Views on improving the integrity of global capital markets
17 October 2013

Challenging Industry Norms: Investment Responsibilities of Trustees (Video)

When the State Street Center for Applied Research released The Influential Investor: How Investor Behavior is Redefining Performance last year, it examined the forces that will shape the future of the investment industry. As part of its Challenging Industry Norms series that debates critical issues facing the investment industry, CFA Institute teamed up with State Street to take a closer look at whether misaligned interests are transforming the investment profession.

One of the panel discussions, “Who’s in charge here?” was moderated by Kurt Schacht, CFA, managing director of the Standards and Financial Market Integrity Division at CFA Institute. Panelists included:

  • Howard Crane, CFA, Crane Fiduciary Services, LLC; formerly a trustee of Public Employees’ Retirement Association of Colorado
  • John Griswold, executive director, Commonfund Institute
  • Ranji Nagaswami, CFA, former investment adviser to New York City Mayor Michael Bloomberg and chair of the New York City Employee Retirement System
  • Jay Youngdahl, senior fellow, Harvard University; partner, Youngdahl & Citti, LLC

For Blogs and the Enterprise site

The diverse experiences of the panelists led to a lively discussion that addressed some concerns raised in the State Street report around the topic of overconfidence of investors. The panel provided useful tips for both new and old trustees as they address the challenge of developing realistic expectations for their organizations.

The governance structure of a pension fund sets the tone for the responsibilities of the trustee. The actual investment management strategy (internal vs. outsourced), creates very different demands. Trustees need to be mindful of the differing requirements as they investigate alternatives.

It is important for plan beneficiaries to have a seat at the table as the time horizon of the individual trustee will depend upon where they are in their career — contributing member vs. collection pensioner. The beneficiary trustees should be supplemented with outside trustees to diversify the experiences and expertise of the full board. Diversity can lead to more common sense-based decisions.

The use of investment consultants offers both challenges and opportunities for trustees. On the one hand, consultants can offer specialized expertise that may be lacking on the board. On the other hand, there may not be good overall alignment of interests between the fund and the consultant, which can create points of friction or even suboptimal advice. The best working relationships between consultants and boards happen when consultants do not dominate the agenda or process and when both groups receive a constant reassessment of how their work together serves the interests of the funds and their beneficiaries.

Finally, there continues to be a need for additional educational opportunities for trustees. The individual must take the time to understand his or her roles and responsibilities. The pension organizations need to be willing to provide funding for the trustees to attend appropriate educational events.

CFA Institute has several free, available resources that can serve as a starting point in the area of trustee education surrounding the investment management process. The Code of Conduct for Members of a Pension Scheme Governing Body provides an ethical framework for governing body members to demonstrate their commitment to the best interest of pension participants and beneficiaries. The Code outlines 10 fundamental ethical principles that are universally applicable to all types of pension funds.

Another resource, A Primer for Investment Trustees, was developed with a focus on new trustees. Available both as a book and an online course, the primer discusses investment issues relevant not only to investment trustees but also to the investment professionals working with them. It provides a step-by-step introduction to basic investment principles that will assist in becoming a responsible trustee for your organization.

Trustees have to make difficult decisions that impact both participants and beneficiaries. Challenging Industry Norms panelist tips and currently available resources assist trustees in effectively discussing situations before final decisions are made. Being knowledgeable and prepared are important for the trustee to successfully fulfill the responsibilities of the position.

Photo credit:

About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

Leave a Reply

Your email address will not be published. Required fields are marked *

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.