How to evaluate your investment consultant’s impact

This important relationship is rarely evaluated systematically, so perhaps change is overdue. Evaluation need not be overly time-consuming or complicated, but it can provide important pointers to enable trustees to maximise the benefits derived from advice and any related services they receive.

There are two main aspects to such evaluation. First, investment advice where impact can be measured in monetary terms. This can include the value added from new ideas raised with the trustees, the impact of hiring and firing managers, the effect of any market timing decisions, and achievement of the scheme’s return target within the agreed risk budget.

Of course, the adviser can only bring ideas to the table; it is the trustees who decide whether and when to implement. Such matters need to be evaluated regularly, but judgment of success must have regard to an appropriate time period depending on the nature of the advice.

A log of advice can quite easily be constructed to include the following points:

• Date advice is received;

• Issue in question and period over which it is expected to add value;

• If the trustees accepted the advice, when was it implemented?;

• Was there a delay in implementation not of the adviser’s making?;

• Approximate monetary impact of advice. This should be calculated periodically and on a cumulative basis.

The calculation can be carried out by in-house resources or by the investment consultant if necessary – though in the latter case there is clearly potential for a conflict of interest.

Certain service standards can also be measured easily if the trustees keep a log of such matters, however this is only part of the story. 

Non-core projects should be well-managed to avoid ‘fee creep’ and, if project goalposts move, cost implications need to be clearly communicated

Anne Kershaw, Muse Advisory

There are also qualitative, less measurable aspects of the relationship outlined below that can be monitored over time.

Quality of written advice and whether it is fit for purpose Lengthy reports are often largely unread and can be extremely costly; written advice should be clear and should enable trustees to take their next step. Funding and investment performance monitoring reports must be fit for purpose and regularly refreshed in terms of content to ensure they meet the trustees’ needs.

Are the advisers effective at communicating in meetings and between meetings? Do the trustees understand the advice and are they comfortable raising questions? Are advisers reasonably available for calls and responsive to emails, and do they keep key client contacts properly informed on a regular and timely basis? Advisers should also help the trustees make effective decisions in a timely fashion, and be frank with them about how they work in order to improve the effectiveness of the relationship and the way decisions are made.

Do the trustees feel the adviser offers value for money relative to the value added? Is there a good fee structure in place with all regular matters (with widely drawn coverage) covered in a clear core fee structure? Non-core projects should be well-managed to avoid ‘fee creep’ and, if project goalposts move, cost implications need to be clearly communicated.

Effective advisory relationships are key to trustee boards operating confidently and effectively. If these points are brought together to inform a regular dialogue with advisers then the outcome can only be positive for all stakeholders.

Anne Kershaw is an associate director at consultancy Muse Advisory