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Why technology is vital for RIAs looking to steady client nerves in stormy markets

A steady, clear and scalable flow of information can help keep investors bullish in a bear market

Wednesday, November 30, 2011 – 5:48 AM by Guest Columnist Andrew Peddar
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Andrew Peddar: An overload of information and the speed at which it's delivered can lead to the inevitable paralysis by analysis for the investor.

Brooke’s Note: Technology is often looked at as a pure factor of production and — the coolness of Apple devices aside — less as a psychological factor. This article reminds of the impact smooth-flowing technology has on the otherwise bewildered client.

With market volatility tempting many investors to shift money from equities and funds to cash and other low-risk assets, and confidence in markets eroding in general, restoring investor confidence is at the top of many advisors’ priority lists. This task is made more complex by the fact that clients are better informed and have more data at their fingertips than ever before.

For most investment advisors, instilling confidence in their clients is largely a matter of a consistent communication combined with clear and concise reporting. Clients depend on regular reports that detail how a portfolio is performing. But here’s the challenge: Each client has a different idea of what that report should contain, a different level of market intelligence and specific preferences for how and when reports should be delivered. Given the importance of reporting in both client communications and in overall practice management, it’s worth looking at how technologies can help advisors effectively manage reporting and streamline internal processes.

Paralysis by analysis

Investors have access to more information than ever before and these sources of information can differ wildly. On one hand, USA Today advises readers “not to think like a trader” and therefore ride out volatile markets in order to reap long-term gains rather than reacting to each market dip and peak. On the other hand, investors reading The Wall Street Journal will learn that the SEC is considering implementing “shock absorbers” to prevent flash crashes and other volatile events — implying that volatility has become the new norm.

Not only is all this information readily available, but the speed at which it is available can lead to investor confusion and the inevitable paralysis by analysis. The days of reading the evening paper or watching the news at night to get a report on the day’s market activity are long gone; most advisors already know how London is doing by the time they wake up, shut off the alarm and look at their smart phones.

The instant penetration of news has had a great impact on the investor psyche. The advisor therefore has to find a way to calm investor fears with effective communication and reporting strategies that reassure the investor of the value and reliability of the advisory services they are receiving.

Giving clients what they need

Advisors know that every investor is different. But there are a few services that all practices and services that all clients demand, and these help determine the kind of technology strategy an advisor should adopt to help secure investor confidence. These include:

• Transparency — In the post-Madoff era clients have high expectations about transparency concerning their investments. Investors want to know when, how, why and where their money is invested. This means that advisors need tools that let them show, in clear and easy-to-understand graphics, how an individual client’s portfolio is performing at any given time.

Transparency also means that the underlying analytics — the fundamentals — have to be rock-solid and defensible. Clients might not understand investment mechanics at the granular level the way a quant would, but they still have to understand the basics. Advisors must have solid analytical tools at their fingertips that allow for the basics to be easily conveyed and it is essential that these basics must come from a base of high quality and detail.

• Speed — When clients call with questions about their portfolios; performance, they wants answers — fast. That’s not new. What is new is the acceleration of time-to-respond. What may have required days of research 10 years ago now needs only an hour. And what used to require an hour of digging now can be turned around in seconds.

Investors expect their advisors to have information about their holdings in hand at a moment’s notice. After all, advisors are paid for their customer service as well as their investment strategy. As a result, advisors that can’t react immediately to clients’ concerns could easily lose ground to those who can.

• “Worst case scenario” analysis — The market-shaking events of the past few years — from Lehman to Madoff to the tsunami in Japan to the ongoing roller coaster of the European debt crisis — have left many investors wondering about the worst-case scenario should “that” were to happen again today to their portfolio.

• Up-to-the-minute performance updates — Clients accustomed to always-on access to information are beginning to expect always-on access to their portfolios’ performance. The age of quarterly or even monthly reporting is quickly changing. Investment advisors need tools that can help them provide instant reports on portfolio performance based on last night’s close, not last quarter’s results.

How cloud technology can smooth the rough patches

While technology tools can’t change investment behavior in capital markets, they can give advisors the ability to answer growing demands in this era of enhanced client service. At the moment, investors are experiencing large swings in the market from week to week and even day to day — so they expect to know how their portfolios react in such conditions.

Adopting a cloud-based portfolio performance-measurement service that enables instant, flexible reporting can pay huge dividends in this respect. With cloud-based technology, especially a performance measurement platform, there is greater reporting flexibility. In addition, rather than requiring a big upfront investment or high ongoing maintenance fees, cloud and web-based services, usually billed on a monthly basis, are enabling even the smallest investment advisor to access powerful tools like portfolio analytics with enhanced reporting capabilities.

For example, a cloud-based portfolio performance measurement platform can give investment advisors one click on-screen or PDF report capabilities that capture a snapshot of a portfolio at any point of time, immediately. Those reports could be instantly shared through the platform or via e-mail. And the smartest platforms let advisors run war games that provide analysis and reporting on a specific client’s portfolio based on previous significant market events.

In addition to offering 24/7 access to portfolio information, cloud-based technologies don’t require a complex implementation plan and lots of IT support. Most investment advisor firms are lucky if they even have IT support in-house — and frankly, it’s a major hassle to bring in new technologies that need hardware or installed software to work properly. Just think of the last time you had to upgrade your Office Suite. The last thing you want is to have that level of confusion and complication when you’re trying to manage investment returns and client expectations.

Using technology to free up face time

Ultimately, portfolio performance measurement technologies should activate competitive advantage. In the current volatile market portfolio analytics, reporting and communication must be smarter because clients’ expectations have changed.

But there is a caveat: The best technology in the world can’t replace the face-to-face relationship management that has been at the heart of the investment advisor business for decades. Nor should it.

Rather, smart technologies will give firms for whom customer relationship management is paramount the ability to work more efficiently and effectively, freeing up advisors to spend more time with clients and less time wading through spreadsheets and scouring news websites to create performance reports.

Less time in Excel, more time having conversations. Isn’t that why most investment advisors went into business in the first place?

Andrew Peddar is CEO of StatPro Inc. North America. StatPro is a global provider of portfolio analysis, asset valuation and reporting solutions for the investment management industry.

Robert DeFrancis

Robert DeFrancis

November 30, 2011 — 10:17 PM

Full disclosure, I’m the Director of Sales for Junxure.

While I totally agree with Mr. Peddar’s recommendations to start providing clients up-to-the-minute information, it’s important to note that cloud-based technology is not necessary.

There are systems like our ClientView Live that allow an advisor’s customers to view the same information the advisor has on his local server right now in a secure, encrypted environment — no cloud-based system necessary.

Elmer Rich III

Elmer Rich III

December 1, 2011 — 12:26 AM

“There is no technological solution for a relationship problem.” A very wise and rich client once told us.

If you are selling tech “hammers”, everything looks like a tech “nail.” In fact, any significant jumps in functionality are likely not coming from tech in the future. The low hanging fruit has been picked. There seems to be a limiting factor happening in tech now — the more “heat,” the less “light.”

Also, like with some many tech innovations now, like social media, just because VC will fund it does not mean it has any economic function — other than an IPO.

Let’s take the idea of 24/7/365, on-demand, real-time communications with clients. There is good evidence that this kind of info glut can severely cripple both client decision making and advisor relationships. Does any advisor know of a client helped by the always-on CNBC financial news?

Best to take the (sales) promises of technology as hypotheses, eg, if we give clients always-on access — what are the consequences?

Also, it is just fiduciary prudence to ask any vendor for data and evidence of products and services actually doing what they promise.

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