Investment committees in the advice sector are usually associated with larger firms or those that have an in-house approach to investment management. However, some smaller firms that outsource their investment management may still choose to establish an investment committee to stay informed and keep an eye on things. So how do advice firms get the most out of their investment committee?
At national advice firm Ascot Lloyd, investment director Steven Lloyd believes a well-organised committee enables advice firms to ‘get under the skin’ of the investment solutions they offer. He adds that this is important for Ascot Lloyd because it is an acquisitor of other advice firms, so it has legacy books of business that it needs to get a handle on.
“The key to setting up a successful investment committee is working out what the terms of reference are and building on that. What do you want it to achieve? Without setting out the terms of reference, investment committees can meander,” he says.
He also believes it is important for investment committees to gain input from different parts of the business and independent members, so it benefits from a well-rounded view.
“We have an independent investment committee chairman because we thought it was important to have somebody independent to keep everything in order and make sure we didn’t go off on a tangent or rest on our laurels,” he says. “You need an independent chairman and other independent members to challenge people, so you don’t have just one or two people within your company who have strong views deciding the direction of your business.”
Lloyd seeks to prevent large egos from taking over. He says: “During my career I’ve been in meetings where one or two people dominated, and that’s not necessarily the way to get the best out of an investment committee.”
Holding third parties to account
RPG Wealth, the financial planning arm of accountancy group RPG, outsources investment management to third parties but still has an investment committee. Investment director John Sangster says it is a good way for RPG to focus on every investment and hold to account its investment managers.
“When I joined six years ago we had an in-house investment committee, but it was difficult to keep up with everything – certainly with the way things have gone with regulation such as Mifid II,” he says.
“We think there are better people than us to analyse investment funds. It’s difficult to say you’ve done a full precis of the sector if you are only going to funds you’ve used in the past 10 years.”
RPG’s investment committee effectively acts as a check and balance to its outsourced investment arrangements, enabling its management and advisers to set aside some time formally to go through performance, reports and updates on its investment solutions.
“We produce our own data pack and for every solution we authorise we have a two-page document looking at factors such as performance, volatility figures and a review of any changes. We have made the recommendation to use them so we will hold them to account,” says Sangster.
Sangster says the investment committee is not the ‘normal’ type as it has no independent members.
“There are four of us on the committee, which I chair. My background prior to financial planning is independent stockbroking so there is an investment management side to my skills,” he says.
Given that the purpose of this type of committee is to oversee the work of third-party managers, not make its own investment decisions, what sorts of challenge does it encounter?
“Sometimes we have to rein ourselves in,” says Sangster. “We may read something about Russia, for example, and think ‘Why are we not taking a Russian view of the world?’ We have to remind ourselves that we are not the asset allocators.”
Invest your time
Beaufort Investment chief executive Derrick Dunne – who oversees the investment management arm of the Beaufort Group – says investment committees are an excellent structure for overseeing risks and internal controls that come with investment management. The firm has an investment and advice policy committee comprising members of its compliance and quality control teams and three of the Beaufort Group’s financial advisers who run their own business, as well as Beaufort’s management team.
“We send out a detailed report ahead of our meetings and that establishes a bit of the agenda,” says Dunne. “But the agenda can cover other things that aren’t included in the report. We just have a formal document to keep it on the rails. Then, after the meeting, we put a front end on the report that gives us a clear record of what we decided.”
Like Lloyd, Dunne believes in having clear terms of reference to avoid falling into the trap of talking shop without achieving anything.
“From our perspective it is important to invest time in setting out how it will work, who will be on it and what it is responsible for at the beginning. That may sound bureaucratic but it helps,” says Dunne.
At Beaufort, if anything arising from the investment committee needs to be communicated to the rest of the business or taken up as a project, it goes through individual members, such as the head of advice, rather than being announced by the committee.
“It’s important to get representatives from all the [key] areas of your business,” says Dunne.