chalk talk | PLANADVISER October/November 2013

Hands-on Oversight

More proactive investment management

By Steff C. Chalk | October/November 2013
Page 1 of 2
Dadu Shin

How well do you run your business? Are you in charge, or does someone else oversee your firm’s day-to-day operations? More importantly, do you oversee and proactively take responsibility for the investment process? If you responded affirmatively, great. That is where you need to focus to serve your clients effectively.

Consider your practice three or five years hence. Would you be willing to transfer the responsibility for oversight of your investment process to another? Perhaps not.

Do you oversee your investment process methodically and consistently for each plan sponsor client? Perhaps not.

Would you be willing to instill a more rigorous investment process?

As retirement plan advisers, you continually make investment-related decisions and, for many clients, investment recommendations. How successful are you at guiding their assets? 

If you and the effectiveness of your investment management expertise were to be measured, how would you and your clients measure up?

Setting Biases Aside

Every adviser, as well as every individual, approaches decisions with a certain amount of bias. Advisers bring these biases—be they behavioral, social, economic or cognitive—to the investment management function of their relationships. If you disagree, that’s bias at work!

If you accept the premise that all retirement plan advisers are biased, then I ask you: What is your bias?

Are you aware of your own preconceived notions, personal beliefs and heuristics, which likely have become part of your own “bias creep” when making investment management decisions? Many advisers will lament that they have either acted too swiftly when pulling the trigger to replace an investment manager, or they have dragged their feet too long when replacing an asset class within a portfolio.

If an adviser feels he had nothing to do with the timing or informally decides that it was just the right time to make the change, then perhaps he should become a bit more engaged in his own decision process. There is much to be learned by analyzing and looking back at how and when strategic portfolio decisions were undertaken.

Many retirement plan advisers lead a comfortable existence, content to live in the moment—and fail to conduct any type of true assessment of their own style, beliefs and decision process.

How many advisers can accurately articulate their own opportunities for improvement, in the parlance of improved performance, by waiting longer to swap a manager in a particular asset class? Many advisers accept the bias of one-year performance and permit it to outweigh three- and five-year performance by not waiting until these demarcations before putting a fund on a watch list and making a change. Do you?

Most retirement plan advisers are recklessly comfortable with the mentality of “as long as I have a documented process for how I make an investment decision, then performance can be defended in a courtroom setting.”

That may be true, but the forward-looking adviser does not accept such pabulum.