Investment Monitoring: If You Aren’t Talking to Your Client About it, Someone Else Is

Investment Monitoring, sometimes called Investment Oversight or Investment Monitoring and Oversight, is growing field of advisory services that blend traditional accounting oversight skills, like tax basis analysis and verification, with other compliance-like skills, such as internal control evaluations and risk assessments. It makes sense that in the last ten years, as the field of corporate compliance and risk management grew to meet new regulatory demands, the same concept would migrate into family investing.

Corporate compliance and risk management evaluates internal policies, externally imposed regulations and reporting requirements, and synthesizes both with an eye towards performance and efficiency. The same holds for Investment Monitoring and Oversight. As corporations invest heavily in compliance functions and departments, so have some banks and financial services companies. For example, the accounting firm PKF O’Connor Davies offers clients advice on creating investment monitoring plans, so that the clients can direct oversight efforts to their particular needs – whether that is focused more on reporting and regulatory areas or more on wealth preservation and tax management. While some investment oversight companies, such as G&O Financial, focus on investment manager performance, such as fees and wealth generation, others, like Triangle Capital (and PFK O’Connor Davies) blend both performance monitoring with more compliance-based functions. Triangle Capital explains that it increases or decreases its investment monitoring as needed based on the risk involved with a particular investment. If through regular risk assessments the company is notified that the risk for a particular investment has increased, Triangle Capital will move to more aggressive monitoring of the investment.

Some companies divide the work they do in investment monitoring into broader general categories. For example, Curio Webb works on governance and policy, investments, fees and expenses, and communications. This broader approach is similar to enterprise risk management in a business setting. In traditional risk management, risk is assessed at a departmental level and is often response oriented (hazard based). In enterprise risk management, risk is evaluated based on the organizations overall goals, and risk strategy is baked into corporate decision-making. Enterprise risk management measures results based on achievement of goals and efficiency, rather than total cost of risk.

It stands to reason that if your client’s business culture is moving from a traditional risk management model to an enterprise risk management model, they are more aware of the benefits of oversight and monitoring.  Clients who work for companies moving towards enterprise risk management may be more likely seek out investment monitors with a broader range of services, having seen the benefits of enterprise risk management at their places of work.

That means if you aren’t aware of how investment monitoring can benefit your client and change the kind of information you communicate to your client, that client may tune you out and tune into someone else who is focused on oversight and monitoring. Companies like British company Praxis IFM even incorporate risk management into their marketing materials about their investment monitoring.

It may also be vital to understand how investment monitoring groups rate the performance of investment managers and financial advisors. A change in how performance is viewed, or overseen, by the investment monitor may indicate a change in how clients view your performance. If in the past performance was measured predominantly by wealth generation and fee structure, but is now measured by compliance, risk management, and communication, as well as the previous performance measures, you might not measure up to your competition.

Incorporating an understanding of risk management and assessment into your services, whether you perform them or not, could help your clients who do choose to engage an investment oversight or monitoring firm. Just as more clients look for investment policies and for advisors to show adherence to an investment policy, more and more clients may be looking for ways to monitor and oversee other aspects of investment management than wealth generation and tax implications.

In short, if you aren’t talking to your clients about investment monitoring, and how your services measure up, someone else might be!