Living through 2022 underscores an eternal truism: that life’s challenges are seldom episodic and often come piling on each other in the most challenging way. This is very true for those managing portfolios in the wealth management space.

Long gone are the days where asset allocation drift, and possibly asset class risk, were enough to satisfy suitability and ongoing portfolio monitoring requirements. These are just one slice of a large and growing portfolio monitoring ‘pie’, and there are several portions I fear firms will find hard to digest without modern technology designed for the purpose. These coalesce around two core themes: 1) sustainability and the highly tricky business of not just doing right by clients but proving it has been done 2) spreadsheets and manual data manipulation are just too time-consuming, labour-intensive, and risky to be fit for purpose.

So, the challenge of properly monitoring portfolios has become multifaceted, requiring checking numerous metrics, both individually and across your entire client base – and all the time. These metrics can often be client or proposition specific and add further complexity at asset and portfolio levels. This requires automation and exception management if it is not to become a drain on the front office’s time.

The acknowledgement of change is supported by recent research carried out by Compeer, which found that 46% of firms are now reviewing suitability on a continuous rather than an annual basis. From a compliance perspective, but more importantly from clients themselves, this is no small thing, although the industry as a whole clearly has some way to go.

Consumer Duty
Putting the customer first is a movement that has been gathering importance globally for some years, building on TCF, and will reach something of an apotheosis in the UK when, at the end of July, the FCA publishes its final “Consumer Duty” rules. The regulatory focus is now on firms tracking and measuring the investment journey to ensure the consistency of outcomes and the efficiency of the processes used to source them. We will need to map and document such that even if clients choose slightly different paths and vehicles (pun intended), those with similar objectives still arrive at the same place or are clearly documented as to why not.

You may think that this is solved by Centralised Investment Propositions (CIPs), but research has shown that this is not always the case. Firms must be able to ensure and demonstrate that CIPs are working as intended for each client’s objectives and alert and document when not. Identifying and rectifying early on are why performance and yields are not quite meeting an individual’s expectations and needs. But it will help avoid all manner of risks apart from those related to compliance – not least that of losing the client.

ESG and Ethics
It is in the sustainability sphere, however, that things are getting really thorny in portfolio monitoring. Our research with Compeer found that 80% of clients now request some access to ESG-compliant investments in their portfolio, with this figure rising to 94% for clients under the age of 40. In the purest sense of the word, demand is certainly there and will only grow to ubiquity. It is just as strong (if not stronger) from regulators, with SFDR and TCFD headlining an alphabet soup of frameworks, rules, and regulations requiring carbon, ethical, and other non-financial metrics - also be part of what institutions monitor, measure, and report on. This starts to become complex as the ESG (in the broadest sense) data needs to be managed and applied to portfolio positions in the context of the client’s preferences and restrictions. Additionally, a number of metrics need to be looked at over time.

Compeer found that a lack of personalised reporting and portfolio updates are a deal-breaker for two-thirds of clients. Firms see that ESG reporting is shaping to be a real differentiator in these conscientious times: 43% already report on ESG metrics to clients, and the remainder are working hard to catch up. Ethical restrictions have been simplistically applied for years, but now that there is detailed data on companies and funds, there is the opportunity to apply these automatically both pre-and post-trade. The front office no longer has to spend time manually checking each month, this sustainability metrics can be constantly monitored.
 

Multifaceted Solutions to Multifaceted Challenges
These slices of the monitoring pie may seem largely compliance, but the reality is that more and more of it takes up front-office resources. Indeed, Compeer tells us that for a quarter of firms, as much as 80% of a compliance project is performed outside of the compliance department – and at a time when margin pressures mean front-office efficiency is more important than ever. The more automation in portfolio construction, monitoring, and reporting can be achieved, the better both direct and indirect compliance costs can be kept down – and high standards of provision kept up. These tools provide managers with decision support and calls to action in investment management. Managers must be freed up to manage and build their client bases.

All of this is to say that when faced with multiple challenges, wealth and asset managers must seek truly multifaceted solutions. That way, multiple problems that threaten to become an entangled mess can be solved in a stroke. Future-proofing can then also come into scope. Once you have a cutting-edge portfolio monitoring solution in place, it does not matter what regulators, clients, senior management, or anyone else requires you to measure and report upon. You could even choose to break with the pack and look at portfolios through an entirely new lens. I know some of our clients are already thinking about this.

Our BITA Wealth® solution has consistently stayed ahead of the market and encompasses a wide range of risk, portfolio analytics, and decision support tools to monitor suitability and outcome in meeting today’s challenges. Now servicing over GB£180 billion in client AUM, we can confidently say that we have helped get a large part of the sector to a position where proper guardrails are always on. That, I would argue, has to be the spirit in times like these: you can seek resilience in the face of a regulatory onslaught and wring business benefits from compliance challenges. Our client stories give ample evidence for how that has already been done.

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