If the Client Report Is the Answer, What Was the Question?

Client reports on table next to laptop

The complexity of our communication capabilities is apparently one of the things that sets humans apart from other creatures, yet frequently, we’re very poor at it. Politicians, amongst others, are renowned for not answering the question they are asked as a means of deflecting attention from their failings. Answering the question we want to be asked, rather than the one we were actually asked, is quite a common trait, especially if having to answer it is uncomfortable. And so it is with client reporting, in many cases.

Investment commentary or fund manager narrative—call it what you will—is the fund manager’s chance to talk about what has happened to the money they are investing on their clients’ behalf. And of course, making that money grow is the main service for which the client is paying a fee. So, when the fund is not performing well, it’s only human nature to try and put a positive spin on things and dwell on the positives rather than the negatives.

But is that what the client wants to know about? Put yourself in the client’s shoes and the answer will probably be no.

At a previous client, I was asked to review their new factsheets. They’d just made a significant upgrade to their client reporting platform and the new one gave them lots of graphical capabilities they’d never had and the ability to make a huge improvement in the way they presented information. They’d really gone to town on this with new marketing standards, lots of pie charts, lots of colour, etc.

But the first factsheet I looked at showed two pie charts: one with 100% investment in equities and the other with 100% investment in the UK. The fund was their UK equity fund! So what did that actually tell me as a potential investor? If anything, it told me that they had not thought about what information is useful—if either of those pie charts had been less than 100% then either the factsheet is wrong or they are breaching the investment guidelines and restrictions for the fund, neither of which is going to impress me.

Several other factsheets had similar pie charts with one factor being 100% or there only being two or three factors with one being over 99%.

Corporate standards were to have at least one pie chart on the factsheet, unfortunately the factors chosen to show on some of the pie charts weren’t appropriate to the fund.

What needs to happen when designing client reports, whether it be factsheets or institutional report packs, is to think like the client. The client report will be viewed by the client without anyone from the asset management company being there, and so needs to provide a full and sensible picture of the fund and give the client the information they want.

We want the client reports to inform the client and address their concerns, rather than to raise questions or doubts about the wisdom of using this asset management company.

So what information should we show? Thinking as a client, and what I always look for first on any statement from my personal investments, is what am I worth and how much has that gone up/down by in the reporting period. I’m not going to get that from a factsheet, but as a personal investor I still get statements and if I was a trustee, I would expect it on the institutional client reports.

The way I want to see this is:

  • Value from previous statement
  • Cash inflows from me and outflows to me
  • Value on this statement
  • The difference between current value – (start value + cash flows), i.e. how much the value has gone up or down due to changes in the value of my investments.

And there’s one other critical bit of information that is frequently missing—fees. In other words, show me how much you have made (or lost) for me and what it has cost me.

As someone who has worked in asset management for 35 years, I’m more than aware of what absolute and relative returns show me, but I still want to know the increase or decrease in monetary terms and that’s something everyone can relate to.

That previous client fell into the trap of producing very pretty factsheets, but the quality and relevance of information was poor. To design a good report, we need to step back and think like a client, and in particular, ask ourselves: What would the client want to know? What is it relevant to tell them based on the mandate and objective of the fund? And to tell it openly, honestly, and simply.