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
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.