Adviser groups of all sizes are finding that having an investment committee (IC) with at least one independent external member really pays off despite the costs.

Minchin Moore managing partner Mark Minchin, an independent practice owned by its 14 partners, says the IC is a “core component” of the design of the business.

“It ensures that all decisions are carefully researched and considered, and nothing is implemented in haste,” Minchin tells Professional Planner.

“It is a key pillar of our entire business value proposition and not something that we see as optional. No doubt it is expensive. It consumes lots of the time of some of our most experienced and well-paid staff, but it provides enormous benefits.”

Minchin adds that not only does it result in a rigorous and robust process, but the ongoing dialogue in the IC promotes communication of key concepts.

“The IC actively disseminates the outcomes of its work throughout our practice so that all the advisers are informed and knowledgeable about the basis for directions taken,” Minchin says.

“This promotes constant learning and provides advisers with what they need to explain and reinforce concepts with clients.”

Minchin Moore’s IC is chaired by its chief investment officer. He is supported by an independent member, Steve Garth, as well as five of its partners. The firm also has a centralised investment team which mechanically implements the decisions of the IC and runs portfolios.

“Advisers are kept ‘off the tools’ so that they can focus on adding value through financial strategy and client communication,” Minchin says.

“This creates efficiencies, reduces errors and promotes a more professional relationship with clients. The separation of investment team from client interface is important as it creates accountability for advisers – they can’t cave to client whims and behavioural indulgences. They must be firm and disciplined in coaching clients for strong long-term outcomes.”

ICs, however, don’t only benefit larger or mid-sized practices.

“Our IC has helped us punch well above our weight,” Joe Stephan says, a director of Stephan Independent Advisory, a Melbourne-based firm that has two advisers and works with family businesses.

“In small practices, one can be blind-sighted or have many biases when it comes to investment decisions on stocks, managed funds or whatever. To remove some of those biases, it’s important for your IC to have a paid external party who asks the right questions and probes and probes to ensure there is some rigor around your investment approach.”

Stephan’s IC consists of the firm’s two directors and an external consultant.