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14 Things to Expect From Your Investment Consultant
By Alan Biller | 17 July 2018
What should you expect from your plan’s investment consultant? Simple performance reports and perhaps the occasional search?!? Here are 14 services which I think all plans should expect (but don’t all receive).
1. Accept fiduciary liability. Plan trustees should be able to rely on their consultants’ advice, and a consultant who denies being a fiduciary is being disingenuous. There is a high legal value but no explicit dollar value to this service.
2. Define and recommend changes in strategy, policy and asset allocation. Plans can’t “set it and forget it” and neither can consultants. The consultant must keep up to date with developments in the markets, industry, regulation, and (especially) the plan itself.
3. Write account guideline statements. Account guidelines (especially in bonds) rapidly become obsolete. From a fiduciary standpoint, it is preferable that the consultant take the lead in bringing guideline issues to the trustees before problems arise.
4. Deal with all assets. Consultants may report only on stocks and bonds, but plans own real estate, invest in GICs, etc. A consultant who can’t deal with a wide range of assets can’t give trustees a full picture of their opportunities.
5. Oversee the managers. Beyond reporting on performance. Their philosophy, their people … their compliance with your plan guidelines. You cannot assume that the manager will always keep you informed about all these matters (especially when there’s cause for concern).
6. Produce information and advice tailored to your particular needs. While all boards want certain basic information, no two have the same needs. The consultant prioritizes information to find that which is most relevant to trustee decision making.
7. Shield trustees from importunate investment managers. Though some trustees like the attention, dealing with managers can lead to a loss of focus and time. Consultants can help the board deal with investment decisions professionally, rather than “relationships.”
8. Inform trustees about investment opportunities, techniques and risks. Most plans use only a small fraction of the strategies available to them. While some are inappropriate and some should be avoided at all costs, the consultant should keep the board informed.
9. Help put decisions on a rational basis. The consultant should lay out a decision’s alternatives, key factors and potential consequences. While not all investment decisions turn out well, the framework of clear decision analysis reduces the regret when they don’t.
10. Provide trustee education. Few trustees are experts, comfortable with complex industry jargon. The consultant provides information which goes into the depth required to support decisions through seminars, position papers and regular memos.
11. Conduct all searches and negotiate contracts and fees. Consultants should be able to handle whatever searches are required, even familiarity with custody, lockbox and cash management operations.
12. Monitor compliance with standards and regulatory requirements. Trustees should rely on their consultants, as well as counsel and auditors, for education on “best practices” with regard to investment decisions, policies and procedures.
13. Work collaboratively with other service providers. For instance, your consultant should be able to address cash management issues with managers, the implications of assumptions with the actuary, and matters of contract and compliance with counsel.
14. Give unbiased advice, even if unpopular. Your consultant must give you hard advice when you need it; the rest is window dressing.
If your consultant is not providing you with all these services, you might ask why: I doubt that the answer is that you don’t need them.