Financial services consultant TOM BABIC recently spent four months conducting the first-ever asset consulting review for Telstra Super. The review ended Russell Investments’ 15-year consulting relationship with the fund (it remains actuary) and continued JANA Investment Advisers’ winning run.
Here, Babic outlines the process that trustees should ideally go through in considering their fund’s asset consulting arrangements.
Asset Consultants. Why do we need one? How do we choose? Aren’t they all the same? These comments have been echoed by numerous superannuation funds over the years. One of the primary responsibilities of superannuation fund trustees is to allocate and invest monies on behalf of fund members.
In most instances, trustees seek advice from asset consultants to assist in discharging these responsibilities. Therefore, selecting an asset consultant is of paramount importance in contributing to the success of any superannuation fund.
The specific role of the asset consultant is dependant on the nature and extent of its relationship with each client. Although each relationship is different, in essence, an asset consultant’s role is to assist superannuation fund trustees to do the following:
- Assist in the formulation and articulation of an investment philosophy; • Formulate and design member investment options; • Define investment objectives;
- Establish strategic asset allocation to meet the performance objectives of each investment option;
- Recommend underlying strategies and investment managers with expertise and experience in each asset class;
- Monitor the performance of the underlying investment managers;
- Monitor the performance of each investment option; and
- Recommend changes to the investment mix or investment managers.
In choosing an asset consultant it is important that trustees adopt a transparent and rigorous approach as this ensures that the superannuation fund partners with the asset consulting organisation that best fulfils its requirements. Adopting this approach will demonstrate how important the relationship with the asset consultant is to the trustees and ensures a mutually rewarding business partnership for both parties. The key elements of the process to select an asset consultant are:
- Choose an independent adviser to manage the selection process. This will ensure that the process is objective and thorough.
- Define fund requirements, term of appointment and types of services required. In this way all parties will stay focused on the task at hand and not be distracted by other products or services that may be available in the market place. It will also form the basis from which the asset consultant will price their service.
- Avoid beauty parades. Instead adopt a methodology that incorporates both qualitative and quantitative assessment criteria. This ensures that a balanced view is obtained on the asset consultant’s capabilities.
- Conduct a site visit to the asset consultant’s office. The purpose of this meeting is to engage with other people that will inevitably play an important role in servicing your account. Additionally, this meeting is designed to enable the client to ask questions arising from the business proposal.