Matt vs. Ken:
What makes a good investment consultant?
15 June 2017
Being investment consultants, we think we have a pretty good idea on how to answer this question. It just turns out that each of us has different views on what being an investment consultant is all about...
“I am an investment consultant, because I think it is hugely important that trustees of pension schemes get impartial trusted advice, to help them pay members’ benefits and improve the security of their schemes. I listen to my clients to understand their objectives, their issues and fears. I help them understand the risks involved in meeting their objectives – in plain talking language.
I guide my clients to a place – today, and every day – that is more likely to meet their objectives, so helping ensure members’ benefit are paid and sponsors don’t have surprises.
In short, I am a risk manager and clear communicator, and my clients value that. Am I a fortune-teller? No. Different clients have very different objectives and attitudes to risk – both actual and emotional – and so their investment strategies and outcomes over time will, and should, be different."
“I start from the other direction. I think of myself primarily as an identifier of investment opportunities. I am trying to maximise returns for clients within their limits of risk. These limits are different for each client and change over time, but if any client takes risk and achieves poor returns (over the time-frame of their objective), I would consider that a failure on my part.
But I agree that by helping my clients understand issues, make decisions, capture opportunities and not react badly to well explained risks, I help them reach their objectives and have a more comfortable time on the journey.”
"I think we end up at the same place, but it leads to different philosophy on measuring our performance."
"My approach is relatively easy: I’m just a fund manager with a 20 year timeframe. Ok, it’s going to be of no use to clients to make decisions - I’ll be nearing retirement before you know whether I’m any good at it - but you can measure it."
"I agree, yes we can do maths and calculate a performance numbers, but what about risk?"
"Your approach, Ken, is much harder to measure. It is really difficult to quantify the added-value of a risk manager. There is undoubtedly value in: “I avoided the consequences of an event that could have occurred, but didn’t”, but it’s hard to quantify it.
A simple analogy… a ship’s navigator persuaded his captain to take a longer route to avoid a storm-prone area. Other ships went the shorter route, there was no storm, and they got their goods to port faster. Did the navigator give bad advice?”
“And that’s where we do agree. If my clients understand the risks and benefits of sailing through that storm-prone area, I’ll help them take that route.
Like individual investment advice, it’s all about each client’s objectives and tolerance for risk. So measuring just the investment returns of a firm, or even an individual investment consultant, doesn’t take into account the full picture.”
In this related blog, Clay Lambiotte looks at the hurdles for any quantitative measure of “success” in investment consultancy - read it here
Read our response to the FCA’s Asset Management Market Study - click here