Tag Archives: investment committee

The Winston Capital Partners and ProCapital Guide To Forming an Investment Policy Framework – 22 May 2017

Over the past decade, numerous advisers have taken the investment management function in house, effectively setting up multi asset portfolios to better manage their clients’ wealth and better align them with their particular objectives. This trend has been well documented, and has resulted in the strong share price performance of most listed managed accounts providers, who are the key enablers that make it possible for advisers to offer their portfolios to the public, without the need for statements or records of advice.

For any adviser wishing to go down this implemented portfolio route, many issues need to be addressed, not least of which is the development of an investment policy framework that will form the basis on which their clients capital will be managed.  But an investment policy framework is more than that.  It is a document that should enunciate the competitive advantage of the adviser’s firm, whilst acting as both an internal and external communication tool.

To assist adviser’s get started on this important subject, both Winston Capital Partners and ProCapital collaborated to build a Guide that we hope will make the task a lot easier, than starting from scratch.

About the Guide

The Guide’s primary purpose is to assist advisers develop their own investment policy framework by taking examples from leading financial institutions here in Australia and overseas.  It is aimed at those advisers who are considering offering a standalone multi asset portfolio service using a unit trust or Managed Discretionary Authority (MDA) on a managed account platform but are not sure where to start.

It would not be possible to cover every section of policy framework in extensive detail.  As such, this Guide has been developed to offer examples of what should be covered in each section, recognising that consultants and research houses play a vital role in completing this important task.

To access the Guide, please click on this link.

(Please feel free to cut and paste sections of the Guide into your own documents – we want the Guide to be of practical help).

We welcome feedback

We know that there will be gaps in this document.  If you would like to contribute to future versions, please send me your suggestions to andrew@winstoncapital.com.au, and we will, to the best of our ability, incorporate them in future editions.  All work will be acknowledged.

Some easier steps along the path to in-house investment management – 8 February 2017

This article is a reprint from Professional Planner, which can be accessed by clicking on this link.

Over the last decade, numerous independent financial advisers (IFA) have taken the investment management function in-house, setting up multi-asset portfolios, supported by managed account platforms (but not exclusively so) to better manage their clients’ wealth. This trend has been well documented, and has resulted in the strong share price performance of most listed managed accounts providers, whilst advisers’ revenues have also risen, to the detriment of managed funds and traditional platforms, which are losing business to these new providers.

Four factors have converged to make the move to bring investment management in-house possible:

  1. The rise of nimble, hungry managed account providers with the technology, regulatory and administrative tools that make it possible for advisers to launch their own public offer, multi-asset portfolio services, for little capital expenditure
  2. The need for independent advisers to stay financially viable when competing with cross-subsidised institutional wealth managers, by providing a standalone, separately priced investment offer, considering Future of Financial Advice changes to conflicted remuneration
  3. The desire to lower investment costs in a competitive environment, which has led to an increased use of direct assets – including direct shares, listed investment companies, exchange-traded products, exchange-traded funds, real-estate investment trusts, bonds etc – which managed accounts typically favour over managed funds
  4. The rise of small, yet experienced consultants (as well as the traditional research houses), with experience assisting advisers with asset allocation policy settings and investment selection and monitoring.

Together, these factors have made it possible for smaller IFAs to vertically integrate, to the benefit of both their businesses and their clients’ wealth, without requiring a large capital expenditure. This trend will probably continue apace, and may even result in some large practices leaving the institutional wealth managers, as they seek to take more control over various aspects of their business.

Where do advisers learn to take this function in-house?

The transition from being an adviser using balanced or sector funds under a traditional financial planning model (e.g., issuing Statements of Advice), to one fully accountable for an implemented investment solution is not trivial. There are many decisions to be made (such as choice of managed account provider, mandate guidelines, consultants, etc.), and internal organisational changes to get right.

Most critical is the need to adopt a robust investment policy framework (IPF) that clearly enunciates the investment strategy the firm will adopt to achieve the mandate objectives. In our experience, there are few ‘off-the-shelf’ guides to walk advisers through a detailed process of setting up an IPF. Such a guide should include the adviser’s investment philosophy and beliefs, linked to a coherent set of investment policies, such as mandate objectives, allowable investments, asset allocation approach (static v dynamic) and ranges, selection and monitoring process, risk management and governance.

These factors all inform the investment committee in its decision-making, as well as serving as a valuable communication tool for clients and employees. The investment committee also needs a charter to ensure that the agreed upon parameters are followed.

To date, managed account providers have provided compliance-led policies and charters for advisers to use, as they are most at risk as the issuer of the adviser’s product disclosure statement. Many of these documents are boilerplate in their design. Furthermore, these policy documents are generally not available for public consumption, so advisers must work many of the details out for themselves, or appoint consultants or research houses to assist them in setting up the investment framework.

It’s fortunate that there is already enough publicly available information to assist advisers in starting to think holistically about the investment model they wish to adopt. See the Future Fund’s statement on its investment model as one example. Over the coming months, taking information from public sources – including industry funds, robo-advisers, sovereign wealth funds and dealer groups – Winston Capital, in conjunction with Professional Planner, will provide a guide to assist advisers in creating a robust investment framework (from compliance to competitive advantage) prior to engaging with any service providers.

In doing so, we hope to improve the management of client wealth in the retail sector in Australia, and give advisers an easy-to-use guide that takes high-quality examples of what is required to manage wealth in a complex operating environment.

Why is Asset Consulting so lowly valued by the market? 19 February 2014

Imagine a financial adviser’s investment committee that consisted of Kerr Neilson, David Hale and Warren Buffet (as an example) – the committee meets each month to discuss current market conditions, asset class valuations, future risks (regulatory, geopolitical etc) and then provides a list of suitable investments and tail risk ideas to match the prevailing market conditions in way that all of the moving parts work together.  In essence, advice that is insightful, original, powerful and actionable, and definitely different from the crowd.

What would this advice and insight be worth? A low fixed annual cost, a small basis point fee or a substantial fee?

One might assume, that if affordable, an adviser would pay a great deal for such priceless insight from such an esteemed panel – I am also sure that the end customer, knowing who was on the investment committee would be more than happy to pay a higher fee than what might be offered by the planner next door, who also had a committee, but who had driven the price of that ‘insight’ so low, that the ability to hire the best talent pool would be impossible – after all, “price is what you pay and value is what you get.”

Hopefully, we can all agree that managing money in such an interconnected and complex investment environment is very difficult, and that not everyone can read these conditions with equal skill.  In the low cost part of the consulting world, simple and scalable models help to combat the ‘you don’t need skill’ argument by offering academically verifiable models such as Strategic Asset Allocation (SAA) services using a mix of passive core holdings with alpha satellites – i.e. I get my skill at the manager level and am happy to pass up the additional value in the asset allocation piece because in the long run the future will look like the past and that ‘markets work’.

Providing five SAA models that match five risk profiles, for example, with intermittent tactical (albeit hard for to act on) advice is not that difficult.  I believe that career risk management and agency issues are at play here too… “it wasn’t me, it was the market and in the long term…” fair enough, we all have mortgages to pay.

In my view, the standardized SAA solution perfectly matches the “I can’t/don’t want to pay for insight” problem because in essence, it is an excel spreadsheet that solves the asset allocation problem in an undifferentiated way, with the manager/investment selection piece actually funded by the managers themselves – but is this really how clients want their money managed in an environment where objective based advice and multi asset/dynamic portfolio manufacturing is on the rise?  That is, insight should be at a massive premium right now but is being priced as a low priced and widely available commodity.

When we look at the consulting market, there is cut throat competition amongst the providers (maybe we have too many in Australia?), either by small individuals (desperate to survive/thrive) or from large research houses, that structurally enshrine the low cost model – it is hard to win business when you are in the ‘insight’ end of the consulting world in this environment, if the offer is 100-200% more expensive than the market average for ‘similar’ services.

So how did we get here? 

I do not think there is one simple cause but some of the underlying drivers (not in any order and not exhaustive) might be as follows: –

  1. Industry funds have effectively gotten the entire industry to drive prices down across the value chain.  Why pay a lot for asset consulting in that environment?  This explains the rise in low cost ETF portfolios that have simple SAA models to back them – is this how you want your own money managed though? It seems more like a business solution than a client solution.
  2. The research industry (in the main) is funded and paid for by fund managers.  With the revenue generated by product ratings, research houses can provide low cost IC representation services and “scale” that advice at low cost.  What would the cost of that consulting be if the managers did not indirectly fund this consulting pricing model?
  3. In addition to point 2. Researchers may sell the IC service as a loss leader, which grows their market share, which means they have greater reach over greater FUM, which means more managers want a rating from those houses who want access to that FUM…
  4. There are a number of smaller consultants who have very low overhead and can provide a decent service for some components of the investment committee role (e.g. asset allocation, manager quant, economic reports etc) – but if those consultants are sitting on numerous committees, where is the differentiation and is it really tailored for the advice process and unique needs of that practice?  As importantly, how do you bring all of the moving parts together and then implement?  This is the really hard part for advisers.
  5. Maybe consultants have been unable to demonstrably show how they have added significant wealth through their investment calls over time, which if empirically provable, could justify higher fees.  Is this an opportunity for the higher priced providers to get their voice heard more?  Prove it and I will pay!
  6. Smaller boutique advice firms who are attempting to stay independent (more please!) but do not necessarily have the revenue base to pay for the best talent, may take a compliance approach and say, “good enough will do.”
  7. The Internet has disseminated ideas with ease and maybe advisers are sourcing their ideas from the lowest cost platform of all.
  8. Advisers have been let down by poor decisions by consultants who may have vested interests (e.g. they have their own implemented models) and are now backing themselves more and using consultants as sounding boards only.


Some of these comments are simplistic of course and I am just hypothesizing, whilst considering Sir Templeton’s wise words – the vicious circle feeds on itself because how could an ‘insight’ consulting business raise capital to build a first class service if the capital funders saw the level of pricing offered in the market – no thanks!

But some observations in light of the above hypothesis: –

  1. Why are advisers prepared to pay more for basic administration (e.g. wrap fees) than insightful advice (this may not be the case on large account balances) – what is worth more to the end consumer over time?
  2. Why do consultants even play in the game for providing such low cost services?  Wouldn’t it be better to vertically integrate and create a first class investment and advice proposition that was independent and stood for something?
  3. Why do advisers think their business will be safe when groups in the UK like Nutmeg (“we can help you set up a portfolio in ten minutes” or in the US like Betterment, are providing online advice/portfolios using algorithms to solve the risk piece and then matched with low cost ETF portfolios at a low monthly fee?  Do we think Australia will just avoid this phenomenon?  I doubt it.


Of course, I do not have the answers but if I think about how I want my own money managed (a survey of one!), I am prepared to pay higher fees for insight that preserves my capital, provides a great risk/return outcome and brings me ideas that make sense that I could not get anywhere else.  If I want low cost, I can now buy it online without speaking to an adviser (and yes, this ignores the great value advisers offer outside of the investment piece – but it is that piece that funds the revenue base (largely) of the entire advice industry!

The challenge for the higher priced/premium consultants in the market is to show empirically how that insight has flowed through to consumer wealth outcomes and consistently over time, knowing that mistakes will be made from time to time, and then to explain each decision in a way that advisers and consumers can understand in their language – without this, the low cost consultants and industry funds will have won the day but maybe they will lose ultimately to the online providers leaving a gap for the premium players who choose not to compete in this space – as always, we live in interesting times!

Andrew Fairweather, Founding Partner and Managing Director, Winston Capital Partners