Meeting your financial goals, so that you and your loved ones are free to live the lives you aspire to, requires high quality, ongoing financial planning and the construction and maintenance of a robust well-diversified, long-term investment strategy. It’s our Investment Committee that is responsible for the ongoing governance of the latter.
In most walks of life, when you employ a professional or craftsman, you expect a little bit of ‘action’ for your money. Now is generally better than later, and more is generally better than less. However, this generality does not apply in some areas. Take the case of a GP, for example, where a patient comes into the surgery with a very sore throat and flu-like symptoms. Today, many GPs feel under increasing pressure from patients to provide some ‘scientific’ solution, such as the prescription of antibiotics, to their ailments. Some feel cheated when the advice they receive is simply to take a couple of paracetamol tablets and go to bed for a day or two. Do we doubt the training, experience, and wisdom of the GP because of the advice we receive? Hopefully not. After all science tells us that antibiotics don’t work on viruses, only bacteria.
These same pressures apply to planners, like us, when it comes to investing. Adopting an evidence-driven, systematic approach to investing can sometimes feel as if there is not much portfolio ‘action’. The evidence tells us not to try to time when to jump in or out of markets, pick individual stocks, or chase recent ‘hot’ funds, but to set a long-term strategy, populate it with excellent funds and rebalance it regularly. That takes much of the ‘action’ out of the portfolio. It would be wrong to think that this is the result of a set-and-forget strategy. Above the surface, it can seem that not much is going on, but that is far from reality.
Figure 1: Systematic investing – the view from a client’s perspective
The seeming lack of investment activity on a portfolio from one period to the next, belies the considerable time, effort, and discipline that goes into achieving this for our clients. Our Investment Committee sits at the heart of this effort. Meeting twice a year, the Investment Committee is attended by all of our Financial Planners, as well as our partners from Albion Strategic Consulting (Albion). Its purpose is to kick the tyres of our investment process.
One central question drives it efforts: ‘does the investment approach adopted still provide our clients with the greatest chance of a favourable investment experience, based on the latest evidence, theory and fund products available to us’. The Investment Committee is always open to challenge to the status quo. That said, the evidence in support of a systematic approach is highly compelling and any small portfolio changes that may arise are likely to be evolutionary, rather than revolutionary.
In reality, the Investment Committee is paddling away furiously to make sure that our portfolios remain robustly structured, issues and concerns are raised and resolved and that the incumbent funds used still remain best-in-class choices.
Ongoing oversight and process governance is both regular and robust. The key responsibilities of the Investment Committee are:
– Monitor and manage risks
– Challenge the process
– Review the portfolio structure
– Review the incumbent funds
– Screen for new funds
– Reaffirm or revise the process
Figure 2: Systematic investing – the view from the Investment Committee’s perspective
External, independent input
As we’ve mentioned above, we work closely with Albion, who have been engaged to provide third-party, independent input and challenge to the Investment Committee, sitting as a guest member on it. Albion provides ongoing research on investment matters including reviewing the latest evidence supporting or challenging our approach at the philosophical, asset allocation and fund levels. Its inputs are reviewed and discussed in the meetings.
Less is more when it comes to investing
It takes fortitude and discipline to stay calm at times of market crisis, to remain invested and to rebalance the portfolio, if necessary. It takes fortitude and discipline not to chase ‘hot’ parts of the markets (bitcoin, gold, tech stocks etc.) or ‘hot’ managers, or to restructure the portfolio to take advantage of perceived short-term opportunities and challenges or giving up on certain parts of the diversified portfolio that happen to be suffering at any point in time.
It also takes fortitude and discipline to keep meeting with clients and to tell them again that, despite the fees they pay, their portfolio does not need changing (remembering that our fee relates primarily to the financial planning work and advice they receive rather than the management of their portfolio). We will never change a portfolio just to look busy, but only when the change actually improves it.
The next time you check on your investments, remember that despite the lack of activity on the surface, the Investment Committee continues to paddle furiously behind the scenes to allow this to be the case.
In the immortal words of the investment legend and author Charles Ellis: ‘In investing, activity is almost always in surplus.’
Perhaps we should amend this slightly to: ‘In investing, activity is, except for within the Investment Committee, almost always in surplus.’
* Image prompt: ’a single mallard duck floating on perfectly calm water but with its feet paddling hard below the surface’, image generated by OpenAI’s GPT-4, 08/05/2024
