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10 Keys to Successful Investment Committee Dynamics

April 3, 2013
by Jack Reynolds

I was recently approached by two separate families about how to manage their investment committees. Both families have significant resources and are striving to get the most value from their investment committee members. In my 2012 Investment Assessment Survey, the majority of respondents said they wanted to receive more decision-making support from their investment committee and improve coordination and communication among their advisers. This reinforces the point that investment committee dynamics are vitally important and deserve more attention than one might think.

The purpose of an investment committee is to oversee your portfolio and to help you achieve your long-term financial and investment goals. An investment committee with high functioning dynamics is much more likely to deliver superior investment outcomes than a dysfunctional one. However, an investment committee can unwittingly become dysfunctional when adviser recommendations conflict, personal biases interfere with rational decision-making and advisers do not share the same understanding of your goals.

Improving the performance of your investment committee involves several dynamics including: having the right number and types of members, determining voting privileges, deciding how much involvement the family should have, etc. Below I advise you how to enhance your investment committee dynamics and I offer practical recommendations for improvement. You may want to peruse some of my other articles related to investment committees as well:

Ten Keys to Successful Investment Committee Dynamics

  1. Committee Composition
    • Total number of members: the correct number of committee members is idiosyncratic to your family or institution. However, an investment committee with four to seven voting members is generally workable, efficient and effective. Any more can be unwieldy and fewer may not offer enough diversity of perspectives.
    • Representation of principals: having a mix of both voting and non-voting principals can enhance your breadth of vision and expertise. This is especially so if some principals are genuinely not interested or engaged in the topic at hand.
    • Contrary to what one might think, voting members should not be investment-related vendors (e.g., strategy consultants, bankers, asset managers, etc.). The role of these presenters is to make recommendations to the investment committee, not to vote on their own recommendations. This approach will also help to reduce potential conflicts of interest.
    • There is a growing trend to include a compensated committee member who is not a vendor or member of the family/institution, with years of direct professional investment experience. This is exactly what I do as a Private Investment Counselor (learn more by clicking here to see Investment Committee Services on my website).
  2. Committee Attendance:
    • Vendors should not think that they own a seat at the table for every meeting. While your trustee and strategy consultant might need to attend every meeting, this is not necessarily true of all vendors. For example, it is unlikely that your attorney, CPA, life insurance or property & casualty insurance professionals need to attend every meeting. However, they might be invited to present periodically. Proactively managing the composition of meeting attendees allows you to add fresh views.
  3. Asset Manager Presentations:
    • This can be a tough one, as some committees won’t hire a manager unless the portfolio manager presents to the committee at their customary location. However, some of the most desirable managers would not consider deploying their portfolio manager’s precious time in such a wanton manner. (This is especially true of exciting hedge funds, successful venture capital funds and alike.) Would it be okay for a subcommittee to meet with those managers at the managers’ offices? Think about it.
    • Some committees consider it necessary and prudent to meet with every manager on their roster every year. Review your calendars, frequency and length of meetings and consider whether this is credible and productive.
  4. Meeting Frequency:
    • Successful committees typically schedule their meetings far enough in advance so their members can make every meeting. This is the most effective way to build continuity and a shared vision. Committee members who fail to attend every meeting can significantly degrade committee dynamics.
    • Holding quarterly in-person meetings is generally suitable. Skype, GoToMeeting, and professional video conferencing are also wonderful technologies that can be highly effective for some meetings. However, they do not replace a small group of persons meeting in person several times a year.
    • What time of day should you hold your meetings? If you want to engage your next generation (a.k.a. NexGen), then you may want to consider holding some meetings at non-traditional times, such as weekends and evenings. (Please click here to see “Three Key Elements for Engaging Your Next Generation in Legacy Planning”)
  5. Mixing Business with Pleasure:
    • Committee members need to know each other as individuals, and to build personal communication, rapport and understanding. I recommend holding at least two dinners each year on the evenings prior to meetings. Does this interfere with your personal and family time? You bet it does. The payoff is neither obvious nor immediate, but it will maximize your team’s dynamics and effectiveness over the long-term. This is especially so when your committee has to deal with the inevitable stress in the investment markets or during periods of family/institutional stress.
  6. Meeting Preparation Matters:
    • Preparing for meetings in the taxi on the way to the meeting is not okay.
    • Be sure to get meeting materials in everyone’s hands at least a week prior to the meeting.
    • Ask committee members to email presenters (e.g., investment strategy consultants, private bankers, etc.) significant questions at least 2 business days prior to meeting. This should give your presenters sufficient time to prepare thoughtful, timely responses.
  7. Meeting Length:
    • Know your committee. Some committees can meet for a day and half, or even two days in a row. Others find that 4 hours is their limit.
    • Do not try to “put three pounds of nails in a two pound bag.” Design agendas that respect your committee’s attention span.
    • Subcommittee meetings can supplement shorter full-committee meetings. This is a tool worth considering, particularly for specialized investment assets.
  8. Meeting Location:
    • Think actively about what location is most stimulating and engaging for your committee. Some committees always meet at the same place, while others meet at different locations based on the convenience of various committee members.
    • Some committees also move their location in an effort to see more of their asset managers and prospective managers. Others may meet in different global capitals to increase their global perspectives.
    • Oftentimes, families are more comfortable meeting at a vacation home in casual attire instead of a formal office or conference room (remember to mix business with pleasure).
  9. Review Your Vendors:
    • Strong committee dynamics can be fostered by lengthy tenure. However, some turnover can introduce new blood and perspectives. There is a balance that should be managed thoughtfully.
    • Develop a schedule by which one vendor is reviewed each year and each vendor is reviewed every four to six years. You may want to engage a facilitator to interview the committee members as well as principals and non-voting committee attendees.
    • During this process, an opportunity to adjust the composition of your committee might come to light. Even when vendors are retained, periodically shining a bright light on your relationships can improve service levels.
  10. Self-reviews:
    • While you are at it, do a self-review every four to six years. You may want to have a retreat to find ways to enhance your effectiveness using a facilitator.

If you approve, disapprove or would like to share your thoughts on this article, I encourage you to leave a comment below. Engaging a dialogue can be valuable to all of my readers, and your thoughtful comments are welcomed. Naturally, I will be delighted if you ring me (617.921.7440) or shoot me an email with your thoughts, comments and suggestions.