Automating quarterly letters: requirements and implementation

Quarterly letters to clients can be largely automated. This article sets out the legal framework under FinSA, the structure of a letter, an example and the controls an audit firm will look for. The guiding principle: the figures come from the portfolio management system, the assessment comes from the relationship manager.

A quarterly letter is not a legal duty, but clients read it as one

Under Art. 16 FinSA, financial service providers must, on the client's request, account for the services provided, the composition, valuation and development of the portfolio and the associated costs. The Federal Council sets the minimum content. Most portfolio managers meet this duty with the custody statement and the performance report from their PMS. A quarterly letter is therefore not required by law. It explains the development of the portfolio and the positioning going forward, and for many clients it is the document through which they follow their mandate.

Three parts, three owners

A quarterly letter has three parts, and each has a different owner.

• The figures. Value at the start and end of the quarter, performance for the quarter and year to date, inflows and outflows, comparison with the agreed benchmark. They come only from the PMS and must match the custody statement. Nobody types them.
• The house view. Market review and outlook per strategy. The investment committee writes it once a quarter, without client data, and it applies to every mandate in the strategy.
• The assessment. Which positions contributed, why changes were made, and a personal paragraph. A system can prepare this part. The relationship manager must own it.

A sample letter with every source marked

The excerpt below is a draft for a fictitious balanced CHF mandate. The labels show the source of each part.

Dear Ms Muster,

Your portfolio gained 1.8% in the third quarter, bringing performance since the start of the year to 4.6% after costs. Its value on 30 September was CHF 2,412,300. [PMS]

Equity markets benefited from falling rate expectations during the quarter, while the Swiss franc strengthened slightly against the euro. We are keeping our equity allocation at neutral. [Investment committee]

Your Swiss dividend stocks made the largest contribution. In August we increased the bond allocation slightly, taking into account your preference for short maturities expressed in June. [Drafted from PMS transactions and a meeting note, checked by the relationship manager]

I look forward to our meeting in November, when we will also discuss the liquidity planned for your daughter's house purchase. [Relationship manager]

Names and figures are invented. Every figure traces back to the PMS, and the personal paragraph was written by the relationship manager.

Approval decides whether a task is delegated

If quarterly letters are produced and sent automatically without a relationship manager reviewing each one, we consider that a delegation of tasks under Art. 15 FinIO. Portfolio analysis is one of the material tasks of a portfolio manager under Art. 19 para. 3 FinIA. That triggers contract requirements and audit rights, which we set out in our article on FINMA Guidance 08/2024. Where the relationship manager keeps the approval, there is ordinarily no delegation. The approval must then be a genuine review. A draft that needs five to ten minutes of reading is realistic. If it needs more, the template should be improved rather than the letter rewritten by hand.

In our view, the review covers four points: whether the figures match the custody statement, whether the assessment reflects what actually happened in the portfolio, whether the personal paragraph is correct and current, and whether the outlook is consistent with the mandate and the client's risk profile.

An audit will look for three pieces of evidence: a source reference for every figure, a logged approval with name and time, and a quarterly sample in which compliance checks letters against the source data.

Four errors that undermine trust in the figures

Performance methods get mixed, although time-weighted and money-weighted returns differ when money moves in or out. The letter must use the same method as the report and name it. Gross and net figures get confused, although clients receive performance after costs. Currency effects are left out, although a position that gained in US dollars can lose value in francs. And a letter that repeats the house view without any reference to the client's own portfolio reads as a mass mailing, which is exactly what a personal letter should avoid.

How it works

With Unplex, drafts for the whole book are produced in one run. Positions, transactions and performance come directly from the PMS, for Assetmax through the existing connection. Every figure carries a source reference. The relationship manager reviews, adds the personal paragraph and approves, and every step is logged.

Conclusion

Quarterly letters can be automated as long as the roles stay clear: figures from the system, the house view from the investment committee and the assessment from the relationship manager. Where the relationship manager approves each letter, there is ordinarily no delegation of tasks, and the log provides the evidence for the audit.

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