Running an investment committee can be difficult at any time, let alone in the current climate.
While ICs are usually associated with larger advice firms, and those conducting discretionary management, the reality is the same rules and principles apply to smaller firms, especially if they are operating pre-defined investment propositions or fund panels.
Whether you have not yet considered an IC as a fit for your firm, or you have one in place and want to ensure that it is operating as well as possible, this article contains some foundation information on what an IC does, and what it should look like.
I am sure we would all agree that there has never been a more important time to ensure that you have effective control mechanisms in place that identify, and reduce, risks to clients.
Now more than ever, firms need to not only be able to show that they are proactively monitoring and managing risks, and producing suitable outcomes, but also be entirely transparent about how they are operating these processes.
As such, ICs are an important control for any firm running a centralised investment proposition to ensure the house view is clear, maintained throughout the business and promoted.
The IC can be viewed as a vital part of a firm’s compliance procedures.
The FCA’s expectations of advisers are increasing and this is demonstrated in the Senior Managers and Certification Regime which has been in operation since December 2019.
The FCA was under enormous pressure following the banking crisis of 2008 and the Libor manipulation scandal to improve standards in the financial services industry.
The intent of the FCA could not be any clearer in its statement about the new regime:
“The aim of the Senior Managers and Certification Regime (SM&CR) is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.
- The SM&CR is a catalyst for change - an opportunity to establish healthy cultures and effective governance in firms by encouraging greater individual accountability and setting a new standard of personal conduct.
As part of this, the SM&CR aims to:
- encourage a culture of staff at all levels taking personal responsibility for their actions
- make sure firms and staff clearly understand and can demonstrate where responsibility lies.”
So, you may ask where does the IC fit in with SM&CR? The answer is an effective IC is evidence of the change of culture the FCA is looking for. A properly established IC will help a firm achieve the following:
- Demonstrate the reporting lines in the firm are functioning correctly
- Demonstrate the correct decision-making processes within the firm are in place
- Demonstrate the lines of responsibility in respect of investment decisions and compliance are clearly demarcated and ownership of tasks is therefore identified
- Demonstrate the correct people in the firm are making the relevant decisions
- Demonstrate that the senior management within the firm are in control of the firms functions and have accountability for any decisions made
- Provide a regular audit of the firm’s investment and advice process in order that any issues can be identified quickly and put right
- Demonstrate that the firm’s clients at the heart of their business and accordingly reduce any potential harm to them.
With this in mind, we believe an IC meeting should take place monthly with a more in-depth IC taking place on a quarterly basis. Under no circumstances should the IC be viewed as a ‘tick box’ exercise, it is something a firm should adopt with both enthusiasm and professionalism.
There is too much at stake not to do so and it can have an important positive effect on the firm, not least of which everyone within it can become involved and own part of the decision-making processes. It is another team building exercise.
The fundamental responsibilities of an investment committee are:
- To provide a frame of reference for suitable investments and their oversight
- To set an investment policy, objectives and limits
- To review performance and compliance
- To create a clear set of key performance indicators enabling progress to be measured
- To judge progress over time
- To recommend and approve policy changes
- To cascade information to the relevant stakeholders.
When it comes to the structure of an IC, this should typically include:
Questions appear on the last page of this article.