Practice Strategies

The Key Pain Points of Portfolio Monitoring

Melinda Lovell, 21 April 2021

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Instead of wasting time data mining, advisors should be able to focus on constructive portfolio and client relationship management.

The following article comes from Melinda Lovell, who is senior business development manager, BITA Risk

To provide feedback on the article, email tom.burroughes@wealthbriefing.com or jackie.bennion@clearviewpublishing.com

BITA Risk has supported wealth management firms across portfolio monitoring for over a decade. During that time, we have witnessed how, as these firms grow, merge or acquire other businesses, the operational structures they have in place with which to monitor client portfolios often begin to feel the strain.

Our view is that wealth management firms need to acknowledge these pain points and the risk they present to the firm and its clients. Ad hoc or quarterly review processes typically leave wealth management firms ‘in the dark’ for over 90 per cent of the time, exposing vulnerability to data gaps and their associated risks. Furthermore, many are unable to view the ‘big picture’ quickly across all their branches and are being swamped by manual downloads and Excel spreadsheets.

Here are the common issues that we find wealth managers and advisors face in this respect – the key pain points of portfolio monitoring – and how to overcome them.

i) Spending time where it matters – on action, not on data gathering
Advisors and central governance alike need portfolio monitoring analytics to be immediately accessible and based on the latest available data. Firms need to access these analytics at different levels of granularity; they need the enterprise view - the ability to see the whole organisation, each client segment and every portfolio manager, every day. This must be supported with full drilldown - daily monitoring of individual portfolios.

In order to spend time where it matters, wealth managers and advisors need process efficiency and should replace ad hoc or infrequent portfolio monitoring with automated daily analysis. This is proven to reduce a firm’s susceptibility to data gaps, increase their data coverage to 100 per cent and reduce their data gathering efforts by 90 per cent.

ii) Knowing exactly where to look
In order to know exactly where to look, a firm requires a process that highlights exactly where problems lie. This information must be delivered straight to a manager’s desktop; supported with pre- and post-trade analytics as well as integrated exception management. 

It is critical to recognise that a lone snapshot of a business is not enough; firms need efficiency of process in order to scrutinise their activities and understand trends across the business.

iii) The risk of the unknown - understanding the risks that are lying in wait
Wealth management firms need to know and be able to demonstrate that all client groups are being treated consistently across all offices and managers. They must understand the risks that individual holdings represent within client portfolios and understand whether these represent a threat to their client relationships and business.

The reality is that ad hoc or quarterly reporting leaves an enormous amount of scope for unknown problems to escalate, potentially putting a firm’s reputation firmly into the firing line.

The answer to this problem is twofold: provide managers with an integrated workflow that preserves their investment autonomy within the firm’s investment framework and provide them with the tools to identify and manage portfolio drift as required.

iv) Knowing how to support central investment teams through business and investment changes
Whether a wealth management firm is involved in mergers, acquisitions, or is simply taking on a new book of business, the inherited processes may not always fit with the way the firm currently operates.

Onboarding teams or managers can be problematic: the firm may need to realign investment strategies across the organisation or introduce additional ones - the introduction of ethical mandates is just one example.

The solution is to support firms by delivering central oversight across investment strategies, helping determine quantifiable risk and suitability parameters and configuring these to suit variations across all business divisions and client segments.

v) Infrastructural inertia – relying on process workarounds or legacy systems
Despite the fact that every wealth management firm must fulfil their MiFID II suitability requirements, many existing IT infrastructures deal with these requirements as an after-thought. These systems are often creaking at the seams, leaving wealth managers with no choice but to be overly dependent on Excel spreadsheets, inefficient manual workarounds or untimely data, meaning that eventual analysis is already out of date.

Firms can be (understandably) hesitant to replace their entire IT environment, but rather than ignore the issue they should seek to enrich their existing infrastructure.

Conclusion
In summary, rather than wasting time data mining, advisors should be able to focus on constructive portfolio and client relationship management. Replacing manual data handling, ad hoc monitoring and reporting, and Excel spreadsheets does not require firms to rip out all of their existing infrastructure – they can nimbly enrich their current IT environment through agile technology.

Many firms we work with have observed that demonstrating best practice is a key factor in driving business growth. Not only does it improve client confidence, intermediary trust and the firm’s appeal to more complex mandates, but it also delivers the assurance to scale.

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