Hopefully the title hasn’t discouraged any of you – I’m aware the concept of an additional committee may not be the most appealing thing to readers! It goes without saying that our industry continues to evolve, have more education requirements, become more sophisticated, and adhere to a more holistic financial planning approach. The industry is growing with more and more Irish people choosing to conduct business through a Financial Advisor. Simultaneously, regulatory and compliance pressures are clearly evident as the framework governing the industry becomes more streamlined and robust.
Most of this is positive for Financial Advisors, but it does come with added pressures as time and resource constraints continue to be felt. One area in particular where Advisors can steal a march on competitors whilst also freeing up more time to spend with their clients is establishing an investment committee. Whilst this is applicable to all Financial Advisors there are a number of scenarios where we see this work well:
- Multi-advisor offices, or multi-office firms who have a number of advisors operating under the one brand.
- Advisors who have recently bought a book of business and may not be as familiar with the new book of clients.
- Smaller advisor offices with a strong personal brand but without the administrative back up.
The idea here is not to make an industry out of this – this all shouldn’t become too cumbersome or time consuming to put in place. It should be manageable enough to make it worthwhile and useful, with the idea being to free up time elsewhere. The committee is not there to make asset allocation decisions, but to provide the framework for the selection and ongoing monitoring of product providers and fund managers to ensure best outcomes for your clients. There are a number of strategic structures you could put in place relatively easy:
- Permitted investment types
- Investment principles
- Frequency and composition of client reviews
- Determine your key metrics for appraising and ranking providers
- Determine how often you will review the providers
- Create standardised investment options for certain client segments and profiles.
There is a commercial aspect to this also. Financial Advisors would no longer be starting with a blank page when formulating a plan for a client, but have a foundation philosophy which they can apply. Ultimately, this leads to less time spent pulling together an investment proposition and more time with clients and prospective clients. This streamlines investment recommendations for multi-adviser offices, or for offices which have recently completed a merger or acquired a back book of business. Studies also consistently show that advisors who have more time to focus on meeting clients and prospective clients rather than spending time on fund recommendations and research have more successful practices.
An investment committee could assist in helping to implement specific policies for distinct market events and this is certainly no less applicable from where we stand today. I don’t think anyone can argue that it has never been more imperative time for Financial Advisors to not only help mitigate risks for clients, but also to be able to portray this. For example, you could include in your client recommendation what your response would be to a moratorium on property funds, or a double digit fall in equities due to a ‘black swan’ event. This also helps bring the client along the journey with you and instil discipline across your own financial advisory practice. Ultimately, the aim to help save time and streamline your offering. The key benefits would include:
- Helping to ensure that client investment outcomes can be met.
- Implementing a framework that helps record the processes that went into making recommendations and maintaining the suitability of those recommendations.
- Providing improved governance and oversight.
- Ensuring all relevant regulatory and legislative requirements are adhered to.
- Creating a paper trail for compliance and audit purposes.
In conclusion, there are some very tangible advantages of establishing an investment committee, and associated policies, for your firm. There are a variety of opinions on then best way to do this, and each company should tailor their approach individually to their needs. However, the advantages of doing so from a compliance and regulatory perspective and the potential commercial benefits are clear. As the industry continues to evolve it is important to be able to keep pace. The above concept is one way where you can operate more efficiently, and ultimately continue to differentiate your service.
Author: Ian Slattery is an Investment Consultant with Zurich Life. Information about investing with Zurich can be found at https://www.zurich.ie/savings-and-investments/
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