The saga of the Swiss franc's huge rise highlights the need for wealth management clients to be told rapidly about such developments.

The huge surge in the Swiss franc/euro exchange rate – as much as 40 per cent at one point according to reports – will have affected investment portfolios both for good and for ill. But how fast were clients able to see the impact as the drama unfolded?

In the Information Age, in theory at least, the impact on portfolios of such a market shift should be seen in “real time” or at least within hours and certainly no more than a day. One vendor of financial data to private banks and other wealth management players, Switzerland’s Arcavio, claims that end-investors at firms using its services were able to see the currency impact within an hour of the Swiss National Bank’s announcement that it was no longer capping the franc at a 1.20 rate versus the euro.

A number of other firms have told this publication that people should, depending on their condition of service arrangements, have been able to see the effects rapidly.

“Our system is normally updated once a day in the early morning with closing prices of the global stock exchanges and the FX rates for over 100 currency pairs, too,” René Raabe, manager at Basel-headquartered Arcavio, said in a telephone call. “However, last week [15 January] when the SNB released the Swiss franc from the euro we were observing the market until 11am and in the meanwhile informed our clients by phone and email,” he continued.

“At 11 am we took the current euro/SFr rate and edited (corrected) the price for that day. By doing this all other majors and cross rates in our system were re-calculated too,” he said. “In a nutshell, in less than one hour after this event our clients were able to see the direct impact on their total wealth positions. (All bankable and non-bankable positions have been re-evaluated at 11am). They were able to see the effect on equities, bonds, cash accounts etc according to their reference currency before lunchtime (12.00). All our clients just had to refresh their internet browsers or do again a login to see their individual effect,” he added.

Arcavio’s partner banks with electronic data load, according to its marketing literature, cover a wide number of Swiss and international banks, such as Credit Suisse, UBS, Deutsche Bank, BIL Luxembourg, Julius Baer, Bank J Safra Sarasin, LGT, Liechtensteinische Landesbank, Lombard Odier, Notenstein, Pictet, Vontobel, VP Bank and Zürcher Kantonalbank. It engages with a much bigger number of banks for other services.

While the sheer speed of communicating information is not necessarily always the crucial element – clarity and usefulness are equally important tests – rapid updates in a hectic market episode will impress clients.

Dominic Gamble, chief executive of online matching service findaWEALTHMANAGER.com, who was in Asia when this news service contacted him, said he had been pleasantly surprised by how fast news of the Swiss franc surge had been communicated to clients.

“Social media penetration is huge here and some wealth managers have disseminated the news and views really effectively via LinkedIn and Facebook, which are the pre-eminent media. It’s the nature of the market here that the big players are typically the fastest and most tech-savvy on communication, with many offering portals to their users with the news feed and links to their up-to-the-minute research analysis,” Gamble said.

"Our experience in the UK has a similarity and a difference. Generally wealth managers have gotten a lot better at communicating the good, and more importantly the bad, news to investors on a timely basis after 2008. At that time the industry faced much criticism of hiding from clients in the face of bad news,” he continued.   

"The difference is the way that news and analysis is communicated. Email plays a far larger part in the UK and often the smaller players are just as dynamic in their reaction as the larger ones, often compensating for depth of analysis with more candid off-the-cuff opinion. The UK private client audience is generally more traditional in the way they absorb financial news than in Asia, made starker by Asians’ appetite to be more actively involved in their portfolios,” he added.

Theory and practice
“In theory, if you have a real-time portfolio valuation solution in place you will be able to provide a near real-time valuation update on a client portal. Technology solutions are capable of providing this. However, in practice many wealth managers have real-time in-house systems for portfolio managers but only batch updates of exchange rates and securities pricing for their end-clients,” Martin Engdal, market strategist at Advent Software, told this publication in an email.

“In the UK and in most European countries, in many cases for end clients, foreign exchange valuations will only be updated at the end of each trading day or the day after. So in reality most clients would have seen the effect of the Swiss franc spike the following morning,” he added.

The speed of updates will depend on the specific packages a client gets via his wealth manager, said Daryl Roxburgh, global head of BITA Risk, a London-based provider of risk profiling, portfolio construction and risk analysis tools for private client and institutional investment managers.  

"If it's a valuation issue [caused by a price movement] then I would expect clients could see that reflected in real time, 20 minute delay [or] end of day according to their service," he said. A lot of systems either use mark-to-market valuation adjustments or those based on end-of-day closing prices.

"The question people should be asking is have you hedged your currency risk or are you taking forex risk in addition to investment risk in an overseas investment?” he continued.

At Avaloq, a spokesperson told this publication: “We can’t comment on the Swiss franc’s impact on banks and client portfolios. Avaloq’s portfolio management solution however allows real-time evaluation of portfolios across currencies and asset classes.”

“In times of economic unrest, wealth and asset management clients want to know what every market shift means to them, immediately. If you can’t respond swiftly, they will call you – all at the same time – and everyone can imagine what will happen then. No wealth or asset manager is geared up for that kind of “storm”. The only way to avoid disaster and disgruntled clients is to take preventative action, enabling your IT infrastructure to handle these kinds of situations automatically," Klaus Andersen, managing director, SimCorp Coric.

"To be successful in a turbulent situation like this, wealth and asset managers need up to date technology, especially in the investment book of record (IBOR) and in client reporting and communications. In the Swiss franc case, the IBOR is the critical component that can calculate the effect of the currency move immediately. The client reporting and communication component is what enables wealth and asset managers to broadcast the latest information to clients, as it happens, if that is appropriate. Both components needs to be in place. Top-of-class wealth and asset managers have implemented an IBOR as well as an automated client communications platform, giving their clients exactly what they want, whenever they want it. Many wealth and asset managers are not in a position to do that today, but some are – and guess who has the highest client satisfaction and most business growth?” he added.

This publication had contacted a number of other vendors of such financial technology but they had not responded at the time of going to press; it will update in due course.