For extremely complex family structures that utilize dozens of vehicles, each with different income and principal ownership, the aggregation and segregation process can be complicated. Regardless, it is an exercise that provides a deeper level of understanding and communication between the client and the advisor.

Level Of Detail

Somewhat related to the level of consolidation is the level of reporting detail provided. Just as in our previous example, the family patriarch could "drill down" into the components of his wealth. A report should allow for the reader to "drill down" and receive quantitative and qualitative information at all levels of the portfolio. In the modern portfolio the levels of detail can be broadly classified to include the following, from least to most detail: the total portfolio, the asset class level, the manager level and the holding or security level. Any report, whatever the audience, will contain information at all of these levels. The detail provided should be sufficient to appropriately analyze deviations from the investment plan but be presented in a manner that does not bury important issues within that detail.

In addition to the investment plan, the audience also determines the information that is desirable at each of these levels. Some readers will naturally want to focus on portfoliowide issues, while others may wish to review manager level detail more closely. The amount of detailed quantitative informationæparticularly at the manager and security levelsæshould be controlled, especially for less sophisticated investors, and replaced by a greater emphasis on broader summarized statistics and on qualitative observations made by the investment advisor.

Lastly, the level of detail should be tailored so as to complement or replace the client's existing information infrastructure, whichever is required. Many complex families come to an investment advisor with an existing capability. They are accustomed to seeing things a certain way. Designing a solution that complements or replaces the client's system, as appropriate, can be very important to many complex families.


Benchmarks in a portfolio report provide vital comparative information. Managers, the portfolio and even the investment advisor are all graded, if you will. It is important to choose benchmarks that most specifically grade each of these entities and clearly communicate the value they add. Managers should be benchmarked against the style and asset class benchmark that is most appropriate to them. If a portfolio crosses multiple styles, multiple benchmarks should be provided. Portfolios can be graded against a "blended benchmark," which is a weighted average combination of the various style benchmarks corresponding to the strategic investment policy.

Grading the investment advisor is more difficult. The advisor is obviously judged on the performance of the managers and portfolio against the benchmarks previously mentioned. These benchmarks, however, do not grade the investment advisor on broader asset allocation, asset class choices and tactical allocation decisions that the investment advisor may make. Therefore, in addition to style-specific and blended benchmarks, certain generic benchmarks should also be provided to help gauge overall investment advisor performance. In all cases gross, net of fees and even net of tax performance, should be set out.

Last and most importantly, it is vital that the investment advisor provides commentary on why benchmarks were exceeded or trailed. How much a benchmark was missed or beaten only tells part of the story. Why a manager or portfolio exceeded or fell short of a certain benchmark can sometimes be more important than the amount of over-or underperformance indicated. Was performance due to stock selection, currency issues, tactical allocation or other factors? Most clients who are presented with just the statistical information may not be able to draw these conclusions on their own.

The Report As The Agenda Driver

By following these guidelines, defining the readers' needs and applying those needs to the reporting concepts we discussed above, a portfolio report is well positioned to focus on the issues most important to the client. The completed report will contain important information on strategic investment policy, investment activity, tax information, manager information, client specific issues and other analysis, with the emphasis and level of detail appropriate to meet the client's needs.

As previously mentioned, the report itself should provide not only analytical information comparing actual results to the strategic investment plan but also interpretative observations made by the investment advisor. This qualitative analysis forms the basis for the use of the client report as a driver of appropriate changes in the client's managers, asset allocation or overall investment program. The most effective method for using the report to drive the agenda is to accompany each report with a communication to the client that clearly identifies the most important issues drawn from the report. It is vital that the investment advisor not only identifies the issues, but also suggests possible courses of action to resolve those issues. In the process of explaining the issues at hand, the report detail can be called upon as required. In this manner a client letter in tandem with the report drives the agenda for changes in asset allocation, managers or other areas.


Providing customized reporting in the manner described is not easy. Advances in technology and the drive to automate in the name of costs savings continually push us toward utilizing more "cookie cutter" solutions for all services, not just investment reporting. We should not let our reliance on technology and the advances in information availability blind us to what is useful and beneficial to the client, nor should we forget that our role as investment advisors is to provide not just information but advice. By thinking more clearly about the exact information needs of the audience and displaying that information in the best manner possible, increased focus is attained, the investment plan is defined and communicated and decision making is more proactive, producing enhanced investment performance.