"Problems arise especially where a solution is unable to reproduce the full range of asset classes"

Gunnar Grape is the managing director of iComps GmbH, based near Frankfurt, which offers an IT platform and various other services to support wealth managers in the administration of their client portfolios and providing clients’ investment reports. We discussed with him the current state of client reporting and what a good investment report from a wealth manager should look like.

MyPrivateBanking: Do you think the standard of reporting by wealth managers to their clients is often inadequate?

Gunnar Grape: Broadly speaking, we wouldn’t judge the quality of most client reporting to be sub-standard. However, there’s no doubt that, the proportion of wealth managers that use less professional solutions such as Microsoft Excel for their reporting is still on the high side. Problems arise especially where a solution is unable to reproduce the full range of asset classes. Nowadays this has to span derivative products and alternative investments such as private equity funds as well as traditional assets. Special attention should also be placed on the tax component so we include information such as interim, equity and real estate profits in mutual funds. In particular, the coverage for business property and trusts presents a challenge to client reporting, which is often not adequately overcome. The reasons for sub-standard reporting stem from the use of inadequate solutions and the inability to tap all the required data. Without a quality supply of price data even a professional solution won’t be of help. Therefore, alongside our platform we’ve enlisted a reliable partner for the supply of price data.

MyPrivateBanking: How do you assess the current quality of wealth managers’ investment reports to clients?

Gunnar Grape: The quality of reporting has improved significantly in recent years, not least because of regulatory requirements, eg MiFID, that enforced basic levels of transparency for clients. By means of new technologies, such as 'Software as a Service' from vendors like iComps GmbH, smaller and medium-sized wealth managers now have the opportunity to use highly professional asset monitoring and reporting platforms, which were previously only available to large wealth managers.

MyPrivateBanking: What components should clients’ investment reports include ?

Gunnar Grape: The content of weath managers’ reporting should satisfy all the information needs of clients and not only, as happens often, just the regulatory requirements or the prevailing " minimum standards". In our opinion, one minimum requirement for a quality report is comprehensible,transparent performance measurement that addresses all asset classes. To provide the client with maximum transparency the performance calculation method should be indicated - time-weighted vs. money-weighted vs. modified Dietz return. Moreover, the clients should be offered different benchmarks to allow them to continuously monitor the performance of the wealth manager against the respective markets and benchmarks. For the more experienced clients risk indicators such as volatility, tracking error, beta, and Value at Risk are minimum requirements. For bond portfolios, we also see Duration and the presentation of ratings or a CDS-analysis as a must have. Due to technology it is possible to easily produce reports for all clients and still be able to individualized them for each.”

MyPrivateBanking: What‘s the most important information for a client to check in their investment report ?Gunnar Grape: Included in the information that we consider to be essential for clients, besides volatility and aforementioned performance - including from a risk / return perspective - is the cost component. Ideally, the system automatically provides performance data before and after costs. A separate chart on costs that also shows the cost of portfolio turnover ratio will help the client to better assess the wealth manager’s quality and skill. A comprehensive presentation of the asset allocation helps to identify risk concentrations quickly.

MyPrivateBanking: Do you see developments in the family office sector, which should also be undertaken by wealth managers for private clients?

Gunnar Grape: Developments that we see here concern the transparency of funds and the representation of illiquid assets as for instance closed real estate funds, ship funds, etc. 'Special Funds' play a significant role in the family office sector. By the merging of assets within a fund the efficiency in managing these is increased, however, part of the transparency for the client is lost. This is especially true if, in addition to the funds, other assets, for example, a core-satellite approach, are held in the same portfolio. Modern platforms offer the possibility to mix the parts of the fund with other investments in the portfolio. The client thus receives the usual transparency. In addition to the transparency of funds, we believe the reporting of total assets could be copied in the private client sector. Specifically, this would mean valuations of those illiquid assets managed by wealth managers would be incorporated into the client’s investment report. Furthermore, we offer calculations based on data forecasts and assumptions, with wealth managers being able to use our platform to record the appropriate values; for example; by using a discounted cash flow calculation method. Thus, the wealth manager has at their fingertips the wherewithal to report on the total portfolio with almost no additional effort.

MyPrivateBanking: Thank you very much for this interview.

Mr. Grape is also speaker at the Deutsches Family Office Forum 2011, which takes place from October 5 -7, 2011 in Wiesbaden/Germany.  A three day strategic conference addressing the needs and challenges of german spoken single family offices through case studies delivered by both German and international family offices and experts.