Craig Pearson of Private Wealth Systems considers how the consolidated client reporting industry has changed in recent years, and the forces at play.

Pearson is chief executive and co-founder of Private Wealth Systems, a consolidated investment reporting platform. Before co-founding Private Wealth Systems, Pearson was president of WealthTouch, which was sold in November 2014.

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There are 13.7 million people who collectively control $52.6 trillion in private wealth and are demanding total transparency across all of their investments - regardless of investment instrument, global jurisdiction or ownership structure.  But the search for that one platform that can provide transparency in a consistent, scalable and trusted manner has been a difficult quest for many.

There is renewed hope, however, in the promise that this new third generation of consolidated investment reporting platforms, which are just now beginning to come to market, will become the crucible of collective intelligence. By combining dominant domain expertise, capital and market demand, this new breed of reporting systems are revolutionizing the investment reporting industry and transforming how investors and advisors engage in the management of complex wealth. 

Complexity, in general terms, is defined by the types of investment instruments, asset classes, global jurisdictions and the ownership structures in which ultra high net worth investors make their investments. All investors, regardless of complexity, should have instantaneous access to accurate, comprehensive, timely, and personalized key performance indicators that show what is driving risk and return across all investments and managers.

Without absolute transparency, investors and advisors alike remain unable to answer even the most basic questions, including; What am I worth? Which managers are performing well and which are not? What are my total exposures to a specific security, asset class, custodian or country?  If these seemingly straight-forward questions go unanswered investors and advisors alike will continue to manage wealth blind to the key performance indicators that allowed them to create their wealth in the first place.

The promise of consolidated reporting is to have a single instantaneous view of all key performance indicators that identify what is driving risk and return across complex portfolios; capturing, consolidating, cleansing, calculating, and presenting data that takes into consideration all transactions in all accounts across all custodians, managers and sub-managers - regardless of asset class, country or currency.  If consolidated reporting fulfills its promise, the value it will create will be seen in the elevated and informed collaboration between sophisticated investors and their advisors, and measured by the inherent value of managing wealth with personalized purpose. 

However, the search for the one platform that fulfills this promise is continuous and evolutionary.  The reporting industry has just begun its third evolution, which is already showing great promise in fulfilling its mandate as domain expertise, capital, and driving market needs come together to support the prolific complexity that advancements in global financial markets continue to produce.

The first generation of consolidated reporting platforms, built between 2000 and 2010, were born out of an immediate need to provide a complete wealth report for a single client or small group of client accounts.  These platforms were focused on creating summary reports for client meetings and not the technology or the business processes to produce those reports.

Based on limitations in technology at that time, these first generation platforms forced users to perform shadow accounting, duplicating the data and efforts of their client custodial systems of record.  Unfortunately, any redundant process by its very nature drives costs up, drives data quality down, and extends delivery times to unacceptable levels.  The purpose of consolidated reporting is to provide actionable intelligence, but receiving a report weeks or months late with errors renders those very reports meaningless or even harmful.  This is why the first wave of consolidation among first generation platforms has begun.

Second generation platforms, built between 2010 and 2014, approached the problem with a greater focus on user design and scalable technologies, and less so on data quality.  Although these platforms can scale, the foundational elements of second generation platforms were not built by individuals with domain expertise, and as such these systems often produce data that is not accurate.  Participants across the private wealth industry continue to state that design is a “nice to have,” but if the data isn’t accurate it renders the platform unusable. Many believe second generation platforms will either seek consolidation or redeploy their technology in adjacent areas of the financial services industry.

The third evolution, which began in 2015, is a more evolved and learned approach to bringing true transparency and actionable intelligence to those who need it most.  With the maturation of account aggregators, capturing data is no longer manual or difficult.  It is the processing, cleansing, calculation, and presentation of that data that determines success or failure.

This next generation of platforms are designed by those who possess dominant domain expertise in data structure, data processing and core calculation logic.  These platforms differentiate themselves by using refined calculation logic that produces superior data quality on a consistent basis, a unique data model that supports a level of personalization that before now was unimaginable, and an elegant distinctive design that is reflective of its sophisticated user base.  These platforms not only support complex ownership structures and investment instruments, but they re-imagine the definition of transparency by enabling each individual, whether investor or advisor, to create custom attributes across securities, accounts and entities so wealth can be managed based on how each individual views their financial universe.

This capability impacts asset allocation models, risk analysis, planning and general advice, allowing advisors to not only communicate but also illustrate their strategy and differentiation based on the personalized advice they provide to each individual client.  Of equal importance, this third evolution is leveraging advancements in technology to scale their systems to support all levels of wealth, including complex family offices and millions of less complex mass affluent clients – a single solution to meet the varying needs of today’s wealth managers.  Only time, and the judgement of those reading this article, will ultimately determine if this third evolution of consolidated investment reporting will become the crucible of collective intelligence and thus the grail of the private wealth industry.