28 August 2019

Performance reports that make a statement

By Joseph Larizza

Mirador is a leading provider of bespoke portfolio performance reporting solutions for high net-worth families and family offices, wealth management firms, and endowments and foundations. By partnering with the Black Diamond® Wealth Platform, they help independent advisors confidently tell their story while customizing each client conversation. In this guest post, Mirador Managing Partner Joe Larriza shares the importance of leveraging dynamic performance reporting.

At Mirador, wealthy families and the wealth management firms that advise them often ask, “If I already get statements, do I need a separate reporting system for my investments?” The answer is yes.  

Fundamentally, the statements your clients receive from their financial institution (custodian, bank, alternative asset manager, etc.) are simply an accounting of what is held on their behalf. Typically generated at month-end, these reports note the balance for each account or asset and they detail any associated transactions. Alternatively, a report by your advisory firm generated through a performance reporting solution, such as the Black Diamond Wealth Platform, does so much more.

Performance reporting platforms allows your firm to present portfolio and performance data to your clients in a personalized and effective way. These systems don’t just provide balances, they showcase investment performance, typically both Time-Weighted Return (TWR) and Internal Rate of Return (IRR). A plethora of additional metrics are often available as well, such as long-term and short-term realized and unrealized gains, risk vs return, past and anticipated dividend and interest income.

The availability of investor-enabled aggregation allows your clients to add outside accounts, such as bank accounts, credit cards, 401k plans, and annuities so that you can get a complete, consolidated picture of their financial situation. You can then group the assets not just by financial institution and account, but any way the data allows and for any time-period. In these aggregated views you can truly explore exposures in your portfolio – e.g. How much AAPL do I hold? How much free cash do I have? In addition to these capabilities, you can also view supplemental data that groups holdings by industry, region, or user-defined groupings for deeper insight into portfolio performance.

By having a robust performance reporting platform, you can help your clients focus on the important items within their portfolio, put things in perspective, and ultimately help them make good decisions. It is a great mechanism to easily demonstrate how their performance aligns with the investment philosophy of your firm and it showcases that they are on track to the goals that you have helped them set. Finally, because performance reporting systems are designed to have insightful portfolio management tools, a manager or advisor at your firm can quickly identify the current business standing, look for trends and outliers, and examine the details of client relationships.

In determining which reporting methodology and capabilities best suit your firm and your clients’ needs, it’s important to note the differences between standard statement based reporting and performance based reporting:

  • Performance reporting systems are typically trade-date based while statement based reporting is often settlement-date based.
  • Performance reporting systems can back-date transactions, particularly when a transaction was initially misreported, while statements rarely backdate or re-state.
  • Performance reporting systems report performance for only the period when you hold a position while statement letters typically share performance for an entire period, whether you held the asset or not.
  • Performance reporting systems typically accrue for interest and dividends earned to date while statements do not.
  • TWR calculations can vary slightly based upon the calculation methodology (daily vs monthly or including/excluding accruals). Over very long time periods performance may vary a few basis points.

 

Dynamic performance reporting systems are a must have if you have any sophistication in your portfolio. PDF statements from financial institutions don’t provide the insights your clients need and manual models can’t produce appropriate calculations and are often fraught with errors.

At Mirador, LLC, our team is available on demand to help you configure and operate these tools in an efficient, accurate, and cost-effective manner. Our full-service offering serves as the outsourced reporting operations team for our clients.

To hear additional insights from Joe, be sure to catch the Chief Operation Officers Speak session at SS&C Deliver on Tuesday, September 17 at 4:30 PM. And if you haven’t already, register for SS&C Deliver now and join us in Orlando, Florida, September 17-19.