The Challenge: Investment statements are the primary communication tools that financial institutions use to reach clients. However, the days of simply listing the client's holdings and contributions are long gone. Now investors want to know more than where they've been and where they are.
Four years ago, BMO Nesbitt Burns was one of the first brokerages in Canada to provide clients of their managed-accounts program with a detailed report of each account held in the program.
Though it wasn't a consolidated view of the holdings, it was "pretty good at the time," says Sarah Widmeyer, vice president and managing director of the managed-assets group. But, like any first mover, the competitive advantage was short-lived. Eventually, other firms "caught up and produced a report that was better than what we were doing."
Widmeyer says it was "time to raise the bar for reporting again," so BMO set out to create the first consolidated statement for a managed-account program in the Canadian industry, which would cut across the brokerage firm's three offerings: Advance, BluePrint and Quadrant. That was 18 months ago and the statement went live in the third quarter of last year.
It was a labor-intensive process. BMO first met with its independent advisers and sought feedback on what would make a good consolidated statement. It then sat down with clients one-on-one and canvassed them on what they wanted to see and what they liked about their existing statement.
Consultants were hired to help design the statements and the firm relied on its own technology department to tackle the project. Widmeyer says that was new because the IT department was usually called on for operations and maintenance, not development. "It involved a completely different mindset," she says.
The challenge became how to draw the various data elements needed from the firm's internal retail-brokerage-information system and meld that with information from the firm's externally managed account system (MPower, an offering from CGI). That system held the data-modeling tools and performed the calculations for rates of returns and index benchmarks.
BMO Nesbitt designed three different architectures and settled on one that allows the adviser to tailor the statement to the customer's tastes. The independent adviser can see the holdings a number of ways - including returns relevant to a benchmark, by asset class or geographical weighting. They can have the statement mailed directly to the client or present it at a regular review. It provides the investor with a clearer understanding of what is happening to their assets.
Widmeyer says in these tough markets, it is "important to provide something that was tangible and provided a value-add." The system will eventually be expanded to cover other types of adviser accounts.
John MacIlwaine, chief technology officer of EnvestnetPMC, the third-largest managed-accounts provider, says customized reports are getting more attention these days from investment firms.
"The challenge is to balance the ability to provide one-click reports against the individual's need for customization." He says that EnvestnetPMC can now provide 120 different kind of reports.
Heather Hopkins, director at Dalbar, Inc., a Boston-based consulting firm that advises financial institutions on investor statements, says more and more companies will deliver customized statements to their clients that allow them to pick and choose what is reported.
Dalbar examines statements and then ranks them according to a number of factors. Hopkins says defined-benefit-pension plans have some of the top rankings, followed by defined-contribution-plan providers, brokerage firms, variable-annuity providers and then mutual funds, which are "beginning to lag."
Dalbar's 2002 report on trends in investor statements found that, in the past few years, financial institutions have invested "significant resources - technological, financial and human - into making statements more valuable to the firm and its customers."
In the short term, the brokerage industry "will be the most active" when it comes to fine-tuning statements. Currently, only 25 percent of firms offer market indices on their statements, but she expects that will soon rise to 50 percent. A further 25 percent plan to add marketing messages to their statements, such as updates about investments and suggestions for taking action on the account.
In the long term, 25 percent of institutions plan to allow financial professionals and their clients to select statement features.
Hopkins warns that postage costs are expected to rise 33 percent over the next few years. For firms that can save a few cents on each statement by eliminating unnecessary pages, the savings will be "huge."
According to Dalbar, investors want a simple statement that is easy to read. Gone are the days of glitzy graphics and reams of numbers. "Investors don't want any fluff, they don't want any doublespeak," says Diane Bogdan, second vice president, retirement services product development at MassMutual Financial Group in Springfield, Mass.
Bogdan recently revamped her firm's defined-benefit and defined-contribution-plan statements, cutting out a couple of pages. The project started last April and was completed in December.
The trick, she says, is delivering information "for those who want it, while not shoving it down the throat of those who don't." As well, it becomes a computer-coding nightmare. Her firm had to develop a system that would print statements in English or Spanish, depending on the client, and then trigger the system so that the statement was sent to the client directly or the plan sponsor.
But it's not just investment firms that are struggling with the challenges of customizing statements.
Security Trust Company, a Denver-based firm that provides custody services and technology solutions to investment firms, recently completed a customization project with Piper Jaffray's retirement-services group, which is based in Seattle.
Nancy Murphy, vice president at Security Trust, says that Piper designed new reports and relied on Security as a back-office provider to feed it the raw data to pump into Piper's front end - Morningstar system - which provides an interface with retirement- plan sponsors.
She says Security uses Advent's Wealthline to "pull information from all different sources and aggregate data" that is then sent to the client. Mike Flinn, senior vice president of master-custody services at Security, says the move to more customized reporting requires flexible technology. "We built our infrastructure as open as we possibly could. It was built with the independent adviser in mind," he says.
Murphy adds that managing the various pieces of data can be challenging because "garbage in means garbage out." She says that means it's important to "capture clean data from the beginning and making sure it is correctly coded."
EnvestnetPMC's MacIlwaine says the XML standard has made that task easier. It has allowed for interfaces and exchange of data that was previously hard to do. He says it's important to make sure that the end product is "AIMR compliant" and that the data maintains integrity throughout the process - from the database-query stage through to the portfolio-management system and the paper- or Web-based report. "It's integrating all those elements in a way that presents the data in an easy-to-use fashion" that matters, he says.
BMO Nesbitt's Widmeyer predicts that statements will play a bigger role going forward. It's all about building a competitive advantage, she says. "We see this as a tool to bring more assets into the firm."