Investment Consultants
Investment Consultants are a very important cog in the machinery of a pensions scheme and I believe that it is absolutely vital that Trustees make every effort to ensure that they select the best available for their scheme. With the right advice from their Investment Consultants, Trustees can make a material difference to the financial health of the scheme and hence the security of the members benefits.
Trustees should understand how the assets that they are investing in pass on their returns and how they will react in various markets. They also need to be fully aware of the governance implications of instigating complex high cost structures as opposed to simple lower cost solutions maybe using index funds. Not only do these structures cost substantially more in management fees and investment costs but also in consultants fees; once all these additional costs have been totted up one has to consider he real likelihood that additional value will be added over a more simple solution.
New products (or redressed old ones) are always being launched into the market in a hope of attracting funds under management and the associated fees. Whilst trustees need to be aware of these developments they also need to ask whether there is a requirement for them in their portfolio and not be seduced purely by the marketing of “new ideas”.
It is important to not only monitor the performance of your investment managers but also monitor the service of your Investment Consultants. This requires a rigorous assessment of how their various recommendations have performed and the quality of their advice to the Trustees, including an assessment of the suitability of that advice to the schemes circumstances.
Finally, Trustees should not be afraid of talking to their investment managers. They will frequently have a different interpretation which may act as an interesting counterpoint to those of the Investment Consultant. They may also be able to offer additional Trustee Training which may be provided for free.
My View
The role of Investment consultants can broadly be split into to areas - investment strategy and manager selection. In general manager selection naturally follows on from the strategy that is set by the trustees.
With detailed analysis of recommendations and subsequent monitoring of the strategy Trustees will a better chance of being sold unnecessarily complex and expensive investment solutions.