Behind good investment advice, there’s solid research

How often have you responded to a suggestion from a friend or colleague with the words: “That’s a great idea, but I haven’t got the time to look into it.”? In our fast-paced world, it’s often a challenge to slow things down and consider all the options.

But let’s hypothesize for a moment that you do have the time. What does ‘research’ mean to you?

For many, “Google” is a synonym for research. When we plan a vacation, we consult the customer ratings to find a good hotel. When we organize a dinner party, we can ‘google’ everything from recipes, to table settings, to games that break the ice among the invited guests.

But when it comes to investment research, should we trust research conducted at the click of a button?

Institutional investors such as pension plan sponsors, endowments and foundations place value on consulting firms with strong research capabilities. Each year, institutional investors in the U.S. and Canada participate in surveys conducted by Greenwich Associates, a provider of market intelligence and advisory services to the financial services industry. The Greenwich surveys ask investors to rate consulting firms on important metrics such as their knowledge of investment managers and their ability to provide proactive advice and innovative ideas.

Susan McDermott, Chief Investment Officer for Pavilion Advisory Group Inc., says investment consulting firms with a dedicated research function have a distinct advantage. In the case of manager research, for example, clients want their consultants to know many managers and know them well and meet all of the client deadlines. Clients may perceive that firms without a dedicated manager research team have too many competing responsibilities.

We have specialists and each of those specialists is accountable for the research in their particular area so they are responsible for coming up with best-in-class investment managers, not just researching managers, says McDermott.

The purpose of research is to inform action, and McDermott says both a practical and academic approach are key to generating good investment advice. “Our research looks at what has been proven to work over time but we know that the markets can run in different directions and often times that creates additional risk, even if it’s the right long term strategy. So we try to manage those risks.”

Investment strategies can be creative in a lot of ways. It can be finding that gem that is maybe a new strategy that hasn’t been utilized by a lot of institutional investors. It could be about avoiding market risks when an area is very popular, so being contrarian.

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