Model-assisted, and said so: what clients are told

The sixth and seventh principles of the Ethical Technology Charter are the two that clients encounter. Transparency to clients means a client can see which decisions were model-assisted. The right to a human decision means any client may require a human review of anything a model touched. The division serves 43 family relationships across five booking locations, and putting these two principles into a quarterly report proved to be a reporting systems project rather than a policy exercise. The first labelled statements were issued this month.

Three things in a private-wealth report are model-assisted, and they are now labelled individually. Valuations of unlisted positions, where a model produces the estimate that the Risk and Valuation Committee reviews and approves. Rebalancing proposals, where an optimiser suggests trades against a mandate and an adviser decides whether to put them to the client. Screening outcomes, where a tool ranks counterparties and transactions for review. Nothing else in the report involves a model, and the absence of a label is therefore informative rather than a gap.

The label states three things: that a model contributed, which model by its inventory reference, and the name of the person accountable for the output. The third element does most of the work. A client who reads that the valuation of a holding was produced with model reference 041 and approved by a named officer has a route to a conversation. Clients who were told only that "models are used in our process" have nothing to ask about. The inventory reference is the same one the Model Risk Management policy assigns, so the label and the internal record cannot drift apart.

Exercising the right to a human decision is deliberately simple. The client writes to their relationship principal, and a named person responds within five business days with the review and its result. There is no form. Four of the 43 relationships have used it since the rule was published in draft. Two asked how an unlisted holding had been valued and accepted the answer. One asked for a rebalancing proposal to be reworked without the optimiser, which took an adviser two days. One asked that no model output be used in their reporting at all.

That last request is the interesting one, because it has a cost and the firm agreed to it. Producing the quarterly report for that family without model-assisted valuation requires manual preparation of eleven unlisted positions, which adds about two working days per quarter. The family was told the cost and asked to proceed. A right that is granted only when it is free is not a right, and the Charter language was written knowing that some clients would take it up. The Ethics and Technology Council reviews requests of this kind twice a year.

Two commitments sit underneath all of this and are stated in the client documentation. The firm makes no automated decision about a client: no account is opened, closed, priced or restricted by a system without a person. The firm does not sell client data, in any form, to anyone. Neither commitment is difficult to keep at present. Both are worth writing down now, because the pressure to relax them arrives with scale, and a principle recorded in advance is harder to negotiate away than one that is being drafted while the proposal is on the table.

Published 2023-10-17 by the Private Wealth & UHNW division. Research is prepared for eligible counterparties and does not constitute advice.