HOW WE ADVISE PARTICIPANT DIRECTED RETIREMENT PLANS

The first step in this process is to determine the number and type of investment opportunities that should be offered on a Plan’s menu so that each participant has the opportunity to choose between meaningfully different investments in order to create is or her own unique portfolio. The second step is to engage a professional firm like Stellar to serve in a fiduciary capacity to create and manage your investment menu.  Your Investment Policy Statement should reflect that the Plan Sponsor has distributed the fiduciary responsibility for managing the investment menu to the investment adviser.

Stellar uses multiple sources to conduct statistical, risk, and performance related analysis (i.e., quantitative analysis) as a first step in recommending and monitoring investments to be used in creating an investment menu. The next step is to focus on the management philosophy, process and people related factors (i.e., qualitative analysis) that characterize investment managers. These factors include its professionals, the organizational structure, and the investment philosophy and process. We are interested in whether the firm can continue doing what it has done well in the past, and is improving on things it has not done well. We want to understand what risks the manager is taking and if those risks are being handled properly. These factors provide a deeper insight into what a firm can do in the future. This combination of quantitative and qualitative analysis is invaluable in the review, selection, and termination of investment managers. Managers with solid investment philosophies and disciplined approaches typically achieve optimal returns with minimal risk.

It is as important to know when and why to hire an investment manager as it is to know when and why to terminate one. Performing consistent and routine due diligence on investment managers and portfolio make-up with the purpose of assessing changes in allocation or the managers used, can have a significant and positive impact on the performance of a participant’s investment portfolio. Taking care of the details is the first step in managing the big picture. What we are on the lookout for are changes to the status quo that would trigger a manager change. Terminations are rarely an overnight occurrence and are the result of a methodical process that seeks to determine if the changes represent significant and insurmountable issues for the fund. If an investment manager is faced with issues of that kind, we will attempt to replace that manager as soon as reasonably possible.

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Portfolios are prudently managed by integrating your specific investment objectives with the prevailing opportunities and risks presented in the investment markets. In our opinion, the resulting portfolios reflect the best method of achieving your investment objectives.

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