Simplifying Portfolio Analysis: How to Prioritize Key Tasks

The work of portfolio analysis is becoming ever more demanding. The volume and complexity of the tasks required to create, analyze, edit and report on investment portfolios is rising rapidly. Portfolio managers and investment teams must handle more data, new asset classes, and more investment vehicles. Clients, meanwhile, are adopting more diverse investment objectives, and demanding more choice and personalization.

Without action, portfolio managers risk becoming bottlenecks to client and firm success. Investment teams want to win. How do they master their workflows so that they can spend more time on what matters most: outperforming the market?

At Morningstar, we engage with asset managers and wealth managers of all kinds. We recognize that the work of every firm and investment team is unique. We also see patterns across teams and businesses—in the types of workflows they handle, the impediments to their work, and the actions that have the biggest impact on a team’s capacity to master more work and complexity. We wrote this series of articles to share our knowledge of what works, and how to build a solution that is right for your team.

In this series, you will learn how to simplify, standardize and automate the key tasks of portfolio analysis. We have broken our method into four steps:

• Prioritize the workflow(s) you want to simplify.
• Describe the workflow as it exists today. Include roles, tasks, and tools.
• Simplify your workflow by removing work, normalizing tasks, and consolidating tools and data.
• Automate with software.

In this first article, we address how to prioritize the work you want to simplify. We have also included a worked example to better illustrate our method.

Like many activities, the effort required to simplify and automate work is subject to diminishing returns. Start by prioritizing the most impactful opportunities. Ask your team to write down the work they perform. Get them to organize their output into discrete groupings of tasks. Each grouping should represent a full workflow—the entirety of tasks required to deliver a completed piece of work for the person or entity who has asked for it. Label each grouping with a descriptor of the workflow. Examples might include “ad hoc performance analysis reporting”, “model portfolio customization”, “sub-advised fund performance management” or “quarterly asset allocation rebalancing”.

Get your team to estimate how much time they spend on each workflow. Don’t try to be exact. A rough estimate is better than none. Prioritize a workflow that is both complex and consumes a lot of the team’s time.

A wealth manager’s home office investment team analyzes the work they have performed over the past year. They discover that they spend approximately 20% of their time on performance monitoring; 20% on risk management and portfolio analysis; 20% on ad hoc management requests; and 40% customizing model portfolios on behalf of branch advisors. The team discusses their findings. They agree that the amount of time they spend customizing model portfolios has risen sharply in the past two years; that the work is complex; and that the workflow is a good candidate for prioritization.

Write down the workflow you plan to improve. Use the template we have provided in the worked example below to describe each step in the process. Arrange the steps in the order in which they must be performed. Make sure you describe the entire workflow, end to end: include all steps needed to deliver the finished work, whether or not the work is being performed by your team. For each step in the workflow, abstract from the specific work to the generalized task. (For example, if the specific task is “create factsheet showing aggressive growth model before and after lowering tech stock asset allocation”, the generalized task might be "create factsheet showing side-by-side model comparison”.) If different teams are needed to complete the work, note which teams perform which work. Finally, note any tools or data the teams use to get the work done.

A wealth manager’s home office investment team analyzes the work they are doing. They discover that they spend 40% of their time customizing model portfolios on behalf of branch advisers. To help them describe the workflow required to customize a model, the team focuses on a recent example: an emailed request from a financial advisor to remove all investments in companies involved in animal testing. The team writes down the tasks they performed for the financial advisor, groups them into discrete steps, and abstracts this into a generalized six-step process:

• Analyze the portfolio.
• Apply changes to the portfolio.
• Make a recommendation.
• Create a side-by-side factsheet.
• Ensure compliance.

The team also notes that the factsheet is built by the marketing team; that its recommendation must be reviewed by the compliance team; and that its workflow uses four different data stores, two portfolio-analysis software applications, a business-intelligence application, a digital asset management application, and a desktop publishing application.

This work isn't easy, making efficiency key. Learn how to simplify your workflow in part two of our series.