The role of advisers in investment committees should be clearly defined and kept to a minimum, a discussion panel at Professional Planner’s Research Forum in Sydney has said.
Advisers can add value within investment committees, said Dominic McCormick, portfolio manager and consultant at DPM Financial Services, but this cannot come at the expense of investment expertise or detract from the core focus of the committee.
“Advisers can certainly bring investigation skills, provide relevant information and even make good chairs,” McCormick said. “They also play devil’s advocate well. But part-time investment gurus shouldn’t be running these investment committees.”
One issue with advisers on a committee is that they would be expected to advocate for their clients; McCormick made the point that this could be harmful from an investment perspective.
“Their closeness to the client can actually create undue pressure on them and the committee and lead to poor outcomes,” he said.
There was a clear consensus on the panel that the adviser role needs to be set apart from the investment management function. Leanne Milton, head of advice research at AMP, also emphasised that whilst advisers should be demarcated from that process, they also need a clear conduit to be able to contribute.
“Adviser input needs to be constructive,” Milton said. “They need a mechanism to provide that input, but their role should generally be external to the committee.”
External consultants, while more important to the committee process than advisers, also need to have specific, clearly defined roles, she argued.
“Having too many people in an investment committee can result in it going off-piste,” Milton explained. “But as long as the roles are clearly defined, there should be no problem.”
The examination of the adviser role was part of a larger discussion about the ideal structure of an investment committee. In a floor poll asking the ideal size of an investment committee, the result was a conclusive advocacy for smaller groups, with 84 per cent of respondents choosing 4 to 6 members, and 16 per cent selecting 7 to 10. No participants thought 10 or more members was appropriate.
McCormick agreed with the audience, citing 5 to 7 as his ideal size, but added in jest that 10 people could work “if half of them don’t say a word”.
The panel found less agreement on the primary role of investment committees. In a poll of attendees, the vote was split roughly down the middle between those who favoured high-level governance and due diligence as the committee’s main responsibility, and those who thought determining the composition of model portfolios and approved lists was the main function.