What trustees should demand of their consultants:
Trustees often forget that they hire the consultant. Trustees appear to be able to fire fund managers with far too much ease and far too little thought. But if the fund isn’t getting things right, then maybe what trustees should really be thinking about first and foremost is the quality of consulting they are obtaining from the consultant. Remember, as trustees, even if your consultant gives you poor or inadequate advice, you are still the fiduciary – you are still responsible.
Here is a list of expectations that you should have of your consultant:
- Help you establish a process and decision-making mechanism that keeps trustees focused on the decisions they need to pay attention to – and makes sure they don’t waste time on decisions that are irrelevant to the long term health of the fund. Should help ensure that conflicts on the board do not paralyse the necessary decision-making mechanisms.
- Assist you in composing an effective investment policy and mission statement. (Ask for examples of previous work.)
- Provide (or source) the necessary asset/liability modelling and risk assessment capabilities that help trustees of both defined benefit and defined contribution funds establish appropriate long term benchmarks and risk parameters. – And offer advice as to when the policy may need to be revisited.
- Provide comprehensive performance attribution analysis that allows the trustees to assess the success of the strategy both at the aggregate fund level and at the individual manager level.
- Operate with complete independence from any entity related to servicing the Fund and provide complete transparency on any fees they earn from the parties or services they recommend the Fund use.
And most important: help you understand the impact of your investment choices on ensuring that your members are able to retire into a world that can provide them with a minimum viable life. That means there needs to be a persistent focus on both ESG and impact measurement. It’s not enough to just tick a box: reporting on impact outcomes will be as important to members as rereporting on financial outcomes.
Setting the Investment Policy
What Revised Regulation 28 intended on saying about the task1:
“…a process must be adopted which will give rise to an investment strategy specific to the fund in question.”
- Investment strategy must take account of:
- objectives of stakeholders
- nature and term of fund specific liabilities: both financial and the quality of the world they will retire into
- funding methods
- risks to which assets will be exposed
- Set out percentages in permissible assets and divergence criteria
- Establish criteria for strategy and manager selection
- Actuary must confirm appropriateness of objectives
