Advisers should prioritise governance conversations when it comes to understanding their investment partner’s ability to generate both good investment outcomes and value for money, says Hymans Robertson Investment Services.
This is particularly important at times of heightened uncertainty over future market direction, the firm said.
It suggests that firms use five key questions to understand their partner’s governance structures and ability to deliver future benefits for clients.
These include: What is the depth and experience of the team supporting my portfolios and do you have a researched evidence-based playbook to implement in times of crisis or volatility; how do you make asset allocation decisions and do you test your portfolios against different market scenarios; how do you use active, passive and multi-factor investing; what oversight and challenge processes are in place to ensure portfolios remain aligned with risk targets and regulatory requirements; and how do your investment and reporting processes support advisers.
Hymans Robertson Investment Services said the questions will help advisers gain insights about their investment provider’s people, strategy, processes, experience and investment manager choices.
Key areas advisers must explore with their model portfolio providers include their providers’ team. According to the firm, investment decisions should be made by high quality and experienced teams and clear decision-making structures should be in place to deliver resilience and continuity.
It said providers should also be able to show that a fit-for-purpose investment manager line up is in place, as this supports diversification and cost efficiency.
William Marshall, CIO at Hymans Robertson Investment Services, said: “With institutional funds it is well known that there is a governance dividend. As with many lessons learned in the institutional investment world, the principles of investment governance are increasingly important to retail advisers, especially in the context of model portfolio services.
“By adopting a strong approach to governance standards, advisers can have confidence that their investment portfolios remain relevant and compliant. They may even benefit from the governance dividend too.
“Without understanding the impact that their partner’s governance has on their client’s outcomes many advisers could be forgiven for treating it as a tick-box exercise. But, if approached critically, advisers can achieve tangible gains for their clients with little additional effort.”
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