ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

Getting the Most from Your Investment Committee

January 2nd, 2013

by Bob Veres

Bob Veres

Investment committees are a little bit like fingerprints: they come in all shapes and sizes, and no two are exactly alike in form or function. So advisory firms that have investment committees – or are considering creating one – can learn a lot from one another. My research has identified some best practices for this flexible management tool, by comparing notes among advisors on how they are managing their IC teams.

Part one of this report identified ten reasons RIAs have investment committees (ICs), such as getting everyone in the firm to understand a common investment philosophy or brainstorming ways to produce alpha in client portfolios. But the widespread adoption of ICs is a recent phenomenon, and for many advisors the more difficult question than "why have an investment committee?" is "how do I make it worth my while?"

Let's look at how different advisors have structured their ICs and identify some of their most important features and practices. As you read, ask yourself: Will any of these ideas help me maximize my investment (of my own time and my staff’s) in my IC?

The size and scope of your committee

When I surveyed readers of my Inside Information service about the optimal size of their investment committees, responses tended to reflect the size of the practice. Smaller advisory firms reported committees consisting of a principal and a staff advisor. Others reported committees with three, four, five, six and ten members, and one said that the IC should include however many advisors and senior analysts you have in the firm, which will increase over time. "Each of our professionals participate," said Rick Adkins of the Arkansas Financial Group in Little Rock, Ark. "But," he added, "I don't know what you would do if you had forty professionals."

Tim Dwight, of True North Advisors in Dallas, argued that the key consideration is not the size of the committee, per se, but the diversity of advice. "The important thing is having people with different points of view, or different ways of looking at the world," he said. "You want to include different backgrounds, different levels of experience.”

“You only want to include people who enjoy investments,” Dwight added. “That may sound crazy in this business but some people enjoy selling or visiting with clients, and for them, investing is a vehicle – not their passion. People without passion don’t add much to the conversation."

What roles are different members of the committee expected to play in the meetings? Once again, the answers were diverse. One approach is to give the research chores to one person, while the rest of the team provides analysis. In Adkins’ investment committee, he has one person prepare the information for the meeting, and the rest of the group discusses items and agrees on changes.

Phil Taggart of Taggart Financial Group in Houston, meanwhile, takes the opposite approach, having each member of his committee tackle whatever research projects fit their expertise. "Members of our committee may have from one to eight or ten areas of specialization," he said. Examples he gave were “macroeconomics, inflation, income, fixed income sector review, geographic review, capitalization review, timing and market technology."

Somewhere in between you find Elyse Foster, of Harbor Financial Group in Boulder, Colo., who advocated a flexible division of the research chores. "We split up by asset class, then by vendor," she said. "One person handles PIMCO and Oppenheimer, for example, so she gets to know the companies and representatives and products. We rotate the data-gathering on economic trends each month.”

How often do investment committees meet? That depends greatly on the firm. Pinnacle Advisory Group, in Columbia, Md., occupies the most frequent end of the spectrum; its investment committee meets twice a week. "Monday meetings are to address administrative and trading issues for the team as well as any writing or marketing commitments that must be met," said Ken Solow, the firm's chief investment officer. "We might also discuss weekend investment news. Wednesday meetings are for portfolio review and include discussions about portfolio performance, volatility, macro-economic issues, reviewing securities we own, discussing possible new investment ideas, etc."

At the other end of the spectrum, Mark Lamontagne, of Ryan Lamontagne, Inc. in Ottawa, Canada, said his investment committee meets quarterly. "But we move it to monthly in a bear market," he added.

If there is a pattern here, it may be that meetings tend to be more frequent as ICs take on more responsibilities. Often, this means a more complicated schedule that addresses different types of concerns in gatherings of different length. Take Peggy Cabaniss, of HC Financial Advisors in Lafayette, Calif., for example. Her IC holds two meetings at the beginning of every quarter, each of which lasts around two hours; additional, shorter meetings every Wednesday morning; and twice-annual client workshops.

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