Still using spreadsheets for portfolio management? Read this

Inconvenience aside, there are process, data entry and operator risks associated with this type of manual process.  

Does this scenario sound familiar? An enthusiastic and passionate group of professionals launch a financial planning or wealth management business, wanting to deliver a better client experience than they had been able to in prior roles. A quant-minded member of the team develops a calculation model using spreadsheet software. Systems are put into place. Clients come on board.  

The business grows and the spreadsheet system is enhanced, modified and iterated. External data, such as price feeds, are added in. Spreadsheets are duplicated for new clients. More growth and more spreadsheets are generated. It starts to become difficult to maintain proper oversight of it all. More processing power is required.  

Then something happens that the business hasn’t planned for. The team member who created the system leaves the firm. A formula is inputted incorrectly. A data entry mistake impacts a client. Or, simply, the process becomes too big to manage.  

And while customer relationship management systems have some capability, the team doesn’t like how they limit the firm’s investment identity and desired customer experience. The unique investment philosophy the group of likeminded professionals launched the firm with has become somewhat diluted, if not polluted.  

If this isn’t a scenario specific to your firm, I put it to you that it’s at least worth thinking about from a risk management perspective.  

There are also emerging industry challenges to consider. The universe of investment options is becoming increasingly broad. More investible assets are in a form that platforms (that feed data to the spreadsheets) may not support, such as bitcoin and unlisted property trusts. Hence, more client assets are being held off-platform. In other cases, assets are held across several platforms, sometimes being categorised in different ways, rubbing up against the firm’s or even each client’s investment philosophy. 

This implies that firms need to categorise client investments in a way that works for their investment philosophy and specific client base. The end solution will require consolidated, multi-platform (including off-platform) portfolio management, tailored to the individual client.  

The spreadsheet system that made sense to a firm when it was starting out may no longer meet these challenges. Fortunately, as with so many other industries, technology advancement is providing viable solutions. Of course, the right approach will (and should be) interpreted and implemented slightly differently for every firm, but if you’re looking for a solution to manual-based processes for reviewing asset allocations and portfolio composition, here are some tips for what to look for in a portfolio management technology provider:  

1. Accommodates all assets regardless of on-platform or off-platform.
2. Supports flexible “categorisation” of each and every investment security to fit into the firm’s investment thesis or philosophy. A classic example is the categorisation of iShares S&P 500 ETF on the ASX (code IVV). Some may mark it as “Australian equities” as it is on the ASX, but in reality, it is an international equities security. 
3. Comes with high degree of configurability to support the specific investment propositions to suit the identity, philosophy or value proposition of each adviser or firm. For example, Firm A’s core thesis and approach to investment may be about a set ratio of growth and defensive assets for different investing risk profiles, while Firm B’s core thesis may be specifically around asset allocation across multiple asset classes in a proportion to suit various risk profiles, for which they form their own views as to which investment fits into each bucket (like the IVV example above). 
4. Purpose-built and designed to enhance an adviser’s or wealth manager’s service proposition by recognising the very unique nature of each investing client without having to do iterations of “pre-trade compliance” workflows, saving time, effort and costs to service more clients. 

Let’s face it, growing an advice or wealth management business built around spreadsheets is probably impossible and certainly has risk. Human errors, staff changes and the sheer number of hours it takes to monitor, review and rebalance even a single portfolio mean unnecessary costs and risks, not to mention an inability to quickly evaluate and respond to changes in the market. 

These may have been acceptable trade-offs in the past for businesses just starting out. But there no longer needs to be a compromise. Best-practice businesses are using technology to reduce or eliminate manual processes. By having a reliable system in place that uses defined and repeatable processes for reviewing client portfolios, firms can better deliver on whatever their unique philosophy is and demonstrate real value for clients.

Stuart Holdsworth, CEO and founder, Financial Simplicity

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.