Client-centric Financial Metrics (Capability #3)

The CFO’s office, being responsible for all financial reporting in any firm, are the seemingly logical choice as owners of client-level reporting given their access and understanding of the data, technical expertise in financial reporting, and broad understanding of the overall flows of the firm. Regardless, Client Management should play a key role in the definition and structuring of client-level analysis and reporting, for one key reason: a traditional financial management function often has competing (and sometimes conflicting) mandates regarding how they report financial results. We’ve seen instances where legal entity or divisional reporting take precedence over client-oriented reporting that often creates distortions on how an account is reported so it’s hard to see its true performance and who within the organization is responsible for variances.

Client ReportingTake the example of a global client that does business in multiple geographies and across multiple products. Each regional manager and each product manager, working with their respective finance heads, will vie to earmark as much revenue for their division as possible, creating double-counting of revenues and confusing results for a given client. The Client Management team should be tasked with unraveling these knots to provide a clear, holistic picture of an account.[more…] They should also identify what information needs to be delivered within Sales and Sales Management to ensure the right strategic decisions and focus.

In some cases we’ve seen Client Management take full ownership of client-level financial reporting, while in others we’ve seen a close collaboration between CFO and Client Management. Regardless, the Client Management team should have a strong global mandate and management support to oversee or co-manage this process.

Like any financial analysis and reporting function, client reporting involves establishing target budgets, reporting account revenue periodically, looking at trends, and flagging outliers that should be raised and discussed. Additionally, client-specific KPIs (key performance indicators) that help better understand client behavior and assess the quality of business flowing in should also be identified and tracked. Examples include volume and order size, movements versus peers, pricing changes, and changes in wallet size and market share. Client profitability analysis, which involves applying costs against client revenues, is probably one of the most useful, if not most complex, analysis to implement.

Identifying meaningful client segments and creating statistics around those also helps in identifying trends and uncovering opportunities. A strong Client Management team is usually adept at understanding the marketplace to best categorize the account base in useful groups. In many cases, the obvious segments may not necessarily be the best groups to track. The distinction between hedge funds and traditional asset managers, for example, is becoming blurred so tracking these is becoming less meaningful. Segments based on investment style, investment markets, or even firm “personality” may prove more useful for aligning resources.

By aligning client financial analysis and reporting with a strong Client Management function, a firm will set itself up to better manage their account base from a client-centric perspective and help realize the value of a clear client strategy.

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