Are you an informed investor?

When surrounded by experts who better to tap for market insight or investment pointers?

But beyond ice-breaking quips about hot stock tips for the benefit of their personal portfolios, trustees listening in to their investment manager during board meetings have the opportunity to build an in-depth understanding of asset classes and products across the market.

By homing in on a few fundamental principles trustees can become informed investors, equipped with the knowledge to appraise a range of views when making decisions.  

Steve Delo, chief executive of professional trustee company Pan Governance, said: “When people start to understand what equity and bond markets do and the advantages of diversification, these are the principles that they can put in place in their everyday lives.”

Delo added that a more in-depth understanding may result in trustees becoming more conservative investors.

An efficient, well-trained trustee will not be seduced by past performance, will understand the sensitivities of asset classes, of diversification

Steve Delo, Pan Governance

“An efficient, well-trained trustee will not be seduced by past performance, will understand the sensitivities of asset classes, understand the benefits of diversification and spreading risks, and the implications of interest rate moves,” said Delo.

He said trustees should be wary of becoming overly focused on micro-decisions, something he saw as a drain on governance time.

“I spend a lot of time trying to get trustee boards away from sitting listening to investment managers forensically dissecting their portfolio and move more towards asset strategy at the top level with the investment consultant,” he said.  

Responding to complexity

Trustees have been challenged to evolve and adapt in response to the increasing prevalence of more complex investment vehicles and products across smaller and medium-sized schemes.

Alan Collins, head of trustee advisory services at Spence & Partners, said trustees should be actively seeking to enhance their investment knowledge and understanding in order for trustee boards to arrive at informed decisions.

"Trustees need to feel properly engaged. There is no such thing as a daft question. It might stimulate a debate between your fellow trustees and challenge the rationale of the course of action being suggested,” he said.

Ian McQuade, client director at governance consultancy Muse Advisory, said newly elected trustees need to commit time and effort to attending courses and reading around the subject beyond quarterly board meetings. 

“If you never have any training but just come on a quarterly basis to listen to what your managers are saying, then you will get one view of the market,” said McQuade.  

He urged trustees to assess all available options and market views, and to avoid becoming overly reliant on individual conviction.

“Sometimes you need to have that challenge in the room. That broader understanding opens your eyes to the fact that just because your manager is telling you [one thing] it doesn't mean to say that’s the only view in the world,” he said.

He added: “There are different people with different views. The wider view you have the better you are going to be able to fulfill your duties as a trustee.”