Q.We have some accounts or specific positions we would like to exclude from performance and/or billing for some clients. Can we make these exclusions on a client by client basis? Or should we have a consistent firm-wide policy?
For example, some clients have accounts we do not actively manage, but they would like to see the accounts included in their overall holdings. In this case, we would like to exclude the accounts from both billing and performance.
Some clients have a “legacy” stock which they refuse to sell. For them, we would like to exclude the position from billing — since we don’t actively manage it, — but include it in performance so the clients know how clinging to this position affects their returns.A.Yes, you can exclude accounts and positions from billing and/or performance on a client by client basis. It is perfectly acceptable to track “unmanaged” assets in PortfolioCenter and exclude them from billing, from performance or both. In fact, your examples situations are different enough that I would recommend against implementing a “one-size-fits-all” policy.
Different clients have different needs; you don’t need to try to cut them all with the same cookie cutter.
For each case clearly communicate to the client what you are doing and why. Document it. Then be consistent!
Consistency means if you exclude an account from performance you exclude it consistently — regardless of whether it helps or hurts performance. Including an account when it helps performance and excluding it when it hurts performance will land you in trouble with your clients (and potentially the SEC). Resist the temptation.
Consistency also means using the same quarterly reports despite market fluctuation. If you want to change quarterly reports, announce the change in advance so clients know the report change is not tied to a change in the market.
In my experience, managers who change reports and/or reporting methods when the market drops lose clients. The change is viewed with suspicion. Managers who transparently and consistently report their returns earn more respect and client loyalty.
Bottom line: Pick the reporting method that makes the most sense for the client, communicate it, document it and stick to it.