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Performance Reporting for Your Practice

The mechanics of performance reporting can be invaluable to assessing your practice.

Helen Modly, 12/17/2009

The mechanics of performance reporting is not only important for your clients; it can be invaluable to assessing the true "performance" of your practice.

As experienced business owners, we have always kept a very close eye on the financial aspects of our practice. We routinely compare our metrics with the results of industry surveys, such as those performed by Moss Adams and others. In years past, we struggled with their methodology of tracking the change in assets under management from the beginning to end of the year.

We were accustomed to tracking the beginning and ending AUM; we maintained a rough list of new client money brought in and the amount of any client terminations.

The Survey Formula
Total of AUM at the beginning of the year
Plus: New money received from NEW clients
New money received from EXISTING clients
Less: Withdrawals from TERMINATED clients
 Withdrawals from EXISTING clients
Plus: Interest Income
Dividend received
Realized Gains and Losses
Less: Management Fees
Plus: Unrealized Gains (or Losses)
The sum to equal AUM at the end of the year

Look familiar? This is exactly the format that most performance reporting software uses for the portfolio activity summary report that many of us use as part of our quarterly performance reports to clients. Starting in 2007, we decided to run this report on a consolidated basis on a master account we created that included all of our client accounts. This report gave us beginning and ending values, dividends, interest and gains/losses, however; the rest of the information in the formula was all in a lump.

Teasing it Out
Using a report that summarizes all portfolio transactions by type, we can look at all "long-in" transactions that represent money or securities moving into accounts. By running that report on a group that consists of only new accounts during the period, we can separate those transactions from the client base as a whole. We use the same process to separate all "long-out" transactions into new client and existing client, as well. Normally, our "transfer in and transfer out" transactions between accounts will wash. Now, we maintain a spreadsheet of our AUM metrics using the above information on a monthly basis.

In addition to providing us with the financial data we needed to track, this process also serves as a first check that all our accounts are reconciling each month. It allows us to spot issues such as residuary balances in closed accounts, incorrectly coded transfers and other posting problems before we run our client reports.

The spreadsheet also tracks the number of client relationships we have. By adding another column, we can reflect the number of clients represented by the new funds received, adjusted by any terminations. Maintaining an accurate client count is needed to identify the average AUM per client, both new and existing. This is another of the metrics that these practice surveys measure and it helps us to confirm that we are continuing to increase our AUM per client, which is also one of our business goals.

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