TCFD: helping the wealth industry make its mark on climate change

TCFD

TCFD (Task Force on Climate-Related Financial Disclosures) reporting will be a challenge for many firms. While the initial requirements relate to larger institutions and certain client portfolios, firms with GB£5 billion-plus Assets Under Management (AUM) will also have to report with comparisons to data collected in 2023, meaning careful planning is needed now. This historic comparison data will add further to the complexity of the 100-plus data points in the Investment Association TCFD report template. In addition, this data will need to be aggregated across client portfolios for entity reporting. Lastly, there is clear direction from the regulator that on-demand reporting is expected to be made available to all clients in due course. So, there are significant challenges in TCFD reporting.

The UK’s Financial Conduct Authority helped set the pace for the global adoption of Environmental, Social and Governance standards in financial services when at the end of 2021 it became the first securities regulator to introduce mandatory TCFD-aligned disclosure requirements for asset managers and asset owners. This is already having a huge impact which will only grow.

The report content, in line with other sustainability-related regulatory required reports, has been proscriptive, which removes ambiguity, but does not necessarily make it easy. The Investment Association has published helpful templates for segregated and pooled fund portfolios. The first set of reports for institutions with over GB£50 billion in AUM will need to be submitted by the end of June 2023, to cover the 2022 calendar year; those with GB£5 billion-plus in AUM will be subject to the rules from 1 January 2023, with their first reports due end-June 2024. By that point, a full 98% of the UK’s asset management industry will need to comply with the Task Force on Climate-Related Financial Disclosures’ rules. Part of the challenge will be the requirement to provide a year-on-year comparison of the portfolio metrics reported.

A good deal of voluntary reporting has also been taking place, and pressure both top-down from regulators and bottom-up from investors will likely mean that most firms will want to get their TCFD house in order well ahead of the second-tier deadlines kicking in. This yoking together of compliance and client demands is a very welcome development for those who care about environmental action as we all should.

The TCFD report focuses on the investment organisation’s governance-related arrangements through a climate change lens and provides a consistent way of reporting the risks and opportunities faced in a portfolio as a result of it. It is safe to assume that most end-investors do very much want to be apprised of the climate impact of their financial holdings today, and it is certain that providing such insights will be a hygiene factor for tomorrow’s core client base. Research recently conducted by Compeer found that 80% of clients want access to ESG-compliant investments in their portfolio, with this figure rising to 94% for clients under the age of 40. With wildfires and floods making the impacts of climate change clear for all to see, the “E” reigns supreme among the Environmental, Social and Governance concerns investors want to see reflected in their portfolios now.

Thought leadership through technology
Whether a firm provides a sustainable investment offering – and an expanded TCFD report offers an opportunity to demonstrate this to clients – or not, the key to efficient reporting and avoiding issues will be a systematic approach. This brings the benefit of information and analysis across the client base, uncovering risks, providing calls to action, and giving insight to the investment manager and central investment teams alike.

At BITA Risk, we have always prided ourselves on having a finger on the pulse of both domestic and global regulatory change and cultivating a deep understanding of where the rule books might be heading – in light of both the spirit and the letter of the law. This has served us extremely well in developing our products to help keep institutions ahead of compliance changes, rather than just reacting to them. The range of institutions we work with has also enabled us to become something of a thought-leader and conduit for conveying best practices as the industry grapples with ever-changing regulatory regimes. As such, more and more we have a highly consultative role.

No doubt conscious that the UK’s institutions are having to cope with a barrage of new rules, not least its sweeping new Consumer Duty regime, the FCA is currently asking only for fairly limited TCFD reporting to clients. However, the expectation is clearly that all investors will have climate impact information at their fingertips in short order. Clients’ expectations for ever more personalisation being as they are, we can further predict that firms will need to be able to drill into these metrics in any number of ways too.

Having considered the requirements to provide year-on-year metrics at a portfolio level and to be able to aggregate metrics across client segments, we have suggested using this data to identify stranded assets, portfolios with climate risk exposure and to demonstrate a firm’s changing exposure through time.

With a structured data approach, communicating to clients the investment firm’s stewardship activity and mitigating reasons for holding carbon-heavy stocks, not only becomes easy, but drives a demonstration of the firm’s worth to the client.

How to make climate impact information relevant and readily comprehensible is not just a matter of client satisfaction, although it certainly is that; helping people to make investment decisions which reflect their priorities in the widest sense is what the disclosure rules are all about.

The TCFD rules aim to serve the most high-minded of principles, but as we help to steer capital to more sustainable deployment, the industry must stay firmly in the realm of their practical application too. We have been delighted to offer institutions guidance on firm, product and ad-hoc reporting requirements, metrics definitions, reporting templates and more. Personally, my work has never been more interesting, or more valuable in a societal sense.

Another portfolio monitoring lens
While climate impact disclosures are important from humanitarian and environmental perspectives, there is a regulatory drive to report soon. We like to emphasise to firms which may feel daunted, that this is just another lens through which to view portfolios – and therein arguably lies our particular strength. We have spent decades now enabling firms to master their metrics on performance, risk, suitability, and costs, meaning that we have abundant transferable insights on how to make TCFD reporting work optimally in everyday operations too.

Firms’ first concern will undoubtedly be how to avoid manual processes and being dragged back to “Excel hell”; then, relatedly, they will want to know which processes need to be in place to facilitate portfolio analysis and change. With profitability remaining under pressure, adviser productivity has to remain a top concern. Running analysis for individual portfolios and collating historic data will take time, as will aggregating across groups of clients for entity reporting. Creating structured data and an automated framework will alleviate pressure on the adviser and give the client a better experience.

These are undeniably challenging times for business leaders, but we see a gratifying proportion keeping the competitive advantages available from these pioneering reporting requirements front of mind. Here, we have been assisting institutions to develop trend reports to demonstrate progress on positive investment practices at both the client and entity levels to great effect. Helping the individual know the impact they are making will be a very powerful thing for both client satisfaction and retention. Being able to demonstrate the difference the firm as a whole is contributing is, in my view, a ready-made marketing campaign. I know that many Chief Marketing Officers agree.

In all, the TCFD requirements represent a particularly novel kind of compliance challenge, but one which we are seen leading firms rapidly embrace as an important differentiating factor. Sophisticated clients can already see that espousing ESG credentials is one thing, but that evidencing them robustly and acting on them is quite another. We look forward to working with even more firms in the latter camp as the industry moves to make its mark on climate change.

As leaders in portfolio monitoring and governance, BITA Risk analyses circa GB£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 TCFD, together with significant added benefits for the firm, following the IA (Investment Association) template as a base and then adding analysis and client-facing interpretations.

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

If you would like to discuss the points raised, please email me at BITARisk@corfinancialgroup.com.

In the next two reviews, we will look at the monitoring of ESG and Ethical Restrictions and then Consumer Duty. Sign-up here to receive these directly.

For more information please visit https://www.corfinancialgroup.com/financial-software-products/bita-risk/ or contact us at BITARisk@corfinancialgroup.com.

Facing the new monitoring challenges in wealth management: going beyond drift and minding the gap

Wealth Mosaic

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

Wealth Management

Living through 2022 is underscoring an eternal truism: that life’s challenges are seldom episodic and often come piling on top of each other in a way that is most challenging. This is very true for those managing portfolios in the wealth management space.

Long gone are the days where asset allocation drift, and possibly asset class risk, were enough to satisfy suitability and ongoing portfolio monitoring requirements. These are just one slice of a large – and growing – portfolio monitoring “pie”, and there are several portions I fear firms will find hard to digest without modern technology designed for the purpose. These coalesce around two core themes: sustainability and the highly tricky business of not just doing right by clients but proving one has done so. Spreadsheets and manual data manipulation are just too time consuming, labour intensive and risky to be fit for purpose.

So, the challenge of properly monitoring portfolios has become multifaceted, requiring the checking of numerous metrics, both individually and across your entire client base – and all of the time. These metrics can often be client or proposition specific and at both asset and portfolio levels adding further complexity. This requires automation and exception management if it’s not to become a drain on the front office’s time.

The acknowledgement of change is supported by recent research carried out by Compeer which found that 46% of firms are now reviewing suitability on a continuous rather than an annual basis. From a compliance perspective, but more importantly from that of clients themselves, this is no small thing, although the industry as a whole clearly has some way to go still.

Consumer Duty

Putting the customer first is a movement which has been gathering pace globally for some years building on TCF and which will reach something of an apotheosis in the UK when, at the end of July, the FCA publishes its final “Consumer Duty” rules. The regulatory focus is now on firms tracking and measuring the investment journey to ensure both consistency of outcomes and how these are best achieved. We will need to map and document such that even if clients choose slightly different paths and different vehicles (pun intended), those with similar objectives still arrive at the same place or it is clearly documented as to why not.

You may think that this is solved by Centralised Investment Propositions (CIPs), but research has shown that this is not always the case. Firms must be able to ensure and demonstrate that Centralised Investment Propositions are working as intended for each client’s objectives, and alert and document where not. Being able to identify early on and rectify reasons why performance, and yields, aren’t quite meeting an individual’s expectations and needs will help head off all manner of risks apart from those related to compliance – not least that of losing the client.

ESG and Ethics

It is in the sustainability sphere, however, that things are getting really thorny in portfolio monitoring. Our research with Compeer found that 80% of clients now request some access to ESG-compliant investments in their portfolio, with this figure rising to 94% for clients under the age of 40. Demand, in the purest sense of the word, is most certainly there and will only grow to ubiquity. It is just as strong (if not stronger) from regulators, with SFDR and TCFD headlining an alphabet soup of frameworks, rules and regulations requiring carbon, ethical and other non-financial metrics also be part of what institutions monitor, measure and report on. This starts to become complex, as not only does the ESG (in the broadest sense) data need to be managed and applied to portfolio positions in et context of client preferences and restrictions, but a number of metrics need to be looked at through time.

Compeer found that a lack of personalised reporting and portfolio updates are a deal-breaker for two-thirds of clients and firms clearly see that ESG reporting is shaping up to be a real differentiator in these conscientious times: 43% already report on ESG metrics to clients and the remainder are working hard to catch up. Ethical restrictions have been simplistically applied for years, but now that there is detailed data on companies and funds, there is the opportunity to apply these automatically both pre-and post-trade. No longer does the front office have to spend time manually checking each month, this along with sustainability metrics can be constantly monitored.
 

Multifaceted Solutions to Multifaceted Challenges

These slices of the monitoring pie may seem to be largely compliance, but the reality is that more and more of it takes up front-office resource. Indeed, Compeer tells us that for a quarter of firms as much as 80% of a compliance project is performed outside of the compliance department – and this at a time when margin pressures mean front-office efficiency is more important than ever. The more automation in portfolio construction, monitoring and reporting which can be achieved, the better both direct and indirect compliance costs can be kept down – and high standards of provision kept up. These tools provide managers with decision support as well as calls to action in investment management Managers must be freed up to manage and build their client bases.

All of this is to say that when faced with multiple challenges, wealth and asset managers need to be seeking truly multifaceted solutions. That way, multiple problems which threaten to become an entangled mess can actually be solved pretty much at a stroke. Future-proofing can then also come into scope. Once you have a cutting-edge portfolio monitoring solution in place, then it doesn’t much matter what regulators, clients, senior management, or anyone else requires you to measure and report upon. You could even choose to break with the pack and look at portfolios through an entirely new lens. I know some of our clients are already thinking about this.

Our BITA Wealth® solution has consistently stayed ahead of the market and encompasses a wide range of risk, portfolio analytics and decision support tools to monitor suitability and outcome meeting today’s challenges. Now servicing over £180bn in client AuM, we can confidently say that we’ve helped get a large part of the sector to a position where proper guardrails are always on.

That, I would argue, has to be the spirit in times like these: you can seek resilience in the face of a regulatory onslaught and wring business benefits from compliance challenges. Our client stories give ample evidence for how that’s already been done. If you would like to receive our updates on Consumer Duty, please subscribe here.

For more information please visit https://www.corfinancialgroup.com/financial-software-products/bita-risk/ or contact us at Info@corfinancialgroroup.com.

The clock is ticking on ESG

time-is-running-out
time-is-running-out

When it comes to regulatory change, wealth managers have two choices: they can either “run down the clock”, changing the way they do business only to the extent that they absolutely must; or, they can seize the initiative and commit to achieving the maximum business benefit they can out of the new regime.

The EU has led the way on ESG reporting with its Sustainable Finance Disclosure Regulation and accompanying taxonomy framework, but similar moves are well underway globally, including of course in the UK. Now is the time to decide whether to compete or just wait to comply.

The introduction of UK sustainability disclosure requirements and a sustainable investment labelling system may be a little way off, but there is no time at all to be lost, particularly when firms with their finger on the pulse are already leading the way. As one always really should, they have embraced inevitable change in full appreciation of the opportunities it presents to them and their clients.

This course was set a long time ago, but we are now speeding to our destination. First came the COVID-19 pandemic and now tragically a war, with both exposing with quite painful force how urgently global issues need to be addressed and understood in the context of a portfolio. The pressure for wealth managers to make what might be quite radical changes is coming both from the regulator, and from individual investors who now appreciate more than ever what is at stake in how each and every one of us deploys our capital.

A stark divide

The scale and impact of the shift to sustainable investing reminds me of when the first regulation around suitability came in, and a similar stark division between the leaders and the laggards is apparent once again. Now, as then, we’re seeing firms readying themselves for rule changes well ahead of time as they have seen it is simply good business. The difference today of course is that we are talking about nothing less than the ultimate good of the planet and its inhabitants too.

Wealth managers stand at a critical juncture on sustainability. It is no exaggeration to say that the regulatory – and reputational – risks are immense if they underinvest in their capabilities. On the flipside, the rewards for “doing” sustainability really well are commensurately great, with these spanning reduced risks, improved investment performance and very much happier, more loyal clients.

The trouble is, while it is fairly easy to make the right noises on sustainable investing, it can be a real challenge to operationalise it so that it is, itself, a sustainable way of doing business which is scalable, cost-effective and readily adaptable to change – and not just of the regulatory kind. The screeching u-turn on attitudes towards defence companies that world events have imposed underscores how important that is; likewise, we can all see the need for considerable nuance on decarbonisation in portfolio construction. Simplistic negative screening is nowhere near adequate today. Depending on the feelings and objectives of your current clients (and those you wish to attract), impact, investor activism and stewardship, positive screening and thematic strategies might all form part of mix.

Born to do it

In many ways, cutting-edge sustainability is what BITA Risk®, part of the corfinancialTM group, was born to do; it is the apotheosis of the mass customisation movement we have spearheaded for many years and rests on the core values of insight and transparency which underpin our whole approach. In fact, constructing, managing, monitoring and reporting on portfolios with sustainability as the north star could be seen as the perfect use case for our technology as it joins sustainability data with every portfolio.

Client institutions certainly seem to agree. A substantial number have already deployed BITA Wealth® ESG Manager to manage, monitor and report on ethical and ESG exposures across client portfolios to great effect and this element of our solution is proving to be a compelling “hook” for entirely new ones as well. Each has a slightly different take on how they should embody clients’ ESG preferences and/or ethical restrictions in portfolios, but they are all united in their desire to embed degrees of ESG customisation rapidly, painlessly and with surety of success.

Very often we win out after a wealth manager has conducted an exhaustive search for a solution and only found the depth and flexibility required in BITA Wealth and our expertise. From fulfilling immediate carbon exposure requirements, through understanding longer term carbon exposure trends across all business divisions, offices, teams or managers, to differentiating through a sophisticated sustainability offering, BITA Wealth ESG Manager can help. To give firms a flavour of what can be achieved, we will be offering studies on recent BITA Wealth ESG Manager implementations. I would urge all firms considering their options to take a look.

The clock is now loudly ticking on ESG requirements, not only from a regulatory perspective but as it regards marketing, client retention, talent management and cost control too.  And the overriding benefits of transparency of investment risks and opportunities should not be forgotten. We’re looking forward to showcasing how we’re helping wealth managers hit all these targets with our award winning software and more

So, are you going to gain competitive advantage and act now, or do you think you can afford to wait?

Daryl Roxburgh, President and Global Head, BITA Risk

BITA Risk – ESG Guide To Investing

ESG Investing

Prior to the COVID-19 pandemic and the 2020 market crash, ESG investing was followed by many clients who wished to direct the way that their portfolios were invested, driven by a desire to positively influence Environmental, Social and Governance (ESG) progress. Investment firms considered some of the ESG factors as part of their basic company analysis, with some firms going further, focusing in depth on ESG factors and developing a range of ESG investment approaches.

BITARisk - Guide to ESG

BITA Risk signs Charles Stanley as first ‘BITA ESG Manager’ client

ESG - Environmental Social Governance

London, February 2021 – BITA Risk, part of corfinancial, announces that Charles Stanley, one of the UK’s leading wealth management firms, has signed up for the BITA ESG Manager application.

BITA Risk built its reputation on taking complex risk and portfolio data and making it highly accessible within its efficient portfolio management applications. Now it has applied this approach to ESG (Environmental, Social and Governance) investment, automating many manual steps through exception management and integrating key data as part of the client profiling and investment processes.

Charles Stanley’s COO, Michael Bennett, commented: “BITA ESG Manager has taken the complexity of ESG factor data and presented it with such clarity that it can be efficiently managed and monitored across large numbers of our clients, forming an integral part of our investment strategy.”

Charles Stanley’s investment managers will benefit from detailed visualisations, helping them to understand exposures, check preference conflicts and assess the impact of ESG-driven changes on risk, yield and return.

Daryl Roxburgh, President and Global Head, BITA Risk: “Recognising a client’s ESG preferences and understanding asset exposures are key to effective portfolio management and analysis. Using exception management to identify any conflicts is the most efficient way of keeping a portfolio within mandate and this, together with innovative client reporting, is how BITA ESG Manager can manage the process with flexibility and on the scale required by Charles Stanley.”

corfinancial partners with data engineering specialists Digiterre

December 2020 – corfinancial, a leading provider of specialist software and services to the financial services sector, announces today that it is collaborating with Digiterre, a software and data engineering consultancy, to build the Environmental, Social and Governance (ESG) functionality for its BITA Wealth platform.

Ian Murrin, CEO and Founder, Digiterre, said: “We are delighted to collaborate with corfinancial to help build a technology solution for investment managers who increasingly demand the integration of ESG factors into their investment processes. We look forward to providing advanced software and data engineering services to complement corfinancial’s deep domain knowledge and expertise in investment management. The end result is products that are both technically proficient and transformative in nature.”

corfinancial has been significantly investing in its flagship solutions in recent years, acknowledging that the software world needs niche firms like Digiterre with cutting edge skillsets that can help place a product ahead of the changing market demand.

Bruce Hobson, CEO, corfinancial, said: “Digiterre’s specialist data transformation skills and our understanding of what wealth management firms require in order to reduce manual processing and improve the client experience is a powerful combination. We look forward to further projects with Digiterre to ensure that our products are forward-looking and best-in-class.”

corfinancial inks partnership with technology consultancy F2 Strategy

Trading finance software

Boston, June 22, 2020 – corfinancial, a leading provider of specialist software and services to the financial services sector, reports that it has hired wealth management consultancy F2 Strategy.


The agreement will further enhance the functionality and market penetration of corfinancial’s wealth management business, BITA Risk.

 

With client AUM in excess of US$200bn, BITA Risk is a leading provider of integrated private client suitability profiling, portfolio and ESG management, risk and monitoring applications in the HNW and UHNW sectors. The software gives managers freedom within a framework to construct and manage portfolios in the context of risk, policy and mandate, so they achieve suitability whilst delivering control and transparency to management.

Based in California, F2 Strategy is a technology consultancy that addresses the widening gap between expectations of affluent clients and their wealth management experience. Staffed by former executives from top-rated wealth firms and family offices, F2 Strategy provides technology roadmaps, innovative digital client interactions and the automation of investment and operational processes. The company was founded by accomplished veteran wealth CTO Doug Fritz.

 

“As strategic advisor to the BITA Risk business, our first objective is to shed light on the potential automation of Regulation 9 compliance – an area where bank trusts have been underserved by technology for decades. BITA Risk brings a way of making the Reg 9 process far more streamlined through a powerful exception management engine,” said Doug Fritz. “Our second objective is to communicate the value of ESG management to wealth management firms that are trying to address client demand in this area and to differentiate.“

 

Daryl Roxburgh, President and Global Head, BITA Risk: “Doug and his team are renowned globally for their expertise in making technology work better for wealth managers and improving the client experience for their investors. Their unique thought leadership and extensive network will be vital to us as BITA Risk continues to make significant inroads within the wealth management arena.”