“If your investment committee is not constantly talking about fiduciary duties and writing it into an investment policy, I think you are all failing and opening yourself up to liability,” warns Joshua A. Sutin, shareholder at Cox Smith Matthews Incorporated.
Who makes up the ideal membership of an investment committee? According to Erik Daley, managing principal of Multnomah Group, there is no single answer, but the group should reflect the realities of the company. “There seems to be an obsession about finding the most experienced investors,” Daley says. “When these people make the investment decisions, you can end up with an overly complicated plan design.”
The larger the committee, the more cumbersome, Daley feels. “It’s more challenging to get things done,” he says. Members must be able to disassociate themselves as participants—they need to be able to think outside their own self- interest.”
How many meetings should an investment committee hold each year? Rocco DiBruno, director of the retirement group at Thornburg Investment Management, recommends quarterly meetings. “Ideally, two meetings can be devoted to investment discussion, and the other two meetings can focus on goals for the plan and issues such as participation rates, or fees and services,” he says. “Bring in outside speakers. Offer proof of your education.”
Quarterly meetings are unrealistic for accomplishing all goals, Sutin feels. If practical, he suggests meeting monthly.
DiBruno points out that some committees don’t all meet together. “In order to get the work done, subcommittees can be formed,” he says. “Reports can be distributed before meetings, so all members are prepared to discuss the topics.”
Daley said if the CEO is a committee member whose attendance impacts the meeting, you need to be able to ask him to step off the committee.
Most important is transparency. The committee must maintain open and consistent communication with the board, which ultimately has the fiduciary responsibility—and can disband the committee if it is dissatisfied with the committee’s performance.