From the December 2003 issue of Investment Advisor • Subscribe!

Close, but No Cigar

Promise, and disappointment, in performance reporting

Investment Scorecard, a profitable Nashville-based technology firm with 100 employees that performs reporting services for about 550 trust companies and institutions, wants to get into the independent advisor market. It's good to have another performance reporting choice. It's just too bad that performance reporting is so complicated, advisors are so demanding, and that no solution can ever be perfect.

Those harsh realities were evident after 11 advisors, at my request, participated in a one-hour Web demo of Scorecard. The upshot: Scorecard is costly but impressive, inadequate but comprehensive, and not ready for widespread adoption. But it is promising nonetheless.

The reports you get from Scorecard are comprehensive and comprehensible. In fact, the 11 advisors participating--a mix of Advent Axys, Schwab Centerpiece, dbCAMS, and Advent Portfolio 2001 users--were in general agreement that the reports Scorecard generates were more sophisticated, customizable, and would be more informative to clients than their current performance reporting solution. In fact, this Web-based performance reporting service bureau does some things that your portfolio management program probably won't.

For instance, Centerpiece user Matt Crutchmer of Universal Advisory Services in Albuquerque says Scorecard lets you graph two different data sets on the same set of axes. Crutchmer says Centerpeice can't do that. "Using one graph to chart quarterly returns since inception in bars and cumulative portfolio performance as a line going through the bars is ingenious," says Crutchmer. "Clients can look at that and understand the relationship between each quarter of performance and their long-term performance."

Crutchmer also liked the fact that Scorecard compares asset classes to appropriate benchmarks. "Certain index data is hard for firms to come by, and is time-consuming to input into Centerpiece," he says. "This is a great feature."

Bruce Fillpot, president of Shelby Wealth Management in Albuquerque and an Advent Axys user, says Scorecard delivers more comprehensive reports. But he frets that their complexity could overwhelm his clients and may be better suited for institutions or the most sophisticated individuals. Susan Freed, who runs an RIA in Chevy Chase, Maryland, and uses dbCAMS, says Scorecard reports are better organized and offer better visuals. "I love what it does," says Freed. "It's what it does not do that concerns me."

Scorecard does not do portfolio accounting. It does do performance reporting and is a service bureau. Data is downloaded at the CUSIP level and you can classify securities into your own category scheme. Plus, you get analytics capabilities not available in Advent or Centerpiece. The big deal is that you no longer would compile, customize, print, and collate quarterly or monthly performance reports for your clients. Scorecard prints hard-copy, institutional-quality reports and sends them to you to be mailed. Plus, you and your clients could get online access to their reports. The cost, assuming you use six custodians and have 100 clients each of whom has four or five accounts, would be about $20,000.

Keep in mind, you would still use Centerpiece, dbCAMS, or Advent to trade, rebalance accounts and for tax-lot reporting. You would still do daily downloads into your portfolio management application. However, if you are using portfolio reporting software just to do performance measurement and not for money management, Scorecard can replace your PMS application. If you are using SEI, Frank Russell, or any separately managed account, then, too, Scorecard could replace your PMS software.

But does Scorecard offer enough value if you are using a PMS application but want to outsource monthly or quarterly report preparation and give your clients online access to their monthly updated reports? The answer from our panel was mostly no, erspecially at the current pricing structure.

"If they added trading capabilities and could replace my PMS software, then the cost would be justified," says Dean Giella, president of Financial Educational Advisors in Jericho, New York. "It just doesn't save nearly enough time for most independent RIAs to justify the cost."

While Scorecard has eye-catching reports and an easy-to-use interface for clients and advisors, it faces a challenge in trying to serve its Web-based system to RIAs working with high-net-worth individuals. I figure that about 25% of advisors are squeamish or downright hostile about outsourcing account management and reporting or providing clients online portfolio reports through a third-party Web server. Another quarter are interested in outsourcing or doing it already, and the remaining half are open to the idea but see no compelling reason to rush into it or actively pursue it. So to gain widespread advisor adoption, either Scorecard's price has to drop or its functionality must be beefed up. This company has slick technology, good leadership, and is already profitable in its main line of business. In fact, when I told Joe Maxwell, the president and CEO of Investment Scorecard, about our panel's assessments, he said, "We're committed to succeeding with investment advisors."

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