses a broad panel of advisers for their views on a wide range of different topics. This time we are exploring the issue of reporting tools. Many providers are bringing out more sophisticated reporting tools, recognising that they can be an invaluable addition to an advisory business. We wanted to find out how many advisers used these tools and how useful they found them. Which did they find the most useful aspects of these tools? We also wanted to know what advisers would like to get from these tools that they aren't currently providing. Where advisers weren't using the tools, we wanted to know why. We wanted to find out the best providers and how advisers selected these tools.
Financial reporting is a necessary evil, but statements from fund management companies have often been too detailed, too vague or incomprehensible. At the same time increased regulation means advisers have to be far more aware of their own liability as a business and offer clients and regulators the right information consistently. Advisers are looking increasingly to product providers and service platforms for support and a crop of reporting tools has sprung up. What are advisers looking for in a reporting tool? Which group has the best tool? And how will the market develop?
Of the 154 advisers asked 97 (63%) said that they now use a client report generation tool, indicating that although not yet essential, these tools are a useful addition to an adviser business. The split between PC/Laptop-based tools and Internet-based solutions is roughly even at 49% to 51% respectively.
Rob Fisher, head of sales at FundsNetwork says: "This is an area of rapid change for many advice practices. There are two main drivers. First, advisers generally have become much more 'liability-aware' in the way they manage their businesses. There is often ambiguity over the degree of ongoing oversight that a client should expect from an adviser if the only transactions placed were some time ago. Advisers have realised that providing regular - typically annually - consolidated investment statements and valuations to all clients with an exhortation to "call me if you have any questions or would like to review this portfolio" provides at least some protection against future client dissatisfaction over underperforming investments.
"The second driver is the way that many advisers are looking to move their current business models more towards recurring revenue streams. As they do this, they typically start to change the service model; reducing the size of the client base so that the time and quality of service provided to their customer can be maximised, and possibly moving towards a fee-based retainer. Regulation also plays a part because advisers will need to demonstrate ongoing client servicing in order to justify recurring revenue generated from assets under management, either by way of standard trail or additional fees."
Nick Eatock, chief executive officer at Intelliflo, says: "There are huge issues on what the FSA is doing on its website right now. There are all sorts of concerns in terms of dropping fields and changing regulations. It really is a good move; the FSA can now evaluate data from both the adviser and the client much more readily and expose the weaknesses of many back office systems, which is good news for groups like us. It generally points to a need for a better understanding of financial information."
Eatock believes the FSA has had an epiphany as to the complexity of financial reporting. "The FSA now know how tough a job they face to regulate all adviser firms. After all, some of them are just one-man businesses. To combat this, the FSA has put the burden firmly on adviser communication. Advisers have to send the information they receive from various fund management companies and product providers to the FSA. The majority of large firms have the resources to do that, but the argument is that the FSA is trying to kill off some of the smaller one-man bands."
Fisher adds: "The need for advisers to demonstrate the best practice in the advice process has meant that they are now looking to reporting tools to support their business processes. Negligence is one of the major fears within an advice practice, with advisers being increasingly aware of potential liability issues, especially with regards to potential issues of legacy assets and poor performance. The key way that the risk of negligence can be offset is by regular documented client reporting and reviews. This enables advisers to demonstrate ongoing support to clients and, in turn, provides clients with an opportunity to raise concerns on their investments in a timely manor."
Fisher also says there have been numerous innovations in the market recently with the trend over the past three or four years to consolidate clients' investments onto single platforms through re-registration and transfers. He adds: "This provides advisers with a single consolidated view of client portfolios. Re-registration should therefore be seen as one of the key drivers in the development of adviser financial reporting, as the ease of oversight has invariably led to a demand by advisers for holistic portfolio analysis tools. Whereas historically, client-consolidated valuations and asset allocation reviews could only be performed manually by the adviser, platforms now provide a business architecture for consolidated reporting."
An increasing number of providers have recognised that this is a significant growth market and have launched new tools. At the moment 1st Software remains ahead of the pack, attracting 23% of advisers who use a reporting tool. It is closely followed by FundsNetwork and Skandia (both 20%) and Cofunds and Exweb (both 11%).
The report also asked advisers to rate the reporting tools they use from their respective providers. Of the external providers, Selestia came out on top receiving a rating of 88 out of 100, Quay was next with 81 and FundsNetwork with 75. Despite having the most widely used tool in the survey, 1st Software came ninth with a rating of just 63.
Alison Everett, e-business marketing manager at Skandia, says the requirements of a top performing reporting tool are clearly defined, "They need to be clear and offer concise information that is easy to understand." Eatock believes the key is flexibility. He says: "People need to able to analyse data and collate reports with maximum efficiency. They also need to have a good, clear back office system."
Advisers were also asked what they felt were the main benefits of using an online report-generation tool. Answers ranged from clients having access at any time, strong compliance and good risk assessment. One adviser commented: "The service provider is responsible for recording all transactions and daily updating valuations, which saves me an immense amount of time and provides me with much of the information I require at a glance. Also, I can provide client valuations almost immediately."
Fisher says there are numerous requirements that an adviser needs from a reporting tool. He says: "They should ensure that the full advice process can be supported. Too many tools are too execution-focused, and neglect the monitoring and review process. Allowing integration of on and off-platform assets, providing a complete consolidated view of a client's investments is also important. They should also maximise configurability since all advisers will have a subtly different advice and portfolio construction process which reflects their own experience, expertise and preferences.
A planning tool should not be a "one size fits all" process, but should be designed in a modular fashion to allow advisers to use as much or as little of the functionality as they want. Tools should also make provision for more sophisticated advisers who want to provide their own underlying models for risk profiles, model asset allocation structures, fund shortlists and preferred fund panels."
FundsNetwork offers a wide range of report-generating tools. The Charting Tool allows any funds available in the UK Authorised Schemes universe to be plotted against both each other and a wide range of index benchmarks. The group also allows advisers to view clients' holdings via Morningstar X-ray.
Fisher says: "Core to the development was to ensure that the tool was constructed in a way that was modular, so the tool could be used in full or in part. Another key principle was to ensure the tool could be customised to fit the adviser's business model. FundsNetwork understands that business models do not follow a one size fits all process, and so providing the ability to customise asset allocation strategies, optimal portfolios and product characteristics such as charging, will further broaden the tools applicability.
"The final and most important part of the development process was to ensure the tool had the optimum usability, but followed the advice process to the fullest. The tool was developed in conjunction with a number of key advisers, who saw the tool through prototyping into development."
Skandia also has its own market-leading tool as Everett explains: "SkandiaWrap offers a number of client reports. Advisers can access individual valuation reports or a consolidated valuation report of the client's entire portfolio.
"These reports will give number of units, bid price, total value, sector breakdown and fund breakdown. If an adviser then chooses to use our portfolio-building tool, they can produce reports at the end of the research process which will detail how a portfolio was built, why particular funds were chosen, the research information the adviser used. This gives the adviser an audit trail to back up his decision."
With 37% of advisers still not using a reporting tool, uptake is far from universal. A number of reasons emerged from the report as to why advisers were not adopting these tools - they cost too much, they are too impersonal or advisers simply wanted to continue writing their own client reports. One respondent commented: "The problem with most provider tools is that you can't get investments with other providers on to them, or other assets owned by the client - for example, property, antiques, land and trusts. They all impact on a client's overall asset allocation profile, so they need to be taken into account in some way."
Everett says: "Some advisers have perfected their own reports and methods of populating them, which they are completely satisfied with. It's a case of them working with what they are comfortable with. Skandia's reporting tool is very flexible so that an adviser can use it as much or as little as he wants. Our tools are there to support their business process not dictate it."
Everett believes that with improvements being made all the time, reporting tools are becoming more and more integral to the adviser business. She says: "Portfolio planning tools are developing all the time, Skandia's ultimate aim is to be able to offer a comprehensive tool that gives analysis of client's existing assets both inside and outside of Skandia combined with asset allocation modelling and stochastic modelling. If this is then combined with pre-population of applications, fund switching and reviews then it makes it very hard for the adviser to ignore the proposition or use other tools."
Of the 39 advisers who were asked whether they would use a reporting tool in the future, 24 (61%) indicated that they would be likely to use one in the next 12 months, suggesting acceptance is on the increase. Fisher adds: "The FSA is making it clear that the issues around legacy assets, particularly with regards to closed with-profits policies, will become the next focus of their attention. This could provide advisers with a huge and costly administration task, especially when looking at the complexity of the analysis required to offer a case-by-case client recommendation that takes full regard of all life office, fund, and policy holder factors. Advisers will look to suppliers of tools that have the ability to support the review of clients with these policies. The potential ability to 'un-bundle' with-profit holdings to recreate an appropriate asset allocation policy using more transparent investment alternatives will, we believe, become a key theme in coming years."
There are two main themes to draw out of this month's Real Adviser survey. While the majority of advisers are accepting the idea that the use of a client reporting tool is a benefit to their business, there are still some perceived limitations. It seems likely that it will be the FSA that ultimately pushes advisers into the wider adoption of reporting tools.
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