By Ed Friedman
Many advisors that have broken away from the big wirehouses and banks typically relied on, and were guided by, their firm’s economists, strategists and research departments. But these independent advisors now have the opportunity to establish their own investment committees.
“We established our investment committee in order to hold ourselves accountable to an investment discipline and process,” said Jerry West, chief investment officer of Archford Capital in St. Louis. Indeed, many RIAs cite this same need as their motivation for launching their own investment committee.
RIAs in the Dynasty network have cited the following reasons for the creation of investment committees:
- Communicating to clients and prospects that the firm has a disciplined approach to investing
- Signaling to regulators that the firm has a defined process for investment decisions
- Professionalizing the firm
- Encouraging diversified thought and intellectual debate
- Institutionalizing the investment process across all advisors in the firm
- Using the committee as a powerful marketing tool
Tom Greco, chairman of the Philadelphia-based Concentus Wealth Management’s investment committee, believes it is extremely important that every investment committee has a written charter that clearly states the objectives of it, how often it meets and how decisions are implemented. But be careful. According to Scott Welch, chief investment officer of Dynasty Financial Partners, it is important that you adhere to everything you commit to in your investment committee charter. “While the regulators don’t require the establishment of investment committees, it can be very helpful in an audit, providing you do what you say you’re going to do. If you aren’t sure, then don’t commit to it in writing.”
There are no right or wrong ways to establish your firm’s investment committee, but there are industry best practices you can follow for guidance:
- Proper size. It is generally a mistake to include everyone in your firm on the investment committee. Make it large enough to get a diversity of opinion and small enough so it is manageable.
- Include outside members. Many of the best investment committees are comprised of select members from the firm as well as invited outside members. This helps add diversity of thought.
- Continuity. It is important to schedule your investment committees with a periodic regularity (monthly or quarterly is recommended) and put all dates on your annual calendar at the beginning of the year. Stick to your schedule.
- Make the Investment committee part of the fabric of your firm. Your investment approach will help define your firm. Make sure to communicate to all non-committee members in your firm the results of the committee meetings.
- List your committee members prominently on your website. By doing so, you are saying ‘"we are a professional firm that takes clients’ entrusted investments very seriously."
Miguel Sosa of Premia Global Advisors in Coral Gables, Fla. has had an investment committee for approximately 25 years. “It projected the image to our clients and prospects that we had a robust process in investment selection. It was all about credibility.”
Ed Friedman is director, Eastern Division, Dynasty Financial Partners, a service platform for independent advisors.