Investment Change Evaluations

Essential Questions for Plan Sponsors

Learn your investment consultant's value add/loss and discover patterns that can be used to improve future investment decisions.

If your investment consultant has discretionary authority, our unique performance metrics can provide ongoing scoring of their value add/loss.

Although participants have choice, many plan changes are left to the plan sponsor. Score those decisions and improve future decisions.

The investment consultant is critical to plan success. A professional and thorough search will ensure the right fit for ongoing success.

Is your investment consultant adding value? You can try to guess, but if you rely solely on your investment consultant's reports, you will find it impossible to answer.

Fiduciary Protection

Monitoring the investment process is paramount for a fiduciary. Our objective analysis gives peace of mind.


Our studies provide insights not available in standard investment reports.

Apply the Results

Our studies will improve the investment process and future decisions.


Our studies will continue to help beyond the initial report.

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  • keller
    The greatest tragedy in life is people who have sight but no vision.
    -Helen Keller
  • stevenson
    Change is inevitable. Change for the better is a full-time job.
    -Adlai Stevenson
  • sarnoff
    Finance is the art of passing currency from hand to hand until it finally disappears.
    -Robert Sarnoff
  • lynch
    The key to making money in stocks is not to get scared out of them.
    -Peter Lynch
  • buffett
    Risk comes from not knowing what you're doing.
    -Warren Buffett
  • churchill
    If you have knowledge, let others light their candles with it.
    -Winston Churchill
  • drucker
    The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.
    -Peter Drucker
  • confucius
    Only the wisest and the stupidest of men never change.
  • franklin
    When you are finished changing, you are finished.
    -Benjamin Franklin
  • buffett
    Wide diversification is only required when investors do not understand what they are doing.
    -Warren Buffett
  • trump
    Sometimes your best investments are the ones you don't make.
    -Donald Trump
  • templeton
    The four most dangerous words in investing are, "This time it's different."
    -John Templeton
  • lynch
    In this business, if you are good, you are right 6 times out of 10. You are never going to be right 9 times out of 10.
    -Peter Lynch
  • churchill
    All men make mistakes, but only wise men learn from their mistakes.
    -Winston Churchill
  • buffett
    Price is what you pay. Value is what you get.
    -Warren Buffett
  • keynes
    The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future.
    -John Maynard Keynes
  • ruth
    Every strike brings me closer to my next home run.
    -Babe Ruth
  • armour
    The best way to win is by making fewer bad shots.
    -Tommy Armour
  • anonymous
    Experience is the best teacher. Except you get the test first, and the lesson second.
  • zwieg
    It's okay to be wrong. It's not okay to stay wrong.
    -Martin Zweig
  • hogan
    Golf is a game of misses. The guy who misses the best is going to win.
    -Ben Hogan
  • kettering
    A problem well stated, is a problem half solved.
    -Charles Kettering
  • anonymous
    When you don't get what you want, you get experience.
  • santayana
    Those who cannot remember the past are condemned to repeat it.
    -George Santayana
  • jefferson
    With the right information, people make the right decision.
    -Thomas Jefferson

Q: Heuristics are a benefit of your services. Can you please provide some more detail and an example?
A:Heuristics are "rules of thumb" that are based on observation of trial and error. By using memory and experience we make better decisions or perform acts more proficiently. Without an objective and accurate memory, it is impossible to learn the lessons of experience and make improvements going forward.

Incomplete feedback loops in investment consultant reports hide these lessons and thus block improvement. Objective analysis to complete the feedback loops create the institutional memory to derive behavioral finance heuristics.

As an example, let us examine a hypothetical investment plan's hiring of active investment managers. Over the last 10 years, this plan hired nine active managers. Six of the nine achieved out-performance versus the benchmark, net of fees. That is a 67% batting average, and the average weighted annual alpha net of fees was 47 basis points. Those are very good numbers. But there is always room for improvement.

Three active managers did not beat their benchmark over the study period net of fees. The average weighted annual alpha net of fees was -248 basis points. The following observations were common to the three managers prior to being hired:

  • All had over 400 basis points of average annual alpha the previous three years
  • All had over 250 basis points of average annual alpha the previous five years
  • All were experiencing large inflows of assets and new accounts
  • All were adding personnel at a rate of over 15% per year the previous two years

When all nine hirings were analyzed, it was determined that shortening the delay of implementation from three to two quarters would have increased positive alpha capture by an average of 86 basis points. This answers the question, "what is the opportunity cost of delay and deliberation?"

In this example, here are five heuristics that can improve future hiring decisions. Four are "red flags" to avoid future missteps. The fifth concerns improving execution.

Similar analysis can also be applied to asset allocation.

Q: Level 2 decisions such as asset allocation and manager selection based on recommendations by the investment consultant are key to investment success. Can you provide more detail and examples of these decisions?
A: Please read Brian Schroeder's white paper Level 2 Diversification: The Missing Level.
Q: How long does it take to perform a Consultant Performance Review, Consultant Search or 401-Focus?
A: All services should take about 3 months from the date of hire to completion. The only delaying variable would be the timeliness of responses from money managers and investment consultants.
Q: Why use Investment Change Evaluations, LLC and not an investment consultant to perform a Consultant Performance Review, Consultant Search or 401-Focus?:
A: There are several reasons ICE is a superior choice. Besides having the necessary skills and experience, the lack of a conflict of interest is the key differentiator. We have seen several instances where an investment consultant has been hired to evaluate a plan's past investment decisions (and investment consultant.) In many of those instances, the evaluating consultant ends up replacing the current consultant. This would not happen as ICE is not an investment consultant and therefore would not be in a conflicted position. For Consultant Searches we believe the highest level of due diligence and seriousness should be applied to finding the best match between plan sponsor and consultant. Again, our specialized and customized service that is free of conflicts would be superior to hiring an investment consultant to perform the Consultant Search.

A Consultant Search will not be performed within one year of completing a Consultant Performance Review or 401-Focus for that same client.

Q: What type of institutional investor would benefit from a Consultant Performance Review or 401-Focus?:
A: All institutional investors that have a non-discretionary consultant arrangement could benefit from a Consultant Performance Review or 401-Focus. These types of investors normally approve or deny recommendations brought to them by their investment consultant and/or professionals. Upon approval or denial, the investment professionals then execute those approved decisions.
Typical plan sponsors would include:
Foundations & Endowments
401(k) and Defined Contribution
Q: What are the benefits a Consultant Performance Review or 401-Focus?:
A: There are two primary and powerful benefits. The first benefit is immediate and the second is long-lasting and profound.

First, monitoring the investment process for reasons of fiduciary prudence is primary. Based on the current state of plan reporting provided by institutional investment consultants, there is an incomplete feedback loop making it very difficult to evaluate investment change success. A Consultant Performance Review will provide a quantitative and objective source for evaluating investment success.

Second, the most valuable benefit of a Consultant Performance Review is how it can be a powerful tool for future investment success. Specifically, successful past changes and patterns can be identified and repeated. At the same time, poor past changes and patterns can be identified and avoided. This combination can greatly improve future plan performance, especially for plans with non-discretionary consultant arrangements.

Q: ICE claims that there are "incomplete feedback loops' encountered by institutional investors. Can you please explain in greater detail?:
A: The current state of institutional plan reporting does indeed have an imbedded shortcoming of information and disclosure concerning asset allocation and manager changes.

There are two primary comparisons provided to institutional plan sponsors regarding portfolio performance. The first is the comparison between overall plan performance versus the 'Plan Benchmark' or 'Investment Policy Index.' The second is the comparison between a plan's money managers and their respective benchmarks.

Both of these performance comparisons have an incomplete feedback loop that should be of concern to an institutional plan sponsor.

First, the overall plan performance versus its Plan Benchmark or Investment Policy Index basically shows aggregated alpha of the various managers versus their benchmarks. It does not show how past asset allocation changes have impacted plan performance. For instance, if a plan made an asset allocation change that was detrimental to plan performance, the Plan Benchmark would also be changed to reflect the decision and therefore mask the impact of the asset allocation change. Similarly, a beneficial asset allocation change would also be masked.

Below is an example of the incomplete feedback loop concerning asset allocation. Imagine an institutional plan had an asset allocation of 50% in large cap domestic stocks and 50% in investment grade, core domestic bonds managed by different active managers. The Plan Benchmark was 50% Standard & Poor's 500 and 50% Barclays Aggregate Bond Index. Now further imagine on Dec 31, 2007, the plan changed its asset allocation to 60% large cap domestic stocks and 40% investment grade, core domestic bonds. And the plan benchmark was also changed on December 31, 2007 to reflect this asset allocation change. Let's assume both managers out-performed their benchmarks by 200 basis points in 2008. And for simplicity, there was no re-balancing nor cash flows. The 2008 performance, gross of fees, would look like this:

Although there was out-performance versus the Plan Benchmark in 2008, the effect of the asset allocation change was not reported. Only the aggregate alpha of the two managers was shown.

Had the asset allocation change at the end of 2007 not been implemented and following the same assumptions above, the return table would have looked like this:

The stock/bond asset allocation change initiated on December 31, 2007 actually cost the plan 422 basis points in one year. However, under current reporting, this would be difficult to ascertain.

The second information deficit concerns manager selection, i.e. hiring and firing a money manager.

When a manager is replaced, one is expecting the new manager to out-perform the old manager going forward. However, unless the subsequent performance of the old manager is tracked and compared with the new manager, it cannot be determined whether or not the manager change was beneficial. A comparison of the new manager's actual performance with the old manager's future composite performance would provide the basis for evaluation.

Q: Would Investment Change Evaluations, LLC act as a fiduciary?
A: Yes. Although ICE will not take discretionary action over plan assets, ICE will perform its duties as a fiduciary for the exclusive and sole benefit of the client and beneficiaries.
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