In the days before I became a reclusive home exerciser, I rolled into the YMCA every morning at 5:30AM. Without going into the unflattering details, anyone that makes public exercise a part of their daily routine can attest to the various gym personalities you are likely to encounter that early in the morning. However, despite our differences, there was an unspoken “we’re all in this together” feeling among us. The largest bond between the “regulars” was always during the month of January, when all of the New Year’s resolution attendees flooded the gym. While the inconvenient crowding would ultimately die down by the end of January, I can still remember making unnecessary, negative judgments on who might make it past January to achieve “regular” status, rather than simply being happy for someone trying to make a positive change in their life.

As I was conceptualizing this blog and sharing it with my son, he identified another annual tradition that occurs just one week before New Year’s Resolutions, called the “noob-harvest”. If you’re not familiar with the term “noob”, it is short for “newbie” and refers to someone who got a new console or online game for Christmas. These noobs then proceed to get shredded and berated in the online gaming world until they are able to get up to speed with the protocols and skills of the more seasoned gamers. Here’s a quick hint; if you’re new to gaming it is probably best to mute player microphones for your own psychological well-being. The realization for me? Survival of the fittest extends well beyond the animal kingdom and to all ages.

Anyone familiar with my posts know the “literary geometry” I am willing to fabricate in order to twist my non-financial introductory musings to an investment-related topic but I am happy to report this post is a fairly straight line from the opening. Whether you’ve been successful or not, we’re all likely familiar with the New Year’s Resolution. So, here’s a simple list of resolutions for oversight boards to undertake. We can call it an investment portfolio check-up.

  • Understand your investment policy: The most common issues we identify when reviewing policies are direct language contradictions and immeasurable guidelines. Whether these policy issues are a result of not using the document as a planning tool or simply overlooked due to the passage of time, the words contained in the investment policy matter. The start of a new year is good time to review the board’s investment policy to ensure it reflects the portfolios’ current objectives and constraints and that these factors are aligned and measurable without excessive effort and/or expense that outweighs their value in regard to portfolio oversight.
  • Understand your long-term goals: This could have been covered under investment policy but it really deserves its own recognition. While some elements are beyond the board’s control and others may be “self-inflicted”, investment portfolio goals can get off track for any number of reasons. It is a solid practice to evaluate organizational needs each year to ensure the overall investment portfolio is structured to achieve those goals over the required timeframe without undue risk.
  • Understand your investment management structure: Even if your board is a diligent practitioner of the first two annual traditions, an investment portfolio can still be derailed by a poorly designed management structure. While every active component should not be expected to outperform in every period, the various components should make logical sense. The board should clearly understand how each mandate fits into the overall portfolio strategy and investment policy. Legacy relationships and investment fads should be factored into completing this task.
  • Understand what you’re paying your professional service providers: We are surprised by how often this seemingly simple “best practice” is overlooked. This is not to say service professionals do not provide valuable services or that every service should be awarded to the lowest bidder. However, it is incumbent on all board members to understand and demand transparency for the fees being paid to service providers. Armed with this information, the board should ensure they are receiving sufficient value for these fees.
  • Understand if you are working with a Fiduciary: When the board retains a professional to assist them in portfolio oversight functions, it is paramount that the professional acts as a Fiduciary without caveat or exception. Why is this critical? To ensure the guidance and advice you are receiving is being provided for the exclusive benefit of your portfolio’s ultimate beneficiaries and free from conflicts of interest. This relationship establishes a necessary foundation for successful investment portfolios–trust.

These five annual check-up items are not meant to be an all-inclusive list. However, there is a common theme that runs through each of them. Namely, boards should set aside the necessary time to fully understand the structural elements of their investment portfolio. If there is ever something that doesn’t jive with your understanding of the way things should be, the board should foster an environment where anyone is comfortable asking “why?” One more thing–be nice to the “noobs” at the gym.