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Schwab Annual Conference 2006
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Schwab Annual Conference 2006

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Schwab Annual Conference 2006 Schwab Annual Conference 2006 Presentation Transcript

  • Investment Management for the Endowment & Foundation Market What would I expect to find in the way of Best Practices? Duane Lee Executive Vice President Cannon Financial Institute
  • “ What you cannot avoid, welcome” Chinese Proverb
  • Best Practices for Investment Managers
    • STEWARDS
      • Persons who serve as Trustees or Committee Members of Foundations & Endowments
  • Best Practices for Investment Managers
    • INVESTMENT MANAGERS
      • Organizations that manage separate account, mutual funds, unit trusts & commingled funds
  • Best Practices for Investment Managers
    • INVESTMENT ADVISORS
      • Persons who provide comprehensive and continuous investment advice
    • Examples:
    • Financial Advisors
    • Brokers
    • Consultants
    • Trust Officers
    • Wealth Managers
  • Evolution Of The Concept Of Prudence
    • Harvard v. Amory (1830)
      • Prudent Man Rule
        • Common Law Standard
    • ERISA (1974)
      • Prudent Expert Rule
        • Federal Law (Supersedes state laws)
    • Uniform Prudent Investor Act (1994)
      • Private Trusts
        • State Law (Civil Law)
    • Uniform Prudent Management of Institutional Funds Act (2006 draft)
      • Charitable Trusts
        • State Law (Civil Law)
  • Definition of Prudence
    • The fundamental principle for professional money management, stated by Judge Samuel Putnum in 1830
    • "Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income."
  • What Is Needed To Participate?
    • “It’s not whether you win or lose - it’s how you play the game.”
    • Process…Process…Process
    You can't always be right...but you can be prudent
  • Industry Best Practice
    • www.cfainstitute.org
      • Trade Management Guidelines
      • Soft Dollar Standards
      • Research Objectivity Standards
      • Global Investment Performance Standards
      • Asset Manager Code of Conduct
    • www.nccusl.org
      • UPIA (1994)
      • UP&IA (1997)
      • UPMIFA (2006)
      • UMPERS (1997)
  • INDUSTRY BEST PRACTICES
    • www.sia.com
      • Compensation Practices
      • Firm Management
      • Internal Firm Policies
      • Relationships with Regulators
      • Role of Compliance Professionals
      • Investor Confirmations
      • Registered Rep Supervision
      • Investor Complaints
      • Soft Dollars
      • Sales Supervision
  • INDUSTRY BEST PRACTICES
    • Center for Fiduciary Studies
      • University of Pittsburgh’s
        • Joseph M. Katz Graduate School of Business
          • Center for Executive Education
    • Foundation for Fiduciary Studies
      • 7 Uniform Fiduciary Standards of Care
      • 5-Step Investment Management Process
  • P UBLISHED W ORKS
  • P UBLISHED W ORKS
  • Best Practices for Investment Managers (24)
    • Key decision-makers demonstrate expertise in their field, and there is a clear succession plan in place.
      • Qualitative Evaluation of Expertise
      • Formal Succession Plan
        • Compensation Practices (SIA)
        • Firm Management (SIA)
  • Best Practices for Investment Managers (24)
    • There are clear lines of authority and accountability, and the mission, operations, and resources operate in a coherent manner.
      • Strategic Plan
      • Tactical Plan
      • IT Plan
      • Business Succession Plan
        • Firm Management (SIA)
  • Best Practices for Investment Managers
    • There are effective and appropriate external management controls.
      • Audits
        • Internal
        • External
      • Control Self-assessments
      • Examinations
      • Compliance Program
      • Board & Committee Oversight
  • Best Practices for Investment Managers
    • Mutual Funds, Hedge Funds & Annuities associated with the organization have suitable board governance.
      • Performance
      • Suitability
      • Expenses
      • Standards for Selection & Retention
      • Conflict & Self-Dealing Addressed
  • Best Practices for Investment Managers
    • Remuneration of the Investment Manager/s and compensation of key decision-makers are aligned with client interests.
      • Performance Based
      • Long-term Focus
      • Fully-disclosed
      • Transactional vs. Asset-based
        • Compensation Practices (SIA)
  • Best Practices for Investment Managers
    • The working atmosphere is conducive to attract, retain, and motivate key employees.
      • Turnover
      • Decision-making Process
      • Creativity
      • Opportunity
      • Formal Evaluation Process
        • Compensation Practices (SIA)
        • Internal Firm Policies (SIA)
  • Best Practices for Investment Managers
    • There is a formal structure which supports effective compliance.
      • Corporate Culture/Attitude
      • Compliance Program
      • Compliance Officer
      • Control Self-assessments
        • Role of Compliance Professionals (SIA)
  • Best Practices for Investment Managers
    • The organization provides financial transparency that demonstrates there is capital and profitability to sustain operations and adequate disclosures are made.
      • Financials
      • Form ADV
      • Fee Schedules
      • Agreements
        • Disclosure Documents
        • Proxy Voting,
        • Soft-dollar (CFA & SIA),
        • Pricing,
        • Best Execution
        • Pay-to-Play
        • Client Directed Brokerage
  • Best Practices for Investment Managers
    • The organization is committed to firm-wide innovation and has established a competitive position of strength.
      • Creativity
      • Decision-making
      • Best Practices (CFA, SIA, etc.)
      • Systems
      • Personnel Development
  • Best Practices for Investment Managers
    • There is an effective process for allocating and managing both internal and external resources and vendors.
      • Soft-dollar (CFA & SIA)
      • Trade Allocations (CFA)
      • Best Execution
      • Research Objectivity (CFA)
  • Best Practices for Investment Managers
    • The organization has a diverse client base, and the capacity to service the same.
    • Concentrations by:
      • Fees
      • Investment Objective
      • Asset Class
      • Industry/Sector
      • Security
      • Type of Client
      • Product
  • Best Practices for Investment Managers
    • The organization is properly managing the growth/decline of assets under management.
      • Growth/Decline Rates:
        • Fees
        • Assets
        • Accounts
  • Best Practices for Investment Managers
    • The investment system is clearly defined and consistently adds value.
      • Investment Story
      • Process
        • Policies, Procedures & Controls
      • Exception Identification, Tracking & Resolution
      • Dispersion of Returns
  • Best Practices for Investment Managers
    • The investment research process is defined, focused, and documented.
      • Soft-dollar Budget
        • Benefits Derived
      • Off-list Securities
      • Concentrations
        • Research Objectivity (CFA)
        • Soft-dollar (CFA & SIA)
        • Trade Allocations (CFA)
        • Research Objectivity (CFA)
  • Best Practices for Investment Managers
    • The portfolio management process for each distinct strategy is clearly defined, focused, and documented.
      • Benchmarks
      • Asset Allocation
      • Deviations from Policy
      • Periodic Reviews
      • Risk & Return Differentiation
      • Dispersion of Returns
  • Best Practices for Investment Managers
    • The trade and execution process is defined, focused, and documented.
      • Soft-dollars (CFA & SIA)
      • Best Execution
      • Trade Allocation
  • Best Practices for Investment Managers
    • The organization has responsible and ethical marketing and sales practices.
      • CFA INSTITUTE Compliant (Best Practices)
        • Performance Reporting ( GIPS )
          • Return
          • Risk
          • Benchmarks
          • Time-frame
          • Asset Classification
        • Trade Management (CFA)
        • Research Objectivity (CFA)
        • Proxy Voting
  • Best Practices for Investment Managers
    • There is a defined process for the attribution and reporting of costs, performance, and risk.
      • Performance Measurement
        • Risk
        • Return
        • Benchmark
      • Performance Attribution
        • Classifications
        • Cause & Effect
      • Fees & Expenses Disclosed
        • Explicit
        • Implicit
  • Best Practices for Investment Managers
    • The investment system and portfolio management processes are monitored and are consistent with assigned mandates.
      • Performance Dispersion
      • Off-list Securities
      • Concentrations
      • Exceptions to Min/Max Allocations
      • Socially-Conscious
  • Best Practices for Investment Managers
    • There is an effective risk-management process to evaluate both the organization’s business and investment risk.
      • Control Self-assessments
      • Risk Management Plan
        • Role of Compliance Professionals (SIA)
  • Best Practices for Investment Managers
    • Control procedures are in place to periodically review policies for
      • Best Execution,
      • Soft Dollars (CFA & SIA),
      • Pricing, and
      • Proxy Voting
  • Best Practices for Investment Managers
    • There is an effective process for identifying, managing, and disclosing conflicts of interest.
      • Broker/Dealer
      • Investment Managers
      • Mutual Funds
        • Insider Trading
        • Front-running
        • Pricing
        • Asset Manager Code of Conduct (CFA)
  • Best Practices for Investment Managers
    • There is a process to periodically review the organization’s effectiveness in meeting its fiduciary responsibilities.
      • Annual Reviews
      • Investment Policy Statements
      • Investment Objectives
      • Risk & Return Levels
      • Vendor Selection & Usage
  • 4-Step Fiduciary Quality Management System
  • Organize (7)
    • Practice M-1.1
      • Senior management demonstrates expertise in their field, and there is a clear succession plan in place.
    • Practice M-1.2
      • There are clear lines of authority and accountability, and the mission, operations, and resources operate in a coherent manner.
    • Practice M-1.3
      • The organization has the capacity to service its client base.
    • Practice M-1.4
      • Administrative operations are structured to provide accurate and timely support services and are conducted in an independent manner.
  • Organize (7)
    • Practice M-1.5
      • Information systems and technology are sufficient to support administration, trading, and risk management needs.
    • Practice M-1.6
      • The organization has developed programs to attract, retain, and motivate key employees.
    • Practice M-1.7
      • There is a formal structure sup-porting effective compliance.
  • Formalize (8)
    • Practice M-2.1
      • The organization provides disclosures which demonstrate there are adequate resources to sustain operations.
    • Practice M-2.2
      • The organization has a defined business strategy which supports their competitive positioning.
    • Practice M-2.3
      • There is an effective process for allocating and managing both internal and external resources and vendors.
    • Practice M-2.4
      • There are effective and appropriate external management controls.
  • Formalize (8)
    • Practice M-2.5
      • The organization has a defined process to control its flow of funds and asset variation.
    • Practice M-2.6
      • Remuneration of the company and compensation of key decision-makers is aligned with client interests.
    • Practice M-2.7
      • The organization has responsible and ethical reporting, marketing, and sales practices.
    • Practice M-2.8
      • There is an effective risk-management process to evaluate both the organization’s business and investment risk.
  • Implement (5)
    • Practice M-3.1
      • The asset management team operates in a sustainable, balanced, and cohesive manner.
    • Practice M-3.2
      • The investment system is defined, focused, and consistently adds value.
    • Practice M-3.3
      • The investment research process is defined, focused, and documented.
    • Practice M-3.4
      • The portfolio management process for each distinct strategy is clearly defined, focused, and documented.
    • Practice M-3.5
      • The trade execution process is defined, focused, and documented.
  • Monitor (4)
    • Practice M-4.1
      • There is a defined process for the attribution and reporting of costs, performance, and risk.
    • Practice M-4.2
      • All aspects of the investment system are monitored and are consistent with assigned mandates.
    • Practice M-4.3
      • Control procedures are in place to periodically review policies for best execution, “soft dollars,” and proxy voting.
    •  Practice M-4.4
      • There is a process to periodically review the organization’s effectiveness in meeting its fiduciary responsibilities.