Family office approach
Family office approach
Podcast
29.3.2022
Easier and broader access to direct providers of financial products and alternative investments is increasingly shifting the reporting burden and any compliance obligations that may arise to asset owners. What was invested where? When must which payment be made? What reporting obligations must be met and by when? A broadly diversified portfolio consisting of a wide variety of subscriptions, e.g. several securities accounts, crypto-assets and private equity funds, requires investors to maintain a sufficient overview of their total assets.
As a result, asset owners are increasingly interested in keeping an eye on their wealth on a daily basis. What is missing in most cases is a holistic reporting solution that supports the evaluation of the overall asset structure.
The incentives for asset controlling can be fundamentally categorized into the areas of administrative simplification, optimization of asset management and ex-post evaluations such as cost control. We will come back to this later.
A well-known phenomenon in financial investments is the lack of tangibility of the investments. When buying a car, customers can test the object live and in color before the purchase is completed. With financial investments, the "test drive" is not available. There is no guarantee of success and no possibility of exchange. So how can asset owners still gain control over compliance with their pre-defined target parameters? In this context, asset controlling is a key instrument for the successful management of complex total assets and also provides important feedback to the adopted Strategic Asset Allocation (SAA).
Like a GPS, good asset controlling sets the direction of asset management. Focused on the strategic asset allocation - i.e. the long-term goal of wealth - it "warns" of deviations and distortions. At the same time, it looks in the "rear-view mirror" to assess whether the actual development of wealth was still perceived as tolerable within the framework of the SAA previously adopted in an emotional calm phase, even in times of violent market movements.
It is a misconception that asset controlling must be 100% accurate at all times, as this is at the expense of speed. First of all, good asset controlling should enable investors and their advisors to make a valid assessment of their current asset situation at all times, so that they can make decisions with sufficient accuracy on this basis. And ideally in real time. In other words, timeliness takes precedence over (apparent) accuracy. The basis for this is provided by live observation of the markets and the efficient and up-to-date processing of liquid assets. Illiquid investments follow the availability of their data and supplement the accuracy of the overall reporting with a certain lag. In addition, valuation ratios are backward-looking anyway and require a certain minimum level of reporting history. When looking at statistical data (e.g. volatilities, Sharpe ratios or loss patterns of individual investment forms), it takes at least one year, and in the best case even three years, to achieve sufficient significance of the statement.
One-stop stores are a thing of the past. A change in supply-demand behaviour in the financial sector means that asset owners are increasingly investing independently via various specialized providers. In addition, falling minimum investment sizes are making it easier for semi-professional investors to access additional asset classes, thus expanding the investment universe to be consolidated into an overall strategy, possibly accompanied by new compliance obligations. In addition, obligations and compliance duties have become much stricter for providers and investors in recent years anyway.
As a result, the administrative effort for investors is becoming a Herculean task, especially when reporting, tax reporting and payment obligations for all investments have to be organized and kept track of. Owners of large private assets often simply lack the capacity and/or the relevant expertise to do this. Depending on the complexity, this proves to be non-trivial, as many clients usually have four or five different bank accounts and custody accounts as well as a growing proportion of various illiquid investments for which there is no support from the bank.
Qualitative controlling and reporting has always provided administrative relief and a consolidated overview. Nowadays, however, it must be able to do more. It must be more modern, more flexible and, above all, more available. Another essential feature is situational responsiveness to specific questions - be it a management summary for a quick investment decision or a detailed report for an in-depth analysis.
In general, asset owners want to be very close to the performance of their own wealth in order to be able to make informed decisions about their portfolio at all times. Economic uncertainties or crises, such as those we have experienced in recent years and continue to experience, reinforce this trend. Efficient asset controlling must therefore be much more than a mere statement of results.
Modern controlling systems provide this information "24/7" virtually in real time and with a low access barrier, ideally via a self-explanatory online tool. All conceivable asset classes are mapped and analyzed via a powerful platform and by experienced investment controllers who have the necessary background knowledge. In addition to real estate or securities investments, for example, this also includes insurance claims or "emotional" assets such as vintage cars, luxury watches and art.
Wealthy investors and their advisors use this asset controlling not only to report on assets, but ideally also to manage the defined investment strategy. On the one hand, this gives them transparency about all asset classes and valuables, about returns etc., but also about risk characteristics and costs - and thus about the preservation and/or growth of the total assets. In this context, we speak of the so-called ex post control of the investment strategy adopted ex ante. This makes it possible to quickly determine whether the wealth is behaving justifiably in relation to the approved risk budget in times of crisis, for example.
In addition, times of strongly fluctuating prices often harbour the risk that the omnipresence of the media will lead to hasty and unfortunately regularly cyclical decisions in asset management - a classic trap of behavioral finance. In general, the focus should be less on individual portfolios and more on the overall performance of all assets. By focusing on the reporting of total assets, asset controlling brings all assets in line with the SAA instead of overemphasizing individual investments. Ideally, this dampens the "noise" of reporting on capital market developments, so that the focus remains on long-term capital market returns with the derived investment strategy. In this way, even cyclical measures such as rebalancing the portfolio strategy or the inclusion of missing asset classes can be initiated in an objective manner.
Return and risk are important parameters when assessing investment solutions. It is rarely taken into account that the costs associated with an investment have an above-average impact on the risk side. Given the general conditions (net return, inflation, taxes), an investment with higher costs must naturally achieve a higher gross return in order to achieve the same net result. This premium in the gross return increases the associated risk side unnecessarily and therefore above average. Asset owners should therefore know what gross return is necessary to achieve the expectations of the SAA in the long term.
While neither inflation nor tax rates are subject to the influence of investors, costs are the only factor that can be influenced - but only if these costs are transparent. The more complex and heterogeneous the wealth is, the more difficult it is to keep track of the costs incurred from various accounts. Although institutions are required to disclose all costs under the VPRG Regulation, the more heterogeneous and complex the wealth, the more difficult it is to maintain an overview. A meaningful, ongoing overview of all expenses incurred on the total assets, as made possible by reporting, helps investors to decide whether they are prepared to bear the risk associated with the gross return.
Asset controlling doesn't have to be complicated, we often just make it complicated. Good reporting helps wealthy investors to maintain a more stable and solid assessment of their asset situation - and is available to them at any time. Our client portal offers an intuitive "cockpit view" and a summary of total assets - presented in a structured and comprehensible way. Where previously backward-looking reporting discussions with a significant time lag characterized the interaction between asset owners and advisors, today there is a common and up-to-date basis for forward-looking discussions on any device. Reporting is therefore always an ideal basis for dialog, in which the customer is transformed from a listener into a co-creator.
Family office approach
29.3.2022
Olaf Bley-Steglich
How do asset owners keep an eye on reporting and compliance obligations? Qualitative reporting not only makes administrative work easier.
Easier and broader access to direct providers of financial products and alternative investments is increasingly shifting the reporting burden and any compliance obligations that may arise to asset owners. What was invested where? When must which payment be made? What reporting obligations must be met and by when? A broadly diversified portfolio consisting of a wide variety of subscriptions, e.g. several securities accounts, crypto-assets and private equity funds, requires investors to maintain a sufficient overview of their total assets.
As a result, asset owners are increasingly interested in keeping an eye on their wealth on a daily basis. What is missing in most cases is a holistic reporting solution that supports the evaluation of the overall asset structure.
The incentives for asset controlling can be fundamentally categorized into the areas of administrative simplification, optimization of asset management and ex-post evaluations such as cost control. We will come back to this later.
A well-known phenomenon in financial investments is the lack of tangibility of the investments. When buying a car, customers can test the object live and in color before the purchase is completed. With financial investments, the "test drive" is not available. There is no guarantee of success and no possibility of exchange. So how can asset owners still gain control over compliance with their pre-defined target parameters? In this context, asset controlling is a key instrument for the successful management of complex total assets and also provides important feedback to the adopted Strategic Asset Allocation (SAA).
Like a GPS, good asset controlling sets the direction of asset management. Focused on the strategic asset allocation - i.e. the long-term goal of wealth - it "warns" of deviations and distortions. At the same time, it looks in the "rear-view mirror" to assess whether the actual development of wealth was still perceived as tolerable within the framework of the SAA previously adopted in an emotional calm phase, even in times of violent market movements.
It is a misconception that asset controlling must be 100% accurate at all times, as this is at the expense of speed. First of all, good asset controlling should enable investors and their advisors to make a valid assessment of their current asset situation at all times, so that they can make decisions with sufficient accuracy on this basis. And ideally in real time. In other words, timeliness takes precedence over (apparent) accuracy. The basis for this is provided by live observation of the markets and the efficient and up-to-date processing of liquid assets. Illiquid investments follow the availability of their data and supplement the accuracy of the overall reporting with a certain lag. In addition, valuation ratios are backward-looking anyway and require a certain minimum level of reporting history. When looking at statistical data (e.g. volatilities, Sharpe ratios or loss patterns of individual investment forms), it takes at least one year, and in the best case even three years, to achieve sufficient significance of the statement.
One-stop stores are a thing of the past. A change in supply-demand behaviour in the financial sector means that asset owners are increasingly investing independently via various specialized providers. In addition, falling minimum investment sizes are making it easier for semi-professional investors to access additional asset classes, thus expanding the investment universe to be consolidated into an overall strategy, possibly accompanied by new compliance obligations. In addition, obligations and compliance duties have become much stricter for providers and investors in recent years anyway.
As a result, the administrative effort for investors is becoming a Herculean task, especially when reporting, tax reporting and payment obligations for all investments have to be organized and kept track of. Owners of large private assets often simply lack the capacity and/or the relevant expertise to do this. Depending on the complexity, this proves to be non-trivial, as many clients usually have four or five different bank accounts and custody accounts as well as a growing proportion of various illiquid investments for which there is no support from the bank.
Qualitative controlling and reporting has always provided administrative relief and a consolidated overview. Nowadays, however, it must be able to do more. It must be more modern, more flexible and, above all, more available. Another essential feature is situational responsiveness to specific questions - be it a management summary for a quick investment decision or a detailed report for an in-depth analysis.
In general, asset owners want to be very close to the performance of their own wealth in order to be able to make informed decisions about their portfolio at all times. Economic uncertainties or crises, such as those we have experienced in recent years and continue to experience, reinforce this trend. Efficient asset controlling must therefore be much more than a mere statement of results.
Modern controlling systems provide this information "24/7" virtually in real time and with a low access barrier, ideally via a self-explanatory online tool. All conceivable asset classes are mapped and analyzed via a powerful platform and by experienced investment controllers who have the necessary background knowledge. In addition to real estate or securities investments, for example, this also includes insurance claims or "emotional" assets such as vintage cars, luxury watches and art.
Wealthy investors and their advisors use this asset controlling not only to report on assets, but ideally also to manage the defined investment strategy. On the one hand, this gives them transparency about all asset classes and valuables, about returns etc., but also about risk characteristics and costs - and thus about the preservation and/or growth of the total assets. In this context, we speak of the so-called ex post control of the investment strategy adopted ex ante. This makes it possible to quickly determine whether the wealth is behaving justifiably in relation to the approved risk budget in times of crisis, for example.
In addition, times of strongly fluctuating prices often harbour the risk that the omnipresence of the media will lead to hasty and unfortunately regularly cyclical decisions in asset management - a classic trap of behavioral finance. In general, the focus should be less on individual portfolios and more on the overall performance of all assets. By focusing on the reporting of total assets, asset controlling brings all assets in line with the SAA instead of overemphasizing individual investments. Ideally, this dampens the "noise" of reporting on capital market developments, so that the focus remains on long-term capital market returns with the derived investment strategy. In this way, even cyclical measures such as rebalancing the portfolio strategy or the inclusion of missing asset classes can be initiated in an objective manner.
Return and risk are important parameters when assessing investment solutions. It is rarely taken into account that the costs associated with an investment have an above-average impact on the risk side. Given the general conditions (net return, inflation, taxes), an investment with higher costs must naturally achieve a higher gross return in order to achieve the same net result. This premium in the gross return increases the associated risk side unnecessarily and therefore above average. Asset owners should therefore know what gross return is necessary to achieve the expectations of the SAA in the long term.
While neither inflation nor tax rates are subject to the influence of investors, costs are the only factor that can be influenced - but only if these costs are transparent. The more complex and heterogeneous the wealth is, the more difficult it is to keep track of the costs incurred from various accounts. Although institutions are required to disclose all costs under the VPRG Regulation, the more heterogeneous and complex the wealth, the more difficult it is to maintain an overview. A meaningful, ongoing overview of all expenses incurred on the total assets, as made possible by reporting, helps investors to decide whether they are prepared to bear the risk associated with the gross return.
Asset controlling doesn't have to be complicated, we often just make it complicated. Good reporting helps wealthy investors to maintain a more stable and solid assessment of their asset situation - and is available to them at any time. Our client portal offers an intuitive "cockpit view" and a summary of total assets - presented in a structured and comprehensible way. Where previously backward-looking reporting discussions with a significant time lag characterized the interaction between asset owners and advisors, today there is a common and up-to-date basis for forward-looking discussions on any device. Reporting is therefore always an ideal basis for dialog, in which the customer is transformed from a listener into a co-creator.
About the author
Olaf Bley-Steglich
Olaf Bley-Steglich has been responsible for asset controlling at FINVIA since July 2020.
In various positions in the private banking and family office segment, he previously advised on complex asset situations with a focus on securities allocation, finance and succession strategies as well as structuring solutions.
In 2014, the business lawyer moved to a single family office, for which he set up the reporting and controlling department as well as the administration of investment vehicles.
