Responsibilities of the Investment Manager For Pension Boards, Custody Issues, and Rebalancing

A person is an “Investment Manager” with respect to a retirement system or pension fund under the Illinois Pension Code if such person:

1. is a fiduciary appointed by the board of trustees of a retirement system or pension fund in accordance with Section 1-109.1;
2. has the power to manage, acquire or dispose of any asset of the retirement system or pension fund;
3. is either –
a. registered as an Investment Advisor under the Investment Advisors Act of 1940;
b. a bank, as defined by that Act, or
c. an insurance company; and
4. has acknowledged in writing that he is a fiduciary with respect to the retirement system or pension fund.
5. the terms “Investment Manager” and “Investment Advisor” are used interchangeably.

The Investment Manager/Advisor/Broker with discretion over buying or selling securities for the fund may not be the custodian of the investment instruments.

Pension boards should review percentages quarterly for compliance with the Investment Policy. Funds with assets under $2.5 million are allowed 10% in separate accounts and/or mutual funds, which may not grow in excess of 10% provided that the contract has not been changed.

If market values do not exceed the allowable percentage then no rebalancing is required. Investment Policies of each fund should stipulate the percentage allowable in the various types of authorized investments.

Pension funds invested in separate accounts, mutual funds and/or individual stocks should calculate the market value of those funds to determine the percentage held vs. the allowable percentage under the law. Use the expertise of the Investment Manager to assist with this task. If the percentage exceeds the allowable amount, the fund must reduce the allowable percentage and document the reduction. The reduction as to which investments are sold is at the discretion of the pension board and applies only to the aggregate percentage. Documentation of the percentage calculations should be maintained at the pension fund.

Wealth Management – Interviewing an Advisor

If you’ve made the decision to work with an advisor, you’re going to want to ask them some questions prior to turning over your finances to them. Here’s a list of some of the basics-determine what is relevant for your situation, and work with an advisor whose answers and whose methodology seem to fit with your own thinking. The answers listed here are just for some guidance.

Q: Are you registered with a state agency and the SEC?

A: Should be yes…working with an advisor who is properly licensed means that someone is ensuring that the advisor meets continuing education requirements and follows a mandated list of rules.

Q: What licenses, certificates and registrations do you have?

A: Depending upon the answer, you can do a quick internet search to determine the relevancy-for instance, the CFP is a fairly well-recognized credential, “Certified Financial Planner”. There are insurance credentials, financial planning credentials, and more. To sell insurance in a particular state the provider must be licensed in that state. Ask about educational credentials, continuing education and how he/she keeps up to date with peers and with the industry. Figure out how tech-savvy the advisor is, if that is important to you (if you do everything online, and the advisor is pen-and-paper, that’s not a good match-or vice versa).

Q: What services do you provide?

A: There’s no universal right answer here, but make sure the wealth management advisor you’re speaking to does work in the area you’re looking for-ie, education planning or wealth transfer.

Q: What kind of clients do you serve and how many do you have?

A: The answer here should let you see if you fit within the advisor’s target-if you are still in the mode of growing your portfolio, and only have $25,000 to invest-but the advisor tells you he/she works with million dollar clients-you may not be a priority for him. If the advisor has many clients, you many not get the time you need-which may be fine, if you are looking for a limited amount of advice on a single area of focus.

Q: How long have you been in the business?

A: This is a good question to draw out some personal information about your advisor, to see if he/she is the type of person you’d like to work with. If the answer is “1 year”, you may be initially frightened away-but if that one year has been with a solid mentor whom your advisor still works with, hand-in-hand, that may be just fine.

Q: What is your philosophy of money management? This question can be followed by:

o What types of investments do you recommend?
o What is your area of expertise?

A: Make sure the philosophy of your advisor matches your own (conservative, for example, if indeed you are). Make sure he or she knows what he or she is talking about when referencing types of investments.

Q: What references can you give?

A: If you’ve asked for a referral from a friend you trust, this is less important; if the advisor is new to you, there’s nothing amiss in asking for a reference.

Is a Lack of Financial Education the Reason for Poor Financial Management Decisions in America?

Americans study all of the essential things in school, algebra, science, history, languages and the arts. However, many people wonder why there may be a lack of financial management classes to learn basic financial planning strategies. Many students don’t know the first thing about retirement, savings, credit cards, debt or even basic budgeting strategies. Although some might say this is something that should be taught by parents, today’s parents are the byproduct of the credit card generation; therefore many parents only learned the cause and effect of their financial matters by trial and error.

It is not only the parents that are financially challenged. Even teachers lack the training because of an education system that lacks the teaching of fundamental skills needed to achieve fiscal responsibility. Some of those more savvy in the diligence of their finances may seek the services of a financial management advisor, however given today’s economic turbulence, the very root of the problem has become apparent in our society’s apparent financial illiteracy.

According to a recent survey, over 60% of all high school students failed certain questions about basic household financial management and were not given the proper role models for financial independence. Across the gamut, the media has highlighted examples of adults who have mismanaged their money, losing homes or severely damaging their credit by defaulting on their loan and credit card payments, as well as college students who default on student loans and many other examples. Even big businesses on Wall Street have gone bankrupt and the entire financial system of banking seems to be crumbling right before our very eyes. We expect our youth to learn about proper financial planning and financial management amid a society that has accepted financial failure as the norm?

Today’s Financial Buzz attributes many of these economic problems not entirely to the fault of any one entity, enterprise, or government but instead to the theory that the need for financial management practices should be taught early on to our youth. By teaching everyone how to become financially literate, we could create a society of fiscal responsibility. Instead, it is becoming rare to see a young person who doesn’t abuse credit by either racking up high debt, paying late or even bouncing their checking accounts time and time again by relying on unsafe measures, such as online banking. Some do learn these best practices in college through economics or financial courses, but those students are becoming far and few between.

Some critics say that in order to add any more mandatory courses to the education system would require dropping some other important classes. Other say that the public school system is not supposed to be a lesson in life training manual and that those types of learning exercises should be enforced by parents. However, there are two sides to every coin and with many parents now in deep financial troubles themselves, they may not be the best role models for kids to follow. Foreclosures have reached an all-time high while stocks and securities have reached an all-time low, indicating a big problem with the entire system of financial management and not just a few sprinkled examples here and there.