Ignoring risk is folly, especially when the downside could be complete ruin for a business or investment portfolio. That’s why it’s essential for risk managers to persuade others to pay close attention to things that go bump in the night and then figure out a way to prevent loss, to the extent possible. Unfortunately, risk management is often seen as dull, overly complex or unlikely to be a path to career advancement. I know this firsthand. Having worked in various corporate settings, risk managers have few fans. They are the people who say “no” or ask others to gather data and documents instead of doing the kind of glamorous work that adds to one’s bottom line. Risk management is a thankless task until it isn’t. When the stars align, no one cares about managing uncertainty. It’s the “oops” moments that remind the world why taming risk before disaster occurs is a big deal.

For frustrated risk managers, there is hope, especially if you are willing to tweak your communication skills in pursuit of a worthy cause. Don’t take my word. Check out what Scott Adams Says.

According to the creator of the successful Dilbert cartoon strip and author of bestselling books such as How to Fail at Almost Everything and Still Win Big, simplicity is a core element of convincing others. In his recent video about doing laundry, I laughed out loud when he explained how he avoids the risk of discoloration. Buy clothes that don’t have to be washed separately. It’s such a basic and obvious solution that one wonders why it’s not more commonplace. (As I write this post, I’m wearing yoga pants and a sweatshirt with spots from something else I mistakenly cleaned in the same load.)

In one of Adam’s many insightful essays, the reader learns that another persuasion technique involves the use of visuals, especially those that appeal to people’s emotions. In investment land, think about the photos of senior citizens who lost retirement money in 2008 juxtaposed next to images of wealthy bankers with cigars and fancy cars. Regardless of case-specific facts, such powerful images scream “good” versus “bad.” It’s no surprise that financial service ads tend to focus on comforting images whereas political commercials show pictures likely to rile voters.

Yet another tool in the persuasion toolbox is what Adams describes as the “high ground maneuver” or the art of advancing an argument to a level that garners widespread agreement, thereby trivializing any other position. For fiduciaries being sued over their management of other people’s money, they might silence critics by demonstrating (if they can) how their risk management actions broadly advantage beneficiaries such as retirees or endowment recipients. The goal would be convincing others to overlook short-term strategy misdirection in pursuit of a lofty and prudent long-term focus.

When it comes to risk management, it’s not just about numbers. Rallying others to do their part is critical. One has to be an effective cheerleader to grapple with the unknown. I’m convinced that this persuasion “thing” has legs. That’s why I’ve just pre-ordered Win Bigly by Scott Adams for a dose of wisdom and a few chuckles.

If you missed the Strafford continuing legal education webinar on September 12, click here to download the slides about ERISA investment committee governance. The ninety minutes flew by, with each speaker having lots to say. Attorney Emily Seymour Costin addressed ways for companies to minimize the risks of being party to an ERISA lawsuit or, if sued, how best to mount a defense. Insurance executive Rhonda Prussack talked about ERISA fiduciary liability coverage. I gave an economist’s perspective about conflicts of interest, delegating to a third party such as an investment consultant, facts and circumstances considered by a testifying expert and fiduciary training.

I also broached the topic of benchmarking fiduciary actions as vital to good governance, something that deserves significant attention. Certainly policies, procedures and protocols can vary across ERISA plans. However, the importance of assessing whether committee members are doing a good job is universal, regardless of plan design.

One way to grade job performance is to create a matrix of relevant attributes and compare actual deeds to expectations of what a prudent investment fiduciary would do in similar circumstances. Although overly simplistic, the image above illustrates the general notion of ranking decisions from great to bad or somewhere in between. For a specific engagement, a scorecard would be much larger because there are dozens of categories to examine.

My recommendation to anyone with ERISA fiduciary responsibilities is to engage outside counsel for a fiduciary assessment and then have the law firm bring an investment expert on board to address economics, risk management and industry norms. By self-assessing, with the help of knowledgeable and experienced third parties, investment committee members have a golden opportunity to improve weaknesses and recognize areas of strength. When there are multiple solutions to a given problem, something that is more the norm than not, brainstorming with meaningful metrics can be invaluable.

According to the authors of “A Nurturing Campaign” (Financial Advisor Magazine, August 1, 2017), other investment industry professionals are key to securing leads for your business. Savvy advisors, consultants and money managers know the importance of cultivating relationships with peers, positioning one’s self as a competent technician and being ready to reciprocate as appropriate.

I agree that effective networking is the way to go. Besides the prospect of adding clients, investment professionals benefit when others are willing to candidly exchange information about ways to improve best practices and avoid mistakes.

Not everyone is a believer. It takes time and money to market your skill set to potential clients. Some posit that leaves little time for outreach to others, especially for those whose “to do” lists seem to aggressively expand each day. This kind of thinking is unfortunate. The world is a small place and today’s competitor could be a close ally later on.

To those who do seek referrals (and hopefully give them when you can), I applaud your initiative but would like to respectfully remind you that your request is only a beginning. Be clear with what you want, when you need an introduction and what you expect. Help others help you build your book of business by recognizing their busy schedules and any limitations they might have about being able to provide effusive praise. (Company policy or regulations could prohibit lengthy or detailed referrals.) By asking someone to do the heavy lifting you should be doing, you risk criticism for taking that individual for granted, coming off as impolite or turning a positive connection into one tainted with a hint of annoyance. I know this from firsthand experience.

Just last week, I received two separate requests for recommendations, both of which ended costing time and frustrating everyone involved. The first person asked me to write a recommendation letter and have it sent one day later. Ordinarily I would have said no because of the short turnaround but I like the high-integrity work this person does and his client focus. So I stayed late at work to write something, only to discover that the directions provided to me were incomplete. The net result was that I used up several hours of time and he could not meet the cutoff. Another individual gave me ample time to write a recommendation letter but told me, after I had already spent about ninety minutes drafting text and reviewing her service materials, that I should revise my letter to include passages of her numerous research papers. Of course I would have to take time to read them in depth as it had been awhile since I looked at them. We mutually agreed that she would ask another colleague – someone with the schedule flexibility to review her impressive portfolio of thought leadership items.

A few of my takeaways from these recent experiences are as follows:

  • It’s gratifying to be able to recommend high integrity, knowledgeable colleagues but important to set boundaries in terms of time and realistic expectations.
  • Arrange for a call to ask for a recommendation or referral. Email seems impersonal to me for this purpose and increases the likelihood that the referral source will waste time because instructions were unclear or incomplete or both.
  • During the call, catch someone up on what you’ve been doing and your professional value-add so everyone is clear on your achievements, business philosophy and goals. Let the recommending party ask you questions. Be specific about how the referral will be used and by whom.
  • Afterwards, send a handwritten note to acknowledge that person’s gift to you of their time, energy and belief in the positive way you handle clients.

Small courtesies can grow into large payoffs. It’s hard enough to stand out from the competition. Why not shine by demonstrating courtesy and respect for other people’s time?

Economist Dr. Susan Mangiero is pleased to announce that she will be speaking during an upcoming Strafford Live webinar on September 12, 2017 from 1:00 pm to 2:30 pm EST. The Continuing Legal Education (“CLE”) webinar is entitled “ERISA Plan Investment Committee Governance: Avoiding Breach of Fiduciary Duty Claims.”

She will be joined by a prominent ERISA attorney and a senior-level ERISA fiduciary liability insurance executive to discuss risk mitigation approaches that have the potential to help lower the likelihood of breach of fiduciary duty allegations. This program will also address effective litigation strategies, the importance of fiduciary liability insurance and the role of the economic expert in the event of litigation, arbitration, mediation and/or regulatory enforcement actions. Court cases including the recently adjudicated Tibble v. Edison matter will be discussed as part of the program.

Please join the distinguished faculty for what should be a relevant, timely and important conversation about suggested protocols and bad practices to avoid. For more information or to register, visit the Strafford website or call 1-800-926-7926, extension 10. Mention code ZDFCT to qualify for a fifty (50) percent discount. If you have questions you would like answered, please let Strafford know in advance or on the day of the live event.

new edition, 3D rendering, triple flags

During the last several months, I’ve been working with the terrific team at Lex Blog to consolidate my two business blogs – Pension Risk Matters® and Good Risk Governance Pays®. Now I’m back, raring to post commentaries and research updates about investment risk governance and fiduciary practices. I’ll plan to toss in a few essays about living the good life along the way.

Eleven years ago, I created Pension Risk Matters® with the objective of providing insights and information about investment governance and fiduciary best practices as relates to the management of retirement plans. A few years later, I created Good Risk Governance Pays® to address investment risk governance issues for the broader industry. Traffic to both websites has been robust and always much appreciated. However, in the interest of time and because of continued content overlap, I decided to consolidate the two websites.

Join me as Pension Risk Matters® rebrands as Investment Best Practices® and Good Risk Governance Pays® is phased out. Suggestions and guest posts are welcome. Simply email contact@fiduciaryleadership.com. For a complimentary subscription, visit www.investmentbestpractices.com and type your email address in the “Subscribe” box in the upper right hand corner of the home page. You can also add this blog to your RSS feed via www.investmentbestpractices.com/feed/.

Let’s keep the conversation going! There is a lot to discuss.

Last year, I celebrated a decade of posting investment governance insights to Pension Risk Matters. This year, I have two reasons to say "hooray." March 23 marks the eleventh year of posting analyses, research updates and essays about managing money, retirement planning and mitigating uncertainty. In addition, it is the debut of National Fiduciary Day. Sponsored by Fi360, the goal is to encourage individuals to be good stewards of other people’s money. 

Given our shared commitment to investment fiduciary best practices and the fact that I am certified by Fi360 as an Accredited Investment Fiduciary Analyst, I asked the organization’s top officers for their thoughts on this special day. They were kind enough to oblige.

Executive Chairman Blaine Aikin says "Happy Anniversary, Susan! Congratulations on having achieved 11 highly productive years of blogging. It’s only fitting that this comes on Fi360’s National Fiduciary Day. Keep up the great work and thank you for your valuable contributions to the profession!" Fi360 Director J. Richard Lynch adds "We have appreciated our long standing relationship with Susan as an AIFA designee and in particular, her contributions to the fiduciary discussion through her blog and as a past speaker at our annual conference."

There are lots of us who long ago recognized the importance of perturbing the conversation about investment governance. This includes the roughly 1.2 million visitors to Pension Risk Matters, many of whom have not been shy about offering their views. I am grateful to them all and look forward to a continued exchange of ideas.

The issue of excess has been on my mind lately, mostly focused on my fragrance collection but now expanding to the topic of investment risk management. More specifically, as I continue to lead workshops about retirement plan risk management for the Professional Risk Managers’ International Association ("PRMIA"), I am pondering whether too much of a so-called "good thing" makes sense. 

By way of background, friends and family know I am a perfume aficionado. Yes, the ubiquitous "free" gift with purchase is a plus but I do truly enjoy trying new scents. I’m not alone. According to a February 23, 2016 article on the Beauty Stat website, 2015 sales of "prestige beauty" products grew more than seven percent to $16 billion and "mass beauty" product sales climbed two percent to nearly $22 billion in the United States.

Colleagues know that I have spent several decades in the risk management industry with positions that include trading, compliance and expert testimony, depending on the year. I am the author of an entire book and dozens of articles about investment risk governance. I strongly believe in the importance of establishing an appropriate risk management protocol, following said policies and procedures and regularly reviewing whether risk management actions are effective or need to be tweaked. I likewise believe there are lots of retirement plans that should be doing much more when it comes to identifying, measuring, managing and monitoring relevant risks.

Coming back to this issue of "too much" risk management, the critical question is whether investment fiduciaries can be too cautious. Most reasonable people would likely say "yes." Regardless of plan design, if an investment portfolio is overly skewed to seemingly safe assets or funds of "safe" assets, expected return could be insufficient to meet long-term needs. A discussion about what constitutes "safe" assets is left for another day except to say that every investment has some risk. Even putting one’s money under the bed could be risky if the house burns down. Another consideration is the cost of hedging. There is no free lunch. All fees and expenses associated with risk management, including the cost of putting a good technology system in place, should be part of any risk-adjusted performance assessment.

Retirement plan fiduciaries and their advisors are well served by identifying primary goals, major obstacles and both short-term and long-term nightmares that would generate serious pain for participants. Said differently, risk management, like perfume, is a good thing unless it prevents someone from achieving important milestones. As for me, I just bought a new bottle of perfume but resisted buying the other two I wanted. This should help me with my goals of decluttering and save more money.

As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the March 2, 2017 learning event. Distinguished economist Dr. Lee Heavner will join me to talk about hedging techniques, the valuation of derivatives and structured products and the monitoring of investment-related risk as part of "Use of Derivatives in Pension Plans." Click here to read Lee Heavner’s impressive bio as a managing principal and financial expert with Analysis Group, Inc. Dr. Heavner and Dr. Mangiero have worked on multiple investment disputes and are the authors of "Economic Analysis in Fiduciary Monitoring Disputes Following the Supreme Court’s ‘Tibble’ Ruling" (Bloomberg BNA Pension & Benefits Daily, June 24, 2015).

Session Two will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the second event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Current usage of derivatives by retirement plans for hedging purposes;
  • Financially engineered investment products and governance implications;
  • Fiduciary duties relating to monitoring risks and values of derivatives and structured products; and
  • Suggested elements of a Risk Management Policy Statement.

Join us for this talk about an important issue – risk management for retirement plans!

As a follow-up to my January 12, 2017 announcement about retirement plan risk management education with the Professional Risk Managers’ International Association ("PRMIA"), I am delighted to announce a co-presenter for the February 23, 2017 learning event. Distinguished attorney Meaghan VerGow will talk about ERISA litigation and fiduciary risk management as part of "Establishing Risk Management Protocols for Defined Benefit Plans and Defined Contribution Plans." Click here to read Meaghan VerGow’s impressive bio as law firm partner and ERISA expert with O’Melveny & Myers LLP.

Session One will convene from 10:00 am EST to 11:15 am EST live this Thursday. If you cannot make it in real time, the event can be downloaded for later viewing. It is the debut event of four CPE-qualified events. Speakers will examine risk management for retirement plans from both a governance and economics perspective. Topics to be discussed include the following:

  • Procedural prudence and the costs of ignoring fiduciary risk;
  • Risk management differences by type of retirement plan;
  • Industry norms and pitfalls to avoid;
  • Role of Chief Risk Officer, investment committee members and in-house staff; and
  • Suggested elements of a Risk Management Policy Statement.

Visit the PRMIA website to register for Session One and read about course content for Sessions Two through Four. Our exciting roster of co-speakers for these future events will be posted shortly on this blog at www.pensionriskmatters.com

For those who are unaware, I created an investment compliance and risk management blog a few years ago called Good Risk Governance Pays®. Although I mostly provide insights that are unique to each website, from time to time I do repeat an entry if it makes sense. In the spirit of providing educational write-ups about topics that are important to all types of institutional investors, I invite readers of Pension Risk Matters® to check out "Trading Ahead of Investment Policies and Procedures" and to sign up for email notices when new items have been added to the Good Risk Governance Pays® blog. This February 1, 2017 entry addresses the advantages of having guidelines such as an Investment Policy Statement. Otherwise, it could be challenging to detect rogue trading.