The new new brokerage statement: How am I doing?

The next time investors open their quarterly brokerage statements, they may not recognize what they see.

The next time investors open their quarterly brokerage statements, they may not recognize what they see. That would be a good thing. Thanks to a timely combination of new technology and customer and regulatory pressures, many Wall Street firms are giving their client account performance reports a much-needed makeover.

“We are finally at a point where the technology can meet the wants and needs of the client at the scale that is required by most firms with multiple programs,” says Joseph Mrak, general manager of business process outsourcer Bisys WealthSolutions Group and a longtime performance-reporting expert. “Add client and adviser demands to the mix -- and the feverish regulatory environment -- and everybody is finally getting what they’ve wanted for years.”

Fidelity Investments, Morgan Keegan & Co., Merrill Lynch & Co. and UBS are among the firms undertaking performance-reporting projects.

Much of the drive to rethink the performance report comes courtesy of regulations such as Sarbanes-Oxley that are forcing the streamlining of business processes to facilitate quarterly reporting. That, in turn, has prompted firms to upgrade multiple systems and databases deployed across different business units, either by linking them through such technologies as Web services and service-oriented architectures, or by simply replacing them with one standard platform. Either way, performance reports are processed faster.

Scott Graflund, managing director of ultra-high-net-worth operations and global wealth management client reporting at Morgan Stanley, notes that firms are trying to integrate better what they are required to submit to regulators -- a month-end statement of positions, transactions and balances -- with what’s actually useful to clients in understanding their account performance. “Customer demand is higher than it has ever been. What used to be a ‘nice to have,’ is now the ante just to be in the game,” he says. Morgan Stanley is not giving everything to everybody, Graflund emphasizes; instead, the average client will benefit from the developments for the top-end customers. “It’s a trickle-down of innovation,” he says.

Better performance reporting is increasingly a necessity in an age when multi-asset-class portfolios and complex alternative investments such as derivatives, futures, private equity and hedge funds are becoming the rule, not the exception, at least for high-end clients. “The days of selling what you manufacture are over. That’s changing client reporting needs,” Graflund says.

Meanwhile, as investors embrace financial planning, they are demanding reports that accurately capture their entire portfolios -- including assets held at outside firms -- and clearly reflect a firm’s approach to financial planning. “The shift toward financial planning is making reporting the scorecard for the plan,” says Graflund. Vast data warehouses have made much of this technically feasible, seamlessly linking disparate sets of data on assets held at multiple institutions. That allows firms to link to “connectivity hubs” such as Rockville, Marylandbased Lydian Wealth Management, Private Client Resources in Wilton, Connecticut, and WealthTouch in Denver, which use standard protocols to provide information on client holdings at other organizations.

Joseph Nadreau, director of client strategy for Wachovia Securities, says his firm’s client investment analysis program, Envision, is at the heart of its future plans for its performance reports. Wachovia’s 8,000 advisers have put together 150,000 plans for clients over the past two years, Nadreau notes. As a result of the move to fee-based accounts, the firm decided to take a different tack with benchmarking, which typically involves comparing a client’s portfolio to a broad benchmark like the Standard & Poor’s 500 index. Wachovia has plans to launch supplementary benchmarks that track the client’s progress toward such goals as education savings, retirement income and estate and legacy targets.

Clients basically want sophisticated, tell-all reports consolidated into a single, accurate document that shows the performance of their investments using lots of graphs and simple charts. “We get captivated by what we’ve done this quarter versus the benchmark, but the reality is we want to achieve life goals,” Nadreau says. “Ultimately, clients just want to know ‘How am I doing?’”

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