The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager

Transcription

1 The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager HighView: Canada s Outsourced CIO We Are Independent Stewards Of Wealth For Affluent Canadian Families And The Foundations They Support.

2 Canada s Outsourced Chief Investment Officer The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager By Mark Barnicutt MBA,CFA, President & CEO HighView Financial Group At HighView Financial Group, we recognize that there are many organizations that have a fiduciary obligation for the oversight of large pools of capital entrusted to them for the benefit of others advisory firms, family offices, foundations, endowments, private pension plans and asset managers to name but a few. We refer to the individuals who are responsible for the fiduciary oversight of such wealth as Stewards. With the globalization of capital markets over the last few decades, there has been a marked increase in the range and complexity of investment opportunities available to investors. In fact, the array of investment options available today is virtually limitless: stocks, bonds, mutual funds, pool funds, hedge products, structured products, private equity, income trusts and commodities. To simplify the delivery of this vast array of investment solutions to investors, many Stewards have increasingly shifted their clients portfolios towards multiple investment manager programs that contain a prudently structured set of discretionarily managed investments. The result of this trend has been an increase in the number of investment related participants investment managers, investment consultants, custodians, etc. which has ironically lead to increased levels of complexity for Stewards. For this reason, Stewards are increasingly searching for professional support in the management and oversight of the wealth entrusted to them. In Europe, especially the Netherlands, the use of Outsourced Chief Investment Officers (CIOs), also known as Fiduciary Managers, is a rapidly growing business. McKinsey & Company indicates that in the Netherlands, the market for Fiduciary Management was 50 Billion Euros as of the end of August As outlined in his book, Fiduciary Management: Blueprint For Pension Fund Excellence, Anton van Nunen describes how the prevailing investment management structures for pension funds were established such that too many people had a role while no one had overall responsibility. The Fiduciary Manager, like the professional management of a corporation, is responsible for the day-to-day management of the wealth according to six areas: 1. Asset-Liability Matching 2. Risk & Return Analysis (ie: Risk Budgeting) 3. Portfolio Construction (ie: Asset Classes, 2 HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager

3 Geographies, Investment Mandates) 4. Selecting & Overseeing Investment Managers 5. Measuring, Benchmarking & Reporting Portfolio Results To Sponsor 6. Education of Plan Sponsors As can be seen from the above listing of roles, the true Fiduciary Manager has a much broader and deeper role than the traditional Investment Manager Search & Due Diligence professionals. this is simply one part of the overall Fiduciary process. As a result, the Fiduciary Manager seeks to reunite expertise and responsibility, with the Stewards of the Sponsor organizations being ultimately accountable. According to van Nunen, Fiduciary Management is nothing more, or less, than the optimal execution of the strategic and tactical investment policies that are the direct consequences of the strategic decisions taken by a fund. Although van Nunen s book is focused on Pension Funds, HighView Financial Group believes that the principles of Fiduciary Management, are applicable across all facets of wealth management: Advisory Firms, Families & Institutions. It is this reason that HighView has organized our Outsourced CIO Services which are based upon the Fiduciary Manager structure & principles as below: HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager 3

4 Canada s Outsourced Chief Investment Officer The CIO Role The accumulation of wealth requires patience, perseverance and hard work. Investors don t want to create their wealth twice! We believe that investors, primarily for longevity reasons, are seeking to make their wealth sustainable. For these reasons, at HighView Financial Group, it is our belief that the primary objective of a CIO, or Fiduciary Manager, is: As a result, at HighView Financial Group, we believe that the CIO, as the leader of the investment function within wealth management organizations, should be responsible for the following three functions: the diligent pursuit of sustainable wealth. Unfortunately, the global wealth management industry has a natural tendency to become excessively focused on the security selection and investment manager selection functions of our business and, as a result, often loses sight of the real purpose of their role which we believe to be: The deployment of comprehensive & objective asset management practices, integrated with goalsbased investor profiling and stewarded with a fiduciary mindset 4 HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager

5 Stewardship Investor Profiling Asset Management Thinking & acting like a fiduciary Identifying the purpose of the money against discrete time horizons Constructing portfolios that meet client needs, investment objectives & risk tolerances We believe that the integration these three functions leads to the creation of sustainable wealth, as illustrated in the image below: The CIO Role Stewardship Investor Profiling Sustainability Asset Management HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager 5

6 Canada s Outsourced Chief Investment Officer Benefits Of An Outsourced CIO We believe that the above processes associated with the CIO Role is an extensive approach, but when combined with pro-active client communication, in our experience, it focuses on all of the key factors that will drive investment success over time. In our view, this is significantly different than traditional asset consultants who typically focus primarily on the manager search and due diligence function, which as illustrated below, is only one part of the overall role of the integrated asset management role. CIO vs Manager Search Roles Stewardship Mandate Structure Participation Standards Purpose Organizational Roles Fiduciary Scope Legal Requirements Financial Responsibilities Regulatory Term Administrative Accountabilities Compensation Educational Discovery Journey Professional Advisors Purpose of Money Composition Investor Profiling Attitudinal Risk Assestment Capacity Knowledge Experience Willingness Goal-Based Planning Goals Quantums Timelines Required Returns Sustainability Portfolio Implementation* Manager Search Asset Management Manager Due Diligence Manager Selection Manager Contracting Manager Implementation Portfolio Transitioning Policy Portfolio Construction Policy Formulation Management Portfolio Implementation* Portfolio Monitoring Review Goals Review Portfolio Review Policy Review 6 HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager

7 As a result, a CIO provides clients with the following benefits: Comprehensive & Integrated Advice The advice provided by a CIO spans the full spectrum of the asset management function policy, management & review but is accomplished within an integrated approach to goalsbased portfolio construction, while stewarded with a fiduciary mindset Ongoing Relationship CIOs, whether on a fully dedicated or outsourced basis, typically have an ongoing professional relationship with their Steward clients. As a result, CIOs are available for ongoing dialogue with their clients and not only when investment manager changes are required. Such a relationship leads to increased continuity in the overall asset management function, which ultimately benefits Stewards and their investors. Unwavering Objectivity Most CIOs do not have their own proprietary investment products that they provide to clients. As a result, the investment solutions and services that they provide to their clients are fully objective and delivered with the clients best interest in mind at all times. Shared Responsibility We believe that Stewards do not want to bear the burden of full responsibility for every investment solution implemented although they are clearly accountable. Instead, we believe that Stewards expect their professional advisors to share that responsibility. A CIO provides clear advocacy of all proposed solutions. Value Given the ongoing nature of the CIO relationship, Stewards and their investors are typically provided with solid value as the costs of CIO service are normally amortized over the full term of a multi-year professional services agreement instead of being compacted into a series of one-off consulting engagements for manager search & due diligence assignments. By adopting a broader definition to the CIO role than merely investment manager search & due diligence, but instead a true Fiduciary Manager, we believe that the investor client will be better served, and that in a world in which global investment opportunities simultaneously exist with a new set of risks, Stewards of wealth will be far more successful in fulfilling their fiduciary obligations of the diligent pursuit of the investor client s investment objectives. HighView Financial Group: The Outsourced Chief Investment Officer (CIO) As Fiduciary Manager 7

8 Contact Us Corporate Office Tel: (905) Toll Free: (888) Fax: (866) Bronte Road, Suite 201 Oakville, Ontario L6L 3B7 Toronto Tel: (416) /0103 Toll Free: (888) Yonge St., Suite 307 Toronto, Ontario M2P 2A8 Windsor Tel: (905) Toll Free: (888) Howard Ave., Suite 541 Windsor, ON N8X 3X2 Canada s Outsourced Chief Investment Officer HighView Financial Group is comprised of the following legal entities: HighView Asset Management Ltd. HighView Wealth Practices Inc.