How to run an effective investment committee
02 August 2016
Advisory investment committees are a relatively new phenomenon, so can be a little clunky. Abraham Okusanya offers some tips on how to run a smooth meeting.
A committee is ‘a group of the unprepared, appointed by the unwilling to do the unnecessary’, or so the saying goes. Yet the role of an effective investment committee within an advisory firm cannot be overemphasised.
It’s a mechanism for a firm to make important collective decisions which have a direct impact on client outcomes. It’s a forum to discuss key market events, debate the firm’s investment philosophy and process, and to evidence a ‘culture of challenge’ that the regulator expects of advice firms.
Even for firms outsourcing investment decisions by referring clients to discretionary fund managers, an investment committee provides a mechanism for them to examine portfolio performance, debate fund managers’ strategies and hold them to account.
Sadly, many firms don’t have an effective investment committee. Often, precious time is wasted due to poor preparation and dealing with issues that have little impact on client outcomes. So here are a few thoughts on how to get the best out of your investment committee:
Setting the scene
The saying ‘a committee is a group that keeps minutes and loses hours’ highlights the main problem with many investment committee meetings – inadequate prep and a poorly planned agenda.
To make the most of the meeting it’s crucial to have a written agenda, which should be circulated to all members of the committee in advance of the get-together. A good agenda will include key topics for discussion, suggested time slots for each and a named individual or individuals to lead each talking point.
Key documents including portfolio performance and asset allocation data should also be prepared and circulated to members in advance of the meeting.
This next bit may sound obvious but, in this day and age, having a large screen on which presentations can be displayed, allowing engaging discussions between members of the committee, is imperative.
Ideally, a staff member – and not a committee member – should be in attendance to take notes and record the minutes. The minutes should include details of when the meeting was held, who was present, as well as what was discussed and voted on. The agenda
I often get asked what should be on the agenda for investment committee meetings and the truth is it varies. A lot will depend on the firm’s investment proposition (does it operate model portfolios or use risk-based multi-asset funds, or does it outsource?). However, the following are the key elements that I consider important:
- Revisit, develop and refresh the investment philosophy and policy statements
- Examine performance of portfolios and individual funds against relevant benchmarks
- Review asset allocation and portfolio structure
- Debate possible implications of global market events
- Vote and agree on any action/changes to portfolios
What about third-party presentations? There is room for inviting third parties but I suggest keeping this to a minimum. The meeting is preferably a time for reflection and decision-making based on information that has already been acquired, rather than for acquiring new viewpoints.
Comedian Fred Allen once observed that ‘a committee is a group of people who individually can do nothing, but who, as a group, can meet and decide that nothing can be done’. While a committee is a team effort, each individual member of the committee has a key role to play.
The committee chair
The importance of this role cannot be overstated. He/she has responsibility for the smooth running of the meeting, for setting its tone and direction, and for keeping discussions on point and on time.
Everyone should have an in-depth understanding of the firm’s process and philosophy, arrive at the meeting prepared, and bring a curious, attentive and positive attitude to discussions.
Ideally, another member of the committee (besides the chairperson), perhaps the chief investment officer or an investment analyst, should be responsible for delivering the presentation on fund and portfolio performance. You should also consider delegating specific tasks to specific members of the committee, who will then report back to the group.
One dangerous occurrence on many investment committees is ‘groupthink’, particularly when a big personality dominates the meeting and everyone else simply defers to them. This can defeat one of the central purposes of the meeting, which is to create a forum for meaningful debate and foster a culture of challenge. To address this, it may be worth having an external independent member of the investment committee to bring fresh perspective.
Also, consider shaking things up a bit every now and then, perhaps by inviting another advisory firm to attend and contribute. You can also try rotating the chairperson, say every three years, to introduce a different style and approach.
Implement, implement, implement
An investment committee meeting should be a forum for collective decision-making. Once decisions have been made, it’s important they are carried out.
Responsibility for implementing each decision should be assigned to specific members of the committee and documented accordingly.
Who’s doing what, when, how and why? This kind is accountability is fundamental to the success of any committee.
Investment committees are a relatively new phenomenon in financial planning firms and, like any little-understood activity, it is still among the least efficient facets of most advisory practices. I hope this piece makes the process a little more effective and productive for firms.