A Guide to Investment Committees #2 – Transcript

Brendon Vade
Hello and welcome to this episode of the Ensombl podcast talking about investment committees. And here with me this morning we have Alex Hont, partner at Moran partners financial planning. Welcome, Alex. How are you?

Alex Hont
I’m very well. Thanks, Brendan, thank you very much for having me on. Looking forward to it.

Brendon Vade
To me to Alex, if he could, could you give us a quick little background on yourself and your practice?

Alex Hont
Yeah, sure. So I guess I’ve, it seems like it’s come up pretty quickly. But it’s now that 15 years I’ve been in financial services started when I was still at uni, I was a late person getting into uni. And when I first came for the interview here, I borrowed a shirt from my dad and started working one day a week. While I was still finishing undergrad, and as I guess over the years, you know, I haven’t loved it. These are the only financial services players I’ve ever worked. So I started here, and I haven’t left, I’ve sort of made my way up through the ranks, became an advisor, I think it must have been 2011, something like that. It after a couple of years power planning, and yeah, have been here ever since through a few different iterations of the business over the journey. We became self license in 2013, when we merged with another practice who was around the corner and, and that was one of the I think, the best moves we ever made. It gave us a fair bit more, I guess, autonomy around what we were doing. And actually, from a cost point of view. At the time, I think we were more or less saving money compared to how some of the money was going out the door for the licensees at the time. I think since that time, we’ve probably ramped up their spending on other bits and pieces to go along with just the bare bones minimum. But yeah, we’re predominantly a practice that’s it’s got a retiree client base. And that’s sort of a legacy of the business been running for probably 25 years. In total. The older advisor was my my seat, my other partner here in the business. Now it has been running for about 25 years. And so there’s a lot of clients that have been with him for a very long time, I’ve moved past that sort of transition phase, well into the retirement phase, we actually have two other or three other advisors other than myself, and and we’ve sort of been gradually shifting younger, as each advisor comes on. But that’s that’s sort of the natural progression. So I’d say maybe reflecting the

Brendon Vade
advisor, is that is that the case of the by those younger as well. And yeah, attracting younger clients.

Alex Hont
Yeah, that’s right. So I think also, former and the other partner in the business, he’s kind of getting close to maxed out in terms of clients, been seeing him for a long time, still get a lot of referrals from existing clients, but he’s sort of pretty much getting into capacity. So there’s more room for for the rest of us to take on those clients as well. But yes, as you as you say, you know, the rest, the other advisors are all a little bit younger, and therefore tend to attract some of the younger clients. So we do have a bit of a mix, there’s a big focus on the retiree clients, which sort of come back to it, which feeds into the investment philosophy and the Investment Committee stuff later on. But that’s not the only thing we do. We also have some of those sort of, I guess we typically call them accumulators. But you know, those, those 35 to 55 year olds in that sort of phase as well. No.

Brendon Vade
Excellent. So Alex, tell me about your sort of journey into investment committees. So this is a podcast focusing on the whole topic of how to put together and how to run investment committees where we’re at episode two, most of our listeners, we imagine other firms who have maybe started down this path or thinking about going down this path, and trying to get a bit more color around how to how to make this work really well in their business. Could you maybe take me to the start of where the Investment Committee journey began? For you guys? Perhaps it was I don’t know, it was a when you when you started and merged with that sublicense firm. How did this all come about for you?

Alex Hont
Yeah, sure. So it’s a interesting way we got to the Investment Committee. And actually, it all starts with really the investment philosophy. And I’m sure you’ve probably covered that. I know, that’s been covered really well inside the ensemble platform. And I think you contributed to one of the articles the white paper around building an investment philosophy. And so coming back to practically how that worked for us is we were looking at some research out of the US around managing downside equity risk in portfolios, given that we had quite a large retiree client base, managing downside risk was as a priority along with, you know, maximizing return. But for a lot of retirees, a lot of those clients that had been through the the, I guess, the what we call the GFC. But the financial crisis in 2007 2008. When traditional portfolio wisdom said, you know, just sit and hold and don’t do anything, don’t make any rash decisions, and then a lot of people tended to capitulate towards that wasn’t marketed as an ape. And so we had a look at this and we were the same and all of our clients that held firm have recovered and did quite well and anyone that sold out was you know, kicking them So for a while, but we were looking at the research around managing that equity, downside risk, so that we could actually have something up our sleeve to be able to behaviorally reassure clients that we were taking some action, even if it wasn’t necessarily to sell everything and go to cash. Yeah, right. And so behaviorally, they really liked this idea that there was a mechanism that would help at least reduce the the impact of these sorts of market shifts. So we were looking at dynamic asset allocation. And then actually, the paper we were looking at did say, so all of your equity allocation and go to cash or and go in and out based on some triggers, we adapted that and looked at a dynamic asset allocation strategy, where we would adjust the equity allocation in a couple of different tranches. So when we hit one, one technical trigger, we would move some of the equity allocation, we either go We either go in or out. And we also had some other rules in there that if we saw a 50% equity gain in equities, in one year, we’d then take a conservative approach to take some profits that was sort of beside and build some rules around that, that how we manage that portfolio. So that’s what I mean, when I talk about a vessel philosophy, we started to build this dynamic asset allocation investment philosophy, overlaid with a bit of a bias towards income, try to run that dynamic asset allocation in the practice with ROA is was an absolute nightmare. Yeah, you know, we I don’t know how many clients we had, but you know, was probably a couple of 100, across the practice that we were trying to implement this for. And so we had operationally we had to make a decision that we would put aside a Dave day at the end of the month, where we review the decision, the triggers at a particular day in the month, then we’d have to write the airways, then we’d have, you know, wait for them to come back. And then actually, actually them on an individual account basis back, this is back in 2013 2014. So a lot of the model portfolio functionality wasn’t around back then. So this led us to look at what are the solutions we can look at here. And so managed discretionary accounts solution was the was the one that made the most sense, we could do all the trades in one go. We didn’t need it right ROA is it solved a lot of our problems. Now, when we went down the path of looking at how we’re going to implement this, we didn’t have a managed discretionary account license as part of our license. So we partner with someone else who did. And they basically appointed us as the investment manager. But part of the requirements to be the investment manager on the MBA was to have an investment committee that met at least quarterly with an independent chair, to review and, and make sure that we were running these in accordance with the charter that we’ve also created as part of that process. Right. So that that’s really where it started. That’s how we got to the Investment Committee being implemented. And it was really in partnership, it was really because we wanted to run this, these NDA portfolios, which has been a massive productivity improvement from a practice point of view,

Brendon Vade
your I guess this is sort of a it kind of came out organically for you, for you guys, you had an investment idea that sort of came to the forefront. You wanted to make sure it was implemented as best as possible. And an investment committee was kind of a necessary structure or necessary overlay to make that idea work for for your advisors and for your clients ultimately, as well.

Alex Hont
Yeah, so I think we sort of didn’t have the investment philosophy formalized and not not formalized, but we hadn’t, we’d spoken about it a lot. We tested it, we got spreadsheets of back testing, you know, so we had the ideas really in our head, but we didn’t have had really written down or formalized anywhere. And so one of the great things about the bat that that started in the Investment Committee was it forced us to formalize it a little bit more and actually adhere and actually have it have a bit more intentionality about creating it and then managing the portfolios rather than the, I reckon we should do this this month. Not that there was that but you know, we will try to make a rules based approach, but also bit aligned with our kind of portfolio objectives and the values on there. Yeah.

Brendon Vade
And I imagine, without putting words in your mouth that, you know, not everybody agrees with this from time to time, they might have a different perspective. And we need a way of coming to a decision perhaps.

Alex Hont
Yeah, exactly. I mean, that’s part of the reason we have an independent chair, and we like to have an odd number of members is so that somebody has the tiebreaker vote?

Brendon Vade
You’re gonna have to come with a decision somewhere, and hopefully, that person doesn’t feel like they’re to blame if it doesn’t go, right.

Alex Hont
That’s right. But I think also, you know, when you think about putting together in an investment committee and thinking about who might be on there, you got to be a little bit careful about egos and whether or not people’s egos are gonna get bruised, if they’re outvoted. We haven’t really had that too often. But you know, there’s been times when there’s been when when that that not everyone’s views have aligned perfectly, let’s say,

Brendon Vade
so, well, look, let’s let’s go there, because I’d be keen to, to hear a little bit more about how that worked for you guys. Because, I mean, ultimately, who sits on this MIDI is a really fundamental part of that success, right. And there’s a range of different perspectives it would seem about who should be on whether you should have independent people, whether you should have, you know, fund managers, paid consultants, or whether you keep it all internal, you know, the seems to be a range of views about how this can be put together, that just sort of keeping things in order, you’ve gone and explored getting the MDA license or acquired from the Investment Committee. So you’re now getting that up, and selecting who’s on there to maybe tell me a little bit more about the thought process that went into who should be on the committee, and what sort of skill that tributes you’re looking for.

Alex Hont
Yeah, so for us, it was a little bit a little bit different. I think back in 2014, there wasn’t as much pressure on us to have an external asset manager or asset consultant, we had our rules based approach to the portfolio construction, which we’d sort of laid out as part of our application for the to run the MDA portfolios, we also did rely on a couple of tools, some input, so things like the fairleads asset allocation guide, it’s worth having a look at for anybody who who’s looking for some sort of input that might not necessarily be a full time asset or an asset consultant. So at least something that that gave us a guide, or a reference point that we could then as a committee may have a discussion about and making decisions about. But in terms of who should be on it, for it, from our point of view, given that we already ran the portfolios this way, just in a very cumbersome manner. It was really just the all the advisors in the practice plus an external and independent chair who was outside of the practice. Right. So that was, so that was all we started with. And that’s actually really how it exactly how it runs. Today, we’ve gone down the path of looking at assets, speaking to asset consultants speaking to them around whether they actually come in and run the portfolios full time for us as well and do the implementation side to now we actually get some input, but they don’t sit on the committee from from the BD shares, guys from the economists and a couple of their economists, they they dial into our investment committee and give us their views, but they don’t sit there and have a vote on how we implement portfolios, either on the asset allocation or or the investment selection side. So it’s really just a guidance part from their point of view. Right. And

Brendon Vade
that’s presumably a service that they offer as part of part of their offering broadly there.

Alex Hont
Yeah, that’s something that I think you’d have to speak to your BDM. About, if ever Peter shares about how you would engage them in that capacity.

Brendon Vade
Yeah, sure. Okay, yeah. Interesting. All right. So you’ve so you’ve kicked off with with an independent chair and the advisors? How did you go around setting up the processes of what the Investment Committee is going to look at? And you mentioned a charter before? How did all this originate?

Alex Hont
So when we started, it was with managed accounts.com.au, which became explorer wealth, which is now part of hub, they gave us a lot of that framework to begin with, to sort of go through that process. So we looked at, you know, we adapted it for our own to match our own style, but but we’ve created the charter. And we also started with a an agenda that they got an agenda for each meeting that they gave us, which we’ve sort of really changed up along the way, but it’s nothing too fancy, it’s really just making sure that we’re covering off on issues that are open in the that are still open from previous meetings, reviewing the minutes from the last meeting, portfolio performance against benchmarks, and you know, buys and sells any changes in the portfolio. So we’re reviewing all the decisions that have been made, usually it’s kind of looking back. But we also then have a have a section on, you know, thematic tilts, given that, that we run dynamic asset allocation portfolios as well, and corporate actions and sort of all those sorts of things. So corporate actions, because we’re dealing with it at an MBA level, where we’re looking at, are we what are we doing on each of these particular corporate actions across the whole portfolio, we don’t really individualize in that sense for clients at internet service, unless they have a specific request to, but so that the process really started from having a template of an agenda. And I’m happy to share that outline with anyone if they would like to have a quick look at it and see what it looks like. It is a bit more focused on that MDA side, but it certainly has the bonds of a of an investment committee agenda that you can work with and tailor to your own needs.

Brendon Vade
Excellent. Excellent. You mentioned before about the investment philosophy, and how that sort of tied in with the committee. I’m curious that I, since you said this quite a while ago. Have you as a committee made any sort of updates or what’s the interaction between the sort of stated philosophy of Thurmond in the Investment Committee, that’s something that has evolved over time, or is it something that sort of stayed, you know, reasonably foundational? How has that looked?

Alex Hont
Yeah, it’s, it’s actually probably stayed reasonably foundational, there’s been updates, but nothing dramatic, there’s been no dramatic shifts that sort of we started with the, the portfolio objective in mind, as I said, we’ve got given that we’ve got quite a large retiree base as a practice, we have two styles of portfolios, we have pension portfolios, where we’re biasing towards income to pay, you know, creating cash flow to play pensions, typically. And then we have a more typical accumulation style growth portfolios, we only got five, we got three income to accumulation, that’s enough, it covers pretty much all of the bases that we need for those model portfolios styles is always things that come up that have said a little bit differently from, you know, people need individual or tailoring, but that’s what they’re kind of our building blocks. And so we haven’t really had an at the objective certainly hasn’t changed. It’s more just around, okay, maybe some of the portfolio construction roles have changed slightly with the times. It’s always had a dynamic asset allocation, which we adjust over time. But we you know, as opportunities arise, but we actually haven’t really, we’ve done one strategic asset allocation update in that sort of where we eight, nine year period era, and even then it was only relatively minor, it was just that, you know, again, given that we’ve got an income focusing some of those portfolios be biased, a little bit heavier to Australian shares, where we get a bit more of dividend income and franking credits. But so, but for the most part, it actually hasn’t changed a whole lot. And we did do a lot of direct equities early on, we do a lot less of them. Now, just time expertise is not really where it’s not really where we want to spend our time in that research and picking but so we’ve got some other tools that we use to either help pick them or we’ve bundled them up in sort of smart beta strategies. Right.

Brendon Vade
Right, gotcha. So you just going for those, or more broadly targeting those factors in the market? That’s easier and more straightforward way to get exposure to? Yeah. Excellent. I’m curious to talk a little bit more about the, the members of the committee and yeah, and how the members sort of interact with each other. He sort of said before, about, you got to watch people’s egos. And advisors, often tend to have them to some degree. But at the same time, you know, you obviously don’t want this to be something that everybody, you know, just agrees with, and it becomes a rubber stamp or ticket box exercise. Can you talk to me a little bit more about how that balances worked for you? And I don’t know what’s what’s hard about that? What’s what’s easy about getting that mix? Right? Within the committee itself?

Alex Hont
Yeah, good question. So we, we typically just have all the advisors sit on the committee, because they were a small firm, they’re part of the firm, and they’re more or less have clients invested in the way that we run the models. So it’s not really from a selection point of view, we get in by default by being part of the practice. But a couple of us do, like playing devil’s advocate, which, you know, that and we sort of figured that that’s what the Investment Committee is for, because, you know, my, my, the other partner in the business, Paul Moran’s, that a doctorate in behavioral finance. And so, yes, we were we’re kind of aware of biases. And so I, you know, often question, are we is there too much confirmation bias, if we all agree, so if we all agree, then everyone sort of looks at each other and says, Hold on a minute, let’s just say what if we’re wrong? And, you know, we think we think we’re right, but we might not be? So you’re right. You don’t want just a series of head nodding yet. Everyone agrees? It’s all IP, we must be right. Yeah, this is all good. What you want is a bit of debate, even if you end up agreeing, and even if your starting points in agreement, but we always like to tease out some of the the issues or challenges that we see in any of the changes we’re making, or potential changes we’re not making. So I think that’s always a bit of fun and you need that’s where you actually you need to have a little bit of ego you because you want to actually have that argument. You want to have you want people to share their views. But you also have to be able to accept the FDA to accept the decision of the committee if you’re not on the right side of it.

Brendon Vade
What can you give me an example? You know, is there anything contentious that sort of comes to mind where? I don’t know is it usually around usually around that asset allocation piece? Is it about you know, sort of economic, you know, economic logic about what might be happening in markets, where does this sort of practically rear head

Alex Hont
I think it is generally in in times of market stress. So look, you know, let’s look at March 2020, the COVID spot Carl downwards. Now one of our core core priorities in the portfolio is capital protection. So we probably went a little bit more defensive than we typically would just on how bad the news was. And there was there was not necessarily agreement in the Investment Committee about that move on some of the portfolio’s that was really on the income portfolios. It was to be, you know, in that in that lead up that February, March, we became we went, we went defense more defensive than we probably, and we certainly avoided on the accumulation portfolios. All right. And yes, there was an there was a disagreement there. In the end, the committee decided that, but again, based on the feedback from clients from back in the GFC, that they would rather us do something than nothing. And so we made it, we did sell out of some equities at exactly the wrong time. In that, in that time, now, again, talking to clients after that they were perfectly happy with the decision, we got no blowback on that. Right. It’s a point where the committee had did not necessarily agree exactly on the right way to go. But in the end, you know, we didn’t lose any clients out of that. Yeah, the

Brendon Vade
reasons were sort of explained and the communication went out. And, yeah, I guess if people are happy with why you’re making that decision, it goes a long way to helping stay on the course. Right? Yeah. Well, I

Alex Hont
think you know, we, yeah, exactly. Right. See, fear is a powerful motivator. And people were happy to hear from us, and I’m happy to hear that some action was being taken. Right. Even if the committee didn’t, as I said, didn’t necessarily completely agree on it. And other one has actually just been on investment selection side, whether we’ve gone too overweight in some particular asset classes or not enough, that happens from time to time. But it’s generally you know, we’re talking about shifting percent, a couple of percent here or there. It’s not, it’s certainly not a material disagreement, or, generally, we were able to pretty well aligned. But one thing, you know, just I want to bring up is a few years ago, we were we brought some new people into the Investment Committee, when we had some change in the advisors in the practice, is that we sort of challenge them that every meeting to come with an idea, right? Because I think what we didn’t want was not necessarily passengers, but we, you know, there are some strong personalities on the committee, as I said, Paul, and I like to play devil’s advocate and argue with each other, if even if we actually agree. And so sometimes we can dominate a little bit. And so rather than everyone just saying, Yeah, you guys have a right or wrong or whatever, whichever way we learned it, what we wanted was everyone to come with their own idea around whether or not there should be any action in the portfolio where they see an opportunity or where they’re where they’re worried about at risk, so that we actually have at least input from everyone. And they are but also means that they feel a lot more involved, be part of the bigger part of the decision making process, rather than just passing, not passing. It hasn’t been the right word. But rather than just having to go with whatever we decide,

Brendon Vade
or okay, that yeah, that feels really good. I guess II can’t just sort of coast along too much if you’re going to be put on the spot about something.

Alex Hont
Yeah. But also, I think you need to develop the expertise. And it’s a way for those people that were newer to the Investment Committee to be able to gain the experience, but also had have some impact on the decision making. I don’t know about you, Brennan, but I always feel like you never really quite until you got skin in the game until you’re the one that’s made the call, you don’t quite feel the consequences. And it’s a theoretical, yeah, I should have done that, or would have done that. But a different story, when when you’re the one bearing the consequences in a way.

Brendon Vade
Yeah, it’s one thing to be in the crowd and you know, watching watching the game on the on the pitch, but as soon as you step out there yourself, it takes different dynamics. Absolutely. And how do you say what’s worked well for you as far as that upskilling process? Right, because there’s, you know, as far as being on an investment committee, there’s really no finish line as far as expertise. You know, markets change all the time. And there’s always plenty to learn. Have there been any, any been been any sources of education that you’ve utilized, or other people on your committee have utilized that you? You really liked that you thought worked really well? Or, you know, tell me how that looks for you guys?

Alex Hont
Yeah, sure. So I think there’s a few there’s a few things we read, we all read, which we all kind of like so there’s, there’s some commentary from a white Christopher joy, which is always entertaining. David Bethany’s. So there’s a few people. So we don’t tend to read everything we find. There’s a few things that we few people we think are on the money, or have some analytical view that that is goes a little bit deeper than others, that we can sort of that resonates maybe a little bit more with us. So that’s the first thing and they’re the kind of weekly things that you might skim, say, Fine, I’d say find the things that resonate with you around and how the world looks and how to help shape your view of the world and in markets and economics terms. But then also, and I really enjoy what you know, I love the investment side of things, that’s kind of the fun part of this job for me. I mean, you know, the client facing stuff, don’t get me wrong, that’s the really rewarding part. But, you know, the, the other fun part is to learn about investment markets, investment performance, portfolio construction. So I usually attend a few of the portfolio construction forum events each year, and I find those really valuable in exposing me to a lot of different people’s analysis and forecasts, and reads on what’s happening, as well as other particular, you know, other potential strategies that might feed into how we run the portfolio, how to make it a little bit better. So I think that’s one of the more valuable ones. But yeah, I think there’s a lot of the other ones that I picked, partly because of time as well, you know, the portfolio construction, I’m happy to put aside it a day or two. But it’s certainly not, you know, it’s hard to get away at for lots of little chunks of time, sometimes as well. And also, I think, you know, you can be a bit more present and trying to soak in as much as you can, and when those days when you’re not thinking not trying to jump between tasks, and I love sort of meetings.

Brendon Vade
But you know, right, Graham rich and the, the team do an excellent job over there, for sure.

Alex Hont
They do a fantastic job. I mean, I still, I would love to do the CFA, that’s probably, it’s on my list of things I’d love to do. That was probably the plan until I until fasciae came out and sort of had to I was okay, I’ve still got to select to do one unit and but sort of there was a little bit of a hold on that for a while waiting to see what what I was actually going to have to then go and complete. And then having children also got in the way of the study time because the free time as well and surely disappeared. But I’m hoping I get a little bit more of a back to sort of undertake some of that in the near future. But that’s probably where I’d go next. But you’re right, I don’t think it ever ends. It’s, you know, it’s a labor of love for me.

Brendon Vade
And tell me a little bit more about how the that time commitment has has looked for for you and your practice. Because, yeah, advisors world is always pulled in a bunch of different directions. So when sort of zooming back to when you started the committee, and maybe reflecting on where you’re at now, how has that time commitment have evolved, and maybe Paint me a picture of what it might look like, on an annual cycle today,

Alex Hont
right. So I, you know, talks a bit about what it looked like, operationally at the start to implement changes, now we can really implement a portfolio change across the whole practice in a matter of minutes, we tend to take a little bit longer just to double check that, you know, we’re not putting anyone in a negative cash, what we can do that, but you know, just to make sure that at all, we’re not, we’re not leaving them to too thin. So really a couple of minutes from a portfolio action. And certainly for a rebalance as well to create the orders and then and then execute them. So we don’t typically make huge changes throughout the year, they tend to be fairly small with a with probably an annual rebalance, we’d looked at doing it in a more frequent manner. But part of the reason we’ve got our annual is to is to try and let your winners run a little bit hope, you know, we like to think that we can we, you know, our thesis is often take a little bit of time to play out. And we often think we’re right, well before the market does, if it we are so we don’t rebalance a whole lot. So there’s not a huge time commitment in terms of actually implementing the the the changes operationally, the Investment Committee meets four times a year, we’re probably an hour and a half meeting, most of the time that that’s Quarterly, we produce both performance update, as well as commentary on that, as part of those quarterly report packets gets reviewed at the Investment Committee. So that takes a little bit of time, but it’s not too much. And then I guess there’s all there’s the informal subcommittee meetings, which is really just us it’s an informal version of the investment committee where we often make a lot of decisions. In you know, as we’re going rather than having to wait for the next quarter, we don’t make big decisions. Every quarter, it’s more around a couple of switches, or, for example, waiting on the next rate rise or, you know, currency might be one of the last ones we did was when the the Aussie dollar hit 62 US cents, and we switched into the hedge version of a international fund, you know, so that’s sort of stuff that we don’t wait for the committee to make that change because we sort of already talked about it at the last committee meeting. But we also do that inside of a Microsoft team’s channel, which is a good way for everyone to first of all, see, to chat about it, see it, record it and have that sort of audit trail in there for the that we can go back and look at in the committee as well,

Brendon Vade
okay, go on is that is that sort of broken down as part of your chart? And then perhaps that your head I see meaning is reviewing minor intro quarter changes. Have you got perhaps you got some thresholds around what sort of decisions can be made at that level versus needs to sort of go up to the full ice and all that sort of thing.

Alex Hont
It’s probably not a bad thing that has that we don’t have that in the charter that, you know, given. We did this in 2014. We, we didn’t have the tech tools that we have now. And, and we were all in the office full time five days a week and would have sort of, you know, still informal subcommittee meetings. And back then we used to sit the phone and the audio recorder on the on there. And I don’t think anyone’s ever listened to them again. But right. So that’s where something like the Microsoft team’s channel or slack or whatever you want to use works really well. But it Yeah, we haven’t updated the charter to sort of reflect that there isn’t really a sort of a limit to what the subcommittee can do a formal limit to what the subcommittee do. But given that we’re all other than other than the independent chair, we’re all on the committee anyway, it hasn’t really been a factor.

Brendon Vade
So if I’m curious to know a little bit more about how this looked for you, when engaging with new fund managers or investment partners, I think what appeals to a lot of advisors about having an IC, is perhaps the structure that comes around making assessments for who might be included in the portfolio. I guess it also prevents your diary from being filled up with with EDM meetings all day every day. Can you tell me a little bit more about how that looks for you guys in engaging with those new investment partners? And how that looks?

Alex Hont
Yeah, sure. So I mean, we we try and catch up with all of the investment managers in the portfolios at least once a year, we try and schedule those very close to the quarterly investment committee meetings. And at times in the past, we’ve sort of said, instead of the whole hour, you’ve got 1520 minutes to because we just a bit short on time, but you’re right. So the other side of it is having everyone having all the four advisors here on the investor committees, we want them all to be in the meeting so that we’re all hearing the same thing. Rather than sort of just meeting with one or two. In terms of how we assess them, we don’t have exactly a formal framework. However, it really comes back to the investment philosophy. And for things like, you know, costs, asset allocation, you know, active versus passive. What are those things that, that you prioritize that we that we prioritize in terms of the portfolio construction and the investment philosophy? And how does the investment manager fit in with those, as well as looking at? Where do they serve a purpose in terms of creating the portfolio outcome that we’re looking for? So is it diversification where we can sort of lower the volatility of the portfolio where we still get to where it doesn’t compromise the return? You know, those sorts of things where we might look at an alternative manager? Or are we looking at an IC equity manager that that is looking at harvesting franking credits, versus just an index fund, for example. So we’re really it’s really aligned trying to align, which investment managers are going to contribute to the portfolio outcome we’re looking for. But you we don’t have a formal a formal process that we go through. Part of it gets stuck into our analysis as to then what does the total cost of the portfolio look look like as we’re not, we’re not active or passive, we sort of sit in more of a core satellite with that smart leader, kind of core, smart, basic, passive core, and then the the active sort of satellite approach. So there’s not so it’s really around where are they going to fit in the portfolio? And are they better than the incumbents? Not better? But are they going to be do a better job of meeting the portfolio objectives than the incumbents are not?

Brendon Vade
Sure. I’m curious to know, having been around this for the better part of a decade now. Do you sort of look back on this part of your practice? And think, man, I really wish I did that differently? What was it get? Can you point to any, any decisions which you really would have changed at the time and I don’t really mean at a portfolio level because, you know, we can all go back and find the low points and find the high points and pretend that we should have known what was going to happen next. But I just mean more in how you’ve made this sort of function of your business, serve your advisors and help them serve their clients. You know, has there been any sort of mistakes we get a look at you know, we really should have just, we should have actually They had more independent people earlier, or we should have had input from these other economists because that’s been really helpful. And you know, we didn’t get around to that, or we hired a very expensive as a consultant, we didn’t really feel they added a whole lot of value. I don’t know, like, whatever it is, is there anything that comes to mind when you when you sort of reflect back over your time? Actually, no,

Alex Hont
I think, operate, you know, with the efficiency pickup has been it has outweighed has been brilliant. And we’ve actually haven’t really put too many, there hadn’t been really many decisions that we’ve made that haven’t worked out. Well, for us. You know, we did, as I said, we looked at asset consultants, and even back then, as someone was going, I think it charges point six, six of on the farm that they were managing under that low model portfolio. And we, you know, we made the decision that that was way too much. I think that these days, it’s probably more at point one is what you typically find in that sort of space. So that was a while ago, but so I think that’s one of the ones where I think we got it right, where we thought, you know, as appealing as their offer was outside of the costs, the cost of the cost outweighed the benefit. And in terms of other external pays. Look, I guess, maybe we probably, if we hadn’t been able to engage them a little bit earlier, that might have led to some better decision making in the early days, rather than relying more on the newsletter style things, but being able to discuss and, and really get some insight from really, very, very smart and talented people, would be would have been beneficial. And I think that the ability to ask questions, and really dive into it is, is really valuable. So having someone you can bounce ideas off and say, Hey, but what about this one? And, you know, classic example is The Last of Us and committee we were talking about, you know, talking about fixed income, and I’ve had a question about something or other that that had come up reading someone reading something. And, you know, the consultant said, Yeah, but it’s the valuation is wrong, you know, the idea is right, with evaluations wrong. And so having being able to have someone’s expertise to sort of help direct and shape your views, as well, as, you know, someone who lives and breathes it every day, is really is quite valuable. So that I think that’s probably the one I I’d say, is engaging people that you think have a great handle on themes and, and, and somewhat aligned with your views on how portfolios should be managed.

Brendon Vade
Yeah. And I guess someone that you can trust their input around, you know, whatever challenge or shortcoming he might have internally, right, you know, no, no business can know it all in house, you got to be able to get some of that elsewhere.

Alex Hont
I think that’s a great point. Because, you know, as I said, sometimes we think we’re right. But we might not be, and having someone to challenge your view, or someone who can give a different contrasting point of view is really valuable, even if you don’t necessarily change your decision. But at least you’re you might be made aware of the opposite side to that, or the risks that you’re missing.

Brendon Vade
Yeah, sure. And one thing on that, because I understand it’s quite common for or different fund managers to lend their expertise, and that can be great input into into committees to sort of round out, round out the expertise within the group, from a from a conflicts position, you know, how the, where do you draw the lines around? Sort of managing that for the committee? Because it gets a potentially sticky, right?

Alex Hont
Yeah. So we, we don’t disclose to the guys that beta shares what’s in the portfolio, and they don’t have any input on the investment selection. So there’s, there’s, there’s no direct conflict in that sense, where they’re saying you should be in in this. And it’s really more at an asset allocation level. And even I suppose, in the fixed income side, it goes a little bit into the sub asset classes around how we manage that. But yeah, you raise a good point, especially when you’ve got someone with a barrier to push. Who who’s providing some advice? I think we’ve tried to manage that the best we can by sort of at least having that little bit of separation and not having any not giving them a seat at the table. Right? To be able to either select investments or vote on how on the outcomes, it’s really just a matter of providing an update and guidance. But yeah, in that instance, where you have a fund manager in there, that that’s where you’ve got to be a little bit careful, I suppose. But I think there are a few there, you know, there are a few asset consultants that are removed from the fund management process that are able to at least give you a balanced view.

Brendon Vade
Yeah, Ithink that’s a spectrum, right? And everyone’s got to figure out how to manage that themselves. And you got to take take away the voting power and maybe remove them from the specifics about managers to action than that.

Alex Hont
But it looks like you’re right, there may be a conflict. But you know what sometimes that conflict might be in sort of name only, you might still be getting a fantastic outcome for both your clients and your business. And by partnering with a phone manager, and okay, sure, maybe there’s a conflict that you might you, you were required to use one or multiple of their products, but I don’t necessarily think that that will always result in make a terrible result for the clients. So they certainly still some benefit there. And I think as long as you’re upfront about that, you say, yeah, we’ve partnered with this manager, or this asset, you know, this, this asset manager or to provide the sort of a service, which we wouldn’t be able to provide otherwise, or we would have to provide a much greater cost. So it Yeah, I think as long as you’re aware of it, and you can rationalize it. And I think it’s I don’t think it’s always a terrible thing.

Brendon Vade
Yeah, interesting. I’m curious to know, as well, as we sort of draw to a close. Is there any advice that you’d give to your 2013? Self? Firstly, and say, you know, is there anything that you should, you should think about ahead of going down this path? Which I know we’ve already covered? But, and also, secondly, to that? What advice would you give someone who’s starting starting the journey? Or maybe might be on the fence about whether or not this is something they want to do? At all?

Alex Hont
Oh, good question. I think, What advice would I give myself nearly 10 years ago, lean on someone for a really good agenda for the Investment Committee meeting, if you’re looking to start that up, because you want to make sure that you’re covering off all the bases, find some good assets, or consultants or, or some sort of input that you like, and trust, or have faith in. And if you can find the people at a reasonable cost, get them involved, find someone who doesn’t always agree with you. And you can have that open discussion without having hurt feelings. And really, really bear down your investment philosophy. I don’t think I can stress that enough that that everything that you do at the committee level really comes back to what are you trying to achieve. And the investment philosophy is a way that you can refer back to and everyone can can really have a say in or at least understand the decision we’re making relate back to, to this sort of, I would say formalize it in a document, and there’s a few tools around that are really useful in actually helping you articulate that sort of thing. So that’d be my top tips. If you’re thinking about doing it, I think you’ve got to ask why you’re doing it, or you, you know, for us, it was all about the efficiency piece. And so if you’re not going to run model portfolios, but you just want to have a consistent view across the practice around how portfolios should look, which I think is probably been done at licensee level, you know, in the past where licensees sort of mandated this is what this is an asset, you know, our risk profile and strategic asset allocation. You know, but I think if you want to have a bit more control, and actually impart a bit more of your own investment, knowledge, or expertise or input, then this is a way to keep it a bit more consistent across advisors in the practice. And yeah, I think you can have a bit more faith that that all portfolios will look more or less the same, or similar. And especially if you’re at the model portfolio level, it makes it much easier to come review time to know what’s in someone’s portfolio. So, I mean, I think that all relates back to the Investment Committee part for us.

Brendon Vade
Yeah, and like you say, it’s the efficiency of getting the best ideas implemented and executed in someone’s portfolio. It was possible, right?

Alex Hont
Yeah. One other thing I just sort of mentioned these have a, have a think about the tools you want to use to actually implement it and run it. So, you know, if you’re gonna run model portfolios, you’re gonna run these asset allocation models for even if they’re not model portfolios, but you’re you sort of have a view on what a conservative or moderate portfolio looks like, have some sort of repository or someplace where you can stick it and run reports on it. And you know, there’s a few tools that we’ve used over the years that we’ve tried things like Morningstar direct Fe analytics and lonsec Ira and just work out which one is suits you which research house you like because that will also play a bit of a part in which one you choose but yeah, get especially when it comes to say producing those reports which are great and communication tools with clients we got they go out to clients directly, those sorts of things that you know, are big time cyber as well as well as giving you the kind of information that you need to make proper assessments on the decisions that you’ve made at the Investment Committee level

Unknown Speaker
And what tools work for you now?

Alex Hont
We’ve gone through a few of them. But at the moment, it’s we’re using lonsec. Ira. So we we track the portfolio performance in there, as well as so we’ve got we’ve, you know, we’ve got nearly 10 years of history now of portfolio returns. And actually, we’ve been able to migrate across different tools with varying success. How the data links from one to the other, but it’s all you know, just in terms of when you’re looking at their portfolio breakdown and things but

Brendon Vade
This is where you should have said to you earlier, yourself, just use this tool.

Alex Hont
And yeah, but it didn’t. It didn’t exist back then there are so many iterations and unreal. And But yeah, if you can find a tool, that’s one thing that’s been from my end anyway, I’ve done, I’ve been the Secretary on, I’ve done every role that we have on in the Investment Committee, and then all the back end, all the the back then they had been. So having a tool that is easy to use, and easy to run reports from that don’t take any sort of don’t take too much work to customize and make it look like your own. And a reasonably accurate as well, is probably a You’re right. That’s probably the one the other tip I’d have. But yeah, we’re using one cigar right at the moment. And we can get a whole series of different data points and have that tool which gives us a bit of a view back on on what’s happened and how the decisions have gone that we’ve made. I love to using both Fe analytics and Morningstar direct some there were some limitations in in those and cost was an issue as well. So it’s about balancing how that works, how it looks. We’re a relatively small operation that began only for advisors. And you know, some of the costs started to blow up a little bit with some of those weapon you’re getting into the nitty gritty when they designed really for the big end of town fund managers.

Brendon Vade
There are no Well Alex has been an absolute pleasure chatting. Thank you so much for sharing your your wisdom and your experience in this space. We really appreciate your time.

Alex Hont
Thanks, Brett and really happy to be here.