Consumer Duty – are you ready?

Consumer Duty - are you ready?

By Daryl Roxburgh, President and Global Head, BITA Risk® part of the corfinancial® Group

Wealth Management

Consumer Duty is imminent! But what are the practical implications of this legislation?  What needs consideration and how ready are you? 

The basic thrust of Consumer Duty is around best practices.

It is seen as a key facet of the FCA’s three-year strategy to drive good outcomes for consumers. A key part of that is that firms must be able to evidence compliance and in doing so collectively set a standard for the industry as a whole.

Firms need to:

  • Act in good faith towards retail customers
  • Avoid causing foreseeable harm to retail customers
  • Enable and support retail customers to pursue their financial objective(s)
  • Make sure they can deliver good outcomes overall business activities.

Consumer Duty will join up areas that currently are siloed and/ or have low visibility. In doing so the investment process from assessment of objectives through to investment performance will become more transparent and thus firms will have the ability to measure how they are doing when it comes to outcomes at each stage of the process.

Firms have a duty of care towards clients. To achieve this, they will need to assess how they will relate to customers not just through the products that are sold, but how they came to that point and decided what was and was not suitable. The onus is now on providers to tell their customers when they have something better or more suitable in their portfolio – and invite them to make the switch if they choose to do so.

They should also be able to pinpoint how and when they flagged the possibility of something going wrong, what they did about it and when.

This all forces best practice and is the core of Consumer Duty; positioning the right products and services to the right people at the right time and cost to achieve better outcomes across their financial lifecycle.

To do this leveraging data and insight will become more important than ever. At each stage of the process there should be a check of the outcome – not just investment ones – and data available to enable root cause analyses of issues. And, if a firm cannot evidence that it evaluated the customer’s needs from a whole-of-life and holistic viewpoint then they fail in its duty. The means to aggregate the customer’s financial position, and automate the analysis for both the consumer and the provider is a must, so as to provide the data-driven insights that can underpin individual, personalised propositions, as well as evidence that those insights were provided and that the portfolio was properly monitored to avoid foreseeable harm and provide a positive outcome.

Without these data analytics capabilities meeting Consumer Duty requirements will be nigh on impossible. More than that, being compliant with Consumer Duty also represents an opportunity for growth via open-finance, data-driven and customer-centric business models that will position firms well to capture a greater share of wallet, provide operational efficiencies and position them well for profitability.

But have you readied your data collection and analytics capabilities? What do you need to do? Are you ready?

We will shortly be publishing our view of Consumer Duty – Seven Steps for Successful Outcomes.

If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.

corfinancial implements CSDR compliance software at Man Group

M Logo

London, 15 May 2023 – corfinancial®, a leading provider of specialist software and services to the financial services sector, announces the implementation of its Central Securities Depositories Regulation (CSDR) software, SureVu®, at Man Group, a global active investment management firm with $144.7 billion of AUM (as of 31st March 2023).

SureVu® enables buy-side firms to manage failed trades and cash penalty fees, as defined by the Settlement Discipline Regime, in one single solution.

“We were impressed by the speed with which SureVu went into production. Within three months, we had 90% of our custodians and prime brokers on-boarded and expect to have 100% of these parties live by the end of May,” said Antonio Dos Santos, Head of London Investment Operations at Man Group.

“One of the big drivers to implement SureVu was the changes introduced by the CSDR, but we also saw T+1 on the regulatory horizon and knew that we needed to be on the ‘front foot’ regarding failed trade management. With 15,000-20,000 allocations per day, we needed a clear picture of our pending trades,” explains Dos Santos. “With CSDR, it is important to have failed trade monitoring and cash penalties in the same solution.”

“SureVu helps firms stay in control and manage trade settlement along with high volumes of data associated with cash penalties, applying effective governance across the processes. Companies need a solution in place quickly, without major overheads in IT and operational staff. Man Group has noted the ease and speed with which our solution starts to add real benefits to the business,” said David Veal, Senior Executive at corfinancial. “Such efficiencies are critical when considering the operational pressures envisaged when T+1 goes live next year.”

For more information on the SureVu CSDR solution, contact corfinancial at

Portfolio risks and suitability – the intelligent anticipation of the unexpected

Meerkat watching

Daryl Roxburgh, President and Global Head of BITA Risk® part of the corfinancial® Group

Wealth Management

In a discussion last week with a CIO, he said, “investors may be disappointed in returns – due to the market – but they do not want to be surprised”. This prompted us to write about how to avoid surprises, or “the intelligent anticipation of the unexpected”. 

Identifying, understanding and mitigating portfolio risks will help remove surprises and lead to more consistent portfolio performance. This does not have to mean 100% rebalancing to a strict model, something that is not always appropriate or possible in HNW and UHNW client portfolios. More than with the right oversight and insight, managers can have freedom within a framework to deliver good suitable outcomes to their clients.

Automating the analysis of portfolios and assets to identify those that fall outside client mandate or investment policy does six things:

  1. Focus attention where needed
  2. Prioritises action by criticality
  3. Identifies patterns or systematic behaviour
  4. Enables known issues to be validated with the client and removed from the exceptions list
  5. Reduces data prep time by 80%, effort that can be better focussed on actions
  6. Puts the tool on the IM desk, making it part of daily portfolio management

Checking beyond basic front office system drift and client restrictions, we would suggest considering eleven different groups of monitor tests, to find the proverbial needle in the haystack before it becomes a risk:

  • Portfolio market risks
  • Concentration risks
  • Bond metrics
  • Performance deviation
  • Goal achievement deviation
  • ESG and ER and preferences and restrictions
  • Asset allocation
  • Asset class characteristics
  • Research and non-research list assets positions
  • Asset attribute flags e.g., risk, liquidity, rare, restricted
  • Admin flags e.g., review due, dummy identifiers

The appropriate and relevant tests will depend on the firm’s investment proposition and business model. Often, different business units served by the same installation will only have a few tests in common.

You might know that 80% of your portfolios have a minimum of 80% invested in assets on the research list, but how concentrated is the money not invested in the research list?  Are there significant positions either at the firm or branch level that are not researched, and are these a risk?

Do certain teams or branches have systematic outlier characteristics? Do certain managers have a very high proportion of portfolios with a CGT exception?

Monitoring these daily not only gives the IM the heads up that they need to check something when it occurs but also provides a trend report through time on the resolution of issues, so continual analysis helps stay on top.

Just as important is a structured process of recording accepted and known exceptions. These not only need internal checks but should also be validated with the client on a periodic basis, closing the loop.

The result of the use of this data, analysis, and process can be expected to be:

  • Better delivery to client expectations and suitability of outcome
  • Reduction in unexpected risks
  • Improved consistency of outcome
  • Demonstrable automated risk management process to attract clients, advisers and IMs
  • Better understanding of the relationship between risks and return in the business.

The frequent comment about Consumer Duty is that much of it is just good business practice. The management information listed above can evidence good outcomes and that the processes are in place to ensure they are being beneficial to the client and firm alike.

If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.

Salerio trade processing goes live at Jennison Associates

Jennison Associates + Salerio

New York, March 14, 2023 – corfinancial®, a leading provider of specialist software to the financial services sector, announces that New York-based investment manager Jennison Associates (Jennison) has implemented Salerio, their post-execution trade processing, matching, confirmation and settlement instruction management system.

Salerio’s centralized trade processing management enabled Jennison to retire several inefficient and expensive-to-maintain legacy systems. This provided major gains in data accuracy and real-time management of executed trades earlier in the middle office trade management process.

Jason Minkler, Managing Director and Head of Operations at Jennison Associates, said: “Salerio provides exception management workflows across multiple asset classes via a centralized dashboard which has significantly improved our middle-office processes. We are now able to automate trade workflows and reduce operational risk. The software delivers the mission critical capabilities and governance needed to get ahead of issues.”

Minkler adds: “The Jennison team and corfinancial worked very well together, forming a strong partnership that gave us a solid knowledge base before going live with equities in December. Additional asset classes are scheduled to go live throughout 2023. Furthermore, Salerio supports Jennison’s global trading model, with corfinancial providing round-the-clock support.”

David Veal, Senior Executive – Client Solutions at corfinancial, said: “Our post-trade processing solution is intuitive, making it easy for clients like Jennison Associates to migrate away from legacy systems with confidence. Working in partnership with Jennison, we have enhanced Salerio, which will benefit firms preparing for T+1.”

Founded in 1969, Jennison Associates manages $164 billion of client assets (as of December 31, 2022) in a range of equity and fixed income investment strategies. Jennison’s investing approach is rooted in its fundamental research and security selection; all portfolios are built from the bottom-up, security by security, and its internal research underlies all investment decisions.

For more information on the salerio solution, contact corfinancial at

A central investment proposition – no guarantee of consistency of outcome

Jigsaw puzzle piece with Consistency is the key concept

Daryl Roxburgh, President and Global Head of BITA Risk® part of the corfinancial® Group

Wealth Management

A Central Investment Proposition (CIP) is no guarantee of consistency of outcome, whether measured by performance, risk, or cost. In this blog, we review two case studies where BITA Wealth helped deliver the CIP and resulted in more consistent results – key to Consumer Duty obligations. 

Case A – freedom within a framework. The firm had autonomous managers, central asset allocation models and a non-mandated research list. When we undertook an initial assessment of portfolios, it was found that there was:

  • Little portfolio risk consistency within risk bands.
  • An issue with concentrated portfolios.
  • Patchy take up on the research list.
  • A high variation in portfolio performance.

Asset allocation drift had previously been relied upon as the key metric and was measured by the front office system.

Following an analysis phase, looking at the portfolio risk and construction characteristics across the book and by mandate in BITA Wealth, initial guidelines were set for each risk category. These covered portfolio risk (volatility), maximum holding weights by asset type, off-research list percentages, high volatility holdings, tracking error and asset allocation against the assigned model.

BITA Wealth gave investment managers a dashboard on which they could identify significant outliers for each metric and the tools to model portfolio changes and bring them into line. Where this was not possible, they could record a known exception and apply a deferral against a test. The governance and oversight team had information instantly available, so could focus their time on reviewing critical outliers and managers’ progress, rather than having to collate data.

Within a year, the external party that reviewed the firm’s client performance and risk against their peer group commented positively on the significant improvement in the consistency of outcomes.

Case B – rebalanced models. The second case study is a little more surprising. A firm was running 300,000 plus client portfolios, all rebalanced to model on a weekly basis.

They were consistently finding, each quarter, that around 10% of portfolios were outside the acceptable deviation from the model performance.

They had a team of six consultants working on investigating and seeking rectification. Given that in many cases,  they were looking at outlier portfolios months after the event that triggered the performance deviation, there was a lot of time spent trawling through historic data.

Using BITA Wealth to analyse all the portfolios down to holding level in an analysis phase and then on data through time, a series of issues were discovered in the process that contributed to the performance deviation. Because of the quarterly review cycle, these were not identified at the time and so resulted in performance deviation. Moving to daily monitoring with BITA Wealth and exception management, would enable next-day rectification of issues and significantly reduce any performance impact.

In some instances, the performance deviation was to be expected, such as the closure of the account mid-quarter or a client holding cash pending investment or withdrawal. However, these had not been consistently identified and marked as known exceptions previously, and so the performance team was required to investigate.

In other cases, cash had come in and not been invested on a timely basis – daily monitoring not only resolved this but enabled root cause analysis of what was causing these failures.

Lastly, the commonality of holding weight between the model and each portfolio was tested daily. This identified the third primary cause of performance deviation. While portfolios were rebalanced to the model, in a number of cases, the portfolio value was significantly below the stated minimum. Given that the portfolios were invested in a wide spread of direct equities, this meant that for assets with a large price per share, these smaller portfolios were not in line with the model weights. This was a more fundamental business model issue. Again, having been identified through the monitoring, the affected portfolios could be carved out for separate action.

These brief case studies give an insight into the challenges of running a Central Investment Proposition, gaining adherence, and ensuring that the outcomes are as consistent as expected.

If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.

Consumer Duty: How to prove it

Girl sitting indoors doing mobile payment online.

By Daryl Roxburgh, President and Global Head, BITA Risk® part of the corfinancial® Group

Wealth Management

While plans had to be drawn up by last October, Consumer Duty comes into effect on the 31st of July 2023.

The Consumer Duty

  • A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.
  • Cross-cutting rules require firms to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives.
  • Four Outcomes rules require firms to ensure consumers receive communications they can understand, products and services meet their needs and offer fair value, and the support they need

Key to meeting Consumer Duty obligations is assessing, testing, understanding and being able to evidence the outcomes that a firm’s clients are receiving – and having the management information to evidence that products are delivering outcomes consistent with the duty across all clients. Where this Is not the case, there is the need to identify clients or groups of clients that are outliers, and to understand why.

Firms have to ask themselves, are they using the same level of management information and systems to inform their Consumer Duty obligations as they are their sales and product development?

In talking to many firms, we find they have challenges in collecting the data and even when they have, it is in disparate spreadsheets. This prevents the data overlay necessary to understand patterns,  problems and solutions. It is also often generated to long after the fact, to enable easy rectification of issues.

In this blog, we are focusing on foreseeable harm, value and quantitative outcome issues. We have assumed that the client’s needs have been assessed in terms of quantifying any goals and putting these into the context of not only attitude to risk, but broader suitability factors in arriving at the right investment proposition. This proposition has then been played back to the client in such a way that they can understand the risks that they will take. As a senior investment manager said, “they may have a disappointment (due to the markets), but I do not want them to have a surprise”.

Consistency of performance outcome and cost of outcome are cornerstones. Logically, foreseeable harm can then be considered as a factor that could result in a performance or cost deviation from the norm for the portfolio mandate within the firm. So, there is a two-step process, identify potential foreseeable harms – rectifying or acknowledging – and then monitor outcomes. The outcomes should be reviewed separately for those with acknowledged variations and for those expected to conform.

This process creates a feedback loop, identifying clients or groups of clients that have suboptimal returns for their risk mandate and separating out those for which there are known exceptions. By combining data from foreseeable harm factors with risk and return outcome statistics, MI analysis can lead to rectification of systematic issues and discussion of portfolio specific issues with the client.

BITA Wealth brings all of this data together at the Investment Managers’ desktops and enterprise views for management, compliance, and governance. With over 40 portfolio monitor metrics to choose from, the reporting will reflect the metrics key to the firms’ investment propositions.

While many of these foreseeable harm factors are well known as issues, not all firms are able to put them into the context of performance impact. Typically, BITA Wealth will monitor some six to ten portfolio risk and construction factors, along with asset allocation, daily.

Reasons for known exceptions are recorded and can be reported and investment managers have the tools to model rectification, where possible. This can is then overlayed on performance and risk outcomes, giving direction on factors that may have led to deviation from expected performance across groups of clients and possible routes to rectification.

We have interfaced BITA Wealth with most of the leading investment management systems to provide this first and second line of defence for many firms, and today, some £180 billion of private client AUM is monitored and checked in this way. This provides the management information not only to meet Consumer Duty criteria, but also insight into your firm and to ensure that good client outcomes are delivered.

If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.

Baillie Gifford goes live with SureVu for CSDR compliance

London, 5 December 2022 – corfinancial®, a leading provider of specialist software and services to the financial services sector, announces the implementation of its SDR (Settlement Discipline Regime) management software SureVu® at Edinburgh-based investment manager Baillie Gifford.

Baillie Gifford is unique in the UK in being a large-scale investment business that has remained an independent private partnership, who manage and advise £228bn (US$ 253bn) in specialist equity, fixed income and multi-asset portfolios for a global client base.

“SureVu is a very user-friendly system that clearly presents data on the problem trades that require attention. The ‘exceptions’ tab and the management dashboard is an immediate time-saver for us. The visibility and prioritisation that SureVu provides has improved efficiency for us, enabling us to proactively resolve unmatched trades before they fail,” says Daryl Salmon, Equity & Bond Operations Manager at Baillie Gifford. “Additionally, the shift towards a reduced settlement period is certainly driving operational process efficiencies across the investment management industry. By onboarding SureVu it is ultimately going to make our lives easier when T+1 comes into play,” explains Salmon.

“In an ever-tightening regulatory environment, it is even more critical to closely monitor trades through the settlement cycle,” says Bruce Hobson, CEO at corfinancial. “Following the introduction of the new CSDR regulation, it is imperative to have a timely and reliable solution that enables firms to effectively govern middle office processes.”

For more information on the SureVu solution, contact corfinancial at

How have buy-side firms adapted to the Settlement Discipline Regime?

Penalty spot kick

How have buy-side firms adapted to the Settlement Discipline Regime and what are the operational challenges that remain? By David Veal, Senior Executive: Client Solutions, corfinancial®.  

The Settlement Discipline Regime is a new obligation stemming from the European Commission’s review of the Central Securities Depositories Regulation (CSDR), which came into force on 1 February 2022. These additional regulatory processes supplement the existing CSDR protocols and focus on enhanced controls and governance around trade settlement.

In this article we highlight anecdotal thoughts and feedback received from market participants and corfinancial clients who have been working with the proposed changes. Full details of this feedback can be found in this Discussion Paper.

Failed Trade Management and T+1 Lifecycle

Buy-side firms in Europe that trade in US instruments will soon have less time in which to allocate and fund stocks, resolve any settlement issues and comply with the CSDR’s new penalties regime.

Having access to a central source of executed trade data and being able to track transactions throughout the entire securities lifecycle is vital to facilitating settlement efficiencies. Clients want robust governance with which to minimise trade settlement failure. However, there are changes to operational processes and potentially regional coverage that need to be considered in future   environments that support global trading from Asia to Europe and the US, especially when a single middle office team manages this. Firms must work towards avoiding trade failure rather than managing this after the event. Having the right tools to achieve this in a near real-time environment is essential.

Cash Penalty Fees Management

The provision of prime broker or custodian statements to support the reconciliation of cash penalty fees is improving, but there is still a way to go. The sentiment we received was that some parties still lack the full infrastructure to manage the timely provision of cash penalty fee data, so some may be choosing to absorb cash penalty fee debits rather than passing them on (although penalty fee credits are being sent). The argument is that penalty fee amounts are often too small, and net/net are not worth passing on. However, this approach certainly goes against the essence of the SDR cash penalty objective.

Automating The Processes

Some feedback focused on the most effective trade records on which to base best practice controls and governance. It was suggested that some solutions base their primary trade position records on the market side of trades, whereas solutions like SureVu® centre on the buy-side view of executed trades. There are clear differences with how solutions in the space have been designed. It is uncertain how these different models will evolve in the lead up to T+1 and beyond.

The SureVu SDR solution from corfinancial was designed differently.

SureVu clients believe it is essential to manage post execution trade settlement positions from their own record of executed trades, not data assimilated by third parties.  

For a more detailed assessment of our investigations, please download our free Discussion Paper or contact us at and we will be happy to share our thoughts and details of how we help address the SDR challenges.

The differentiation potential within consumer duty

Reflection of Canary Wharf Skycrapers
By Daryl Roxburgh – President and Global Head, BITA Risk® part of the corfinancial® Group
Wealth Management
Late July saw the Financial Conduct Authority unveil the finalised version of its new Consumer Duty regulations, setting in motion what the regulator has termed a “paradigm shift” in its expectations of the UK’s retail financial institutions. Highly laudable though its aims certainly are, the timeframes for implementation are short and the challenges around proving compliance numerous, with firms having to have plans in place by the end of October.
I say ‘proving’ with purpose. Any reputable firm will have surveyed the guiding principles underpinning the new regime and see little that will not already be in their corporate DNA. Clear communications and meaningful customer support, fair charging, and a client-centric approach to providing financial services and products with a focus on good outcomes are nothing new to this country’s already tightly regulated – and highly respected – financial services sector. Developing capabilities to meet the regulator’s expectations for evidencing all of this may well be, however.
The FCA estimates that the implementation costs for the sector will be as high as £2.4 billion and wealth managers can be expected to bear much of the brunt of the pain due to the wide-ranging and often very long-term relationships they have with their clients. Dizzying changes to wealth demographics and investor preferences, along with an economic outlook which is uncertain to say the least, further complicate the picture.

Segments of one

Never has the old saying that each client is “a segment of one” been truer. How then to prove the consistency of outcomes among increasingly diverse client bases? With ESG considerations arguably rubbing against fiduciary duty in the time-honoured sense, even the seemingly simple matter of proving that an investment was appropriate in the first place is becoming vexed.
The wealth management industry has long had to wrestle with a paradox: while deeply personalised service lies at the heart of its value proposition, cost considerations – on both sides – must limit customisation to where it really counts. Mass customisation of portfolios facilitated by technology has long been acknowledged as the only workable path. But now, these customisations need to be factored in when considering the analysis of the consistency of outcomes and foreseeable risks under consumer duty. Whether it is a restriction on what can be bought, a restriction on what can be sold, or a desire to hold a proportion in cash, these are some of the myriads of reasons that a portfolio will perform outside its peer group. In understanding outcomes, these points must be considered.
Foreseeable harm in theory precedes outcomes, and this requires testing to evidence that a client’s portfolio is suitable. Not just in a high-level asset class check, but in terms of the assets bought and their contributions to overall risks taken. These risks naturally include market risk whether volatility or CVaR, but should go further into looking at illiquid, un-researched, high risk and concentrated positions. The first challenge is knowing that these exist in a portfolio, only when they are known can they be addressed, mitigated, or agreed with the client as acceptable.
The challenge is daunting: according to EY*, 87% of firms see a need to implement key technological change to meet it. The good news, however, is that offering the kinds of monitoring and evidencing capabilities firms need will really be nothing new to leading technology vendors. For our part, we feel there has been a great deal of prescience in how we have developed BITA Risk’s solutions over the years: Consumer Duty represents just a sort of cross-cutting complexity our products were designed to solve.

Beyond box-ticking

Canvassing the large and growing range of institutions which already rely on our products reveals a heartening degree of confidence in how they will cope with the new rules. Others who have perhaps held back on their investments are now feeling the April 2023 deadline bearing down. The industry is however showing itself eager to wring the maximum business benefits from this compliance challenge, as it should: rather than merely “ticking the box”, EY* has found that 60% of firms want to take a holistic, business-wide approach to the Consumer Duty rules.
What this already looks like at our client firms is very positive, with foreseeable harm monitoring, performance and yield outcome monitoring already deployed in many cases. This monitoring – with the attendant MI (management information) on trends and systemic issue identification – is backed up by a systematic approach to collecting reasons why a portfolio may be out of line, enabling management of the exceptions apart from consistency checks on the core.
Firms with our profiling solution are carrying out risk-profiling and suitability assessments at the level of individual financial goals, monitoring against clients’ capital and income requirements, and keeping a close watch on ongoing costs and charges at both the portfolio and asset level. As a result, many can already point to immaculate management information on any Consumer Duty metric the regulator might choose.
But, of course, for the best providers, all this is about so much more than fending off potential compliance concerns. They will want to be able to deeply interrogate their information to be absolutely sure that their clients are achieving optimal outcomes – and to be able to further improve their investment and advisory strategies wherever they can. From our experience, the message that duties can be readily transformed into differentiation opportunities is very much one firms want to hear.
We all know that upholding Consumer Duty will already be business as usual for any wealth manager worthy of the name; that the whole industry is now being asked to fully operationalise and evidence adherence to these principles should therefore be a welcome change – and particularly so for those organisations able to compete more vigorously on this basis. It certainly is for us.
As leaders in portfolio monitoring and governance, BITA Risk analyses circa £180 billion of wealth management assets every night for a range of Wealth management firms. At our core is the quick, efficient analysis and aggregation of data, with seamless and efficient workflows for governance and client managers alike. We have extended our solutions to deliver what firms need now for ESG, TCFD, and Consumer Duty together with the significant added benefit for the firm of identifying problems before they arise, reducing both compliance risk and the chance of poor client outcomes, meaning both parties can benefit from a forward-thinking approach.
If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.
In the next few weeks, we shall be sharing thoughts on the monitoring of CIPs as well as Risks and Suitability. Sign-up here to receive these updates directly.

ESG – Enhancing the client experience


ESGBITA Risk’s study this summer on the current challenges for wealth managers in portfolio governance and management has revealed five key areas requiring action: TCFD, ESG, Consumer Duty, Central Investment Plans and Risk.

In a series of short reviews, we look at ESG to understand what it really means, and the key challenges firms are facing in delivering appropriate solutions.

So, what is meant by ‘ESG’ and what does it mean to any individual client? In discussions with investment managers, heads of sustainability and clients, it has become clear that both firms and clients view it in many different ways.  For simplicity, I include Environmental, Social and Governance factors, climate and carbon factors, impact and green exposure, and then ethical restrictions (from simple issues like alcohol and tobacco through to complex research and armaments definitions) within the ESG umbrella.

Missing either restrictions or expectations can prove costly, so the definition and agreement process is key.

With this inherent complexity, how can and should client requirements be recorded, or even discussed with them? Given that this sets the foundation, it is an element of the process that must be clearly defined and understood.

There is more to this than seeing if a client gives to charity: that implies ESG investing is a charitable cause, and it’s not, it’s a thematic approach to investing that meets the dual utilities of seeking return and something that will give the investor additional utility or not give them disutility relating to ESG. These additional utilities can be very specific.

Clients mostly will have general requirements:  “greener than it is now or compared to the benchmark” , “but I don’t want any GM foods or animal testing”.  Here communication of the firm’s approach is key. This must explain that the perfect company does not exist, that trade-offs have to be made, and that zero tolerance can be highly constraining. So, the client needs to understand what is possible within a firm’s investment approach and what is not.  This is easier with segregated portfolios but a minefield with funds.

If the client has specific requirements or a passion in a specific area, they may have more knowledge in the area than their manager and this has resulted in the rise of specialist teams that can discuss the requirements with the client. Firms need to consider how they establish or access such specialist knowledge, and also how this information is then incorporated into investment management and delivered to the IM desktop and client reports.

The most common approaches we see to sustainable preferences are, a percentage in ESG focussed investments, adherence to ESG focused buy-lists and ESG embedded in the central investment process and bespoke requirements. However, even with the more generic approaches of suitability driven buy-lists, client specific ethical restrictions and positive screening and negative screening preferences are often offered. Two things to consider: clearly state to the client the ESG parameters of their service and provide the manager with tools to identify assets that may fall short of expectations and then have a defined process of identifying, communicating, and managing these exceptions.

What is clear is that you cannot offer the client the option to select from some three thousand metrics to establish their sustainable goals. A set of thematic approaches with the question as to whether the client has specific requirements is more feasible.  The client’s requirements can then be recorded in the context of the firm’s service and played back to them. This may well mean splitting requirements into different groups with different granularity – e.g., overall portfolio A+, good board diversification, no civilian armament production or distribution for direct investments and ensuring that funds bought have above average scores in these areas.

This requires the client manager to have access to an easy but structured way of recording these preferences and playing them back to the client. That is giving the client freedom within the firm’s ESG framework. The framework should be comprehensive enough to cover complex clients, as well as addressing the more generic needs of the body of the client base.

Once this structured definition of requirements is in place, checking, reporting, monitoring, managing, and governance become possible.

The challenge then becomes continually ensuring that the requirements are met.  Monitoring a portfolio against preferences and restriction is key and avoids costly oversights. While a stock or fund may have been OK at purchase, its characteristics may have changed, the client preferences may have changed, and it needs to be considered in the context of the portfolio. Our approach enables firms to monitor positions automatically at three levels – client preference, firm’s sustainable buy-list(s) and policies, and portfolio metrics, with daily alerts for outlier positions. This gives peace of mind and avoids laborious manual checks and the risks of breaching mandate.

Always think about the thin red line – the small percentage of investments that score badly for one or more factors. Is the manager aware and would it be an issue for the portfolio or the client?

Many firms have invested in sustainability research and the development of focused investment offerings. We have found that most then struggle to demonstrate this process to clients, especially in the context of their individual requirements and portfolio. Where this can be done, it usually involves many manual processes and is limited to a single data vendor’s analysis.

By combining sources of ESG (remembering the broad definition at the beginning) with positions and preferences for all client portfolios, BITA Wealth delivers a clear report, showing what your process means to them. This narrative demonstrates value add and your investment process. Over 60% of firms spoken to have a Stewardship process in place, but none could demonstrate this. We are in the process of incorporating this data in client reports so that proactive effort is demonstrated and appreciated.

Often the comment is heard that the “data is not good enough” or there are gaps. It is research data in many cases and that is only as good as the process and the same due diligence should be undertaken as with any research data. Handling the gaps and making clear limitations is explicit in TCFD, and we have followed the same approach in ESG. Knowing the gaps can enable a firm to press vendors and funds to improve their coverage.

Many firms we speak to provide their own overlay on vendor data and firm specific commentaries. Making this data integral as part of the preference, management, monitoring, and reporting cycle delivers significant benefit to the firm and client alike.

Structured integrated data delivers a powerful insight into portfolios and delivers sustainable investing across a firm in line with its overall investment and governance processes, improving the investment narrative for the client and ensuring compliance with objectives.

As leaders in portfolio monitoring and governance, BITA Risk analyses circa £180bn of wealth management assets every night, for a range of wealth management firms. Fast analysis and aggregation of data, with seamless and efficient workflows for governance and client managers alike is at our core. We have extended our solutions to deliver what is needed now for sustainable and ESG-focused portfolios, together with significant added benefits for the firm, integrating with key data vendors and then adding analysis and client facing interpretations.

If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.

In the next two reviews we will look at the monitoring of Consumer Duty and then Central Investment Propositions. Sign-up here to receive these directly.

Daryl Roxburgh – President & Global Head BITA Risk® part of the corfinancial® Group