What Does an Investment Committee Do?

Workplace retirement plans, such as 401(k)s or pension plans, are governed by a complex set of rules and regulations that can be challenging to navigate. These plans are often overseen by an investment committee responsible for managing the plan’s assets and ensuring compliance with fiduciary duties. A financial advisor can also help you decode these complexities, optimize your retirement strategy and align it with your long-term goals.

What Is an Investment Committee?

An investment committee governs and oversees an investment plan or strategy, such as for sponsored retirement plans. However, their influence stretches beyond retirement plans. For example, a corporation may appoint a committee to oversee company investments.

The members of an investment committee can be drawn from the company’s board of directors. The committee may work with the company’s Chief Investment Officer (CIO) to shape investment policy. However, with qualified retirement plan or pension plan, the plan sponsor may draft a charter detailing committee selection. Meanwhile, it may address the number of people who can serve on the committee at any given time.

Members of an investment committee may not require financial or investment expertise, and the size of the committee can vary. For example, some require just a handful of members, while others have dozens. However, investment committees must choose members dedicated to investment oversight.

Investment Committee Duties

Members have certain responsibilities and duties they’re expected to carry out, including:

Establishing investment policy: One of the most important roles of the investment committee is creating a written statement of investment policies. This policy doesn’t necessarily outline what investments will be made. However, it does dictate how to manage a plan and how to choose managers. It also determines the benchmarks that measure performance.
Oversee the implementation of investment strategies: After finalizing the investment policy statement, the committee then decides how to implement the policy. For instance, the CIO or plan sponsor may make recommendations for a fund manager. Then, the investment committee can review and approve them.
Track investment performance: The committee chooses investments, sure. But, more importantly, it measures how well those investments perform. A committee compares the performance of an investment strategy against the benchmark it’s attempting to meet or surpass.
Conduct financial reviews: At least once per year, the committee should review the financials of its retirement plans or investment companies. This can give the committee a sense of the plan or company’s overall financial health.

Members of an investment committee may have additional duties, as well. However, it depends on how the committee is structured. But these four responsibilities are at the core of the committee’s work, and protect the interests of those who participate in an investment plan.

Why an Investment Committee Is Important

An investment committee tracks fund performance.

Investment committees serve various functions, but their primary goal is to ensure the plan meets its investment objectives. Supporting the CIO of a company or a retirement plan sponsor, an investment committee acts as a fresh set of eyes, offering valuable perspective and insight.

The role of an investment committee is to objectively evaluate the goals of the plan or investment entity and develop strategies to achieve them. By establishing a system of checks and balances, the committee helps foster accountability and supports responsible investing practices.

Investment Committee Best Practices

When it comes to carrying out its duties, there are certain do’s (and don’ts) that can make an investment committee successful. With no universal standards for such committees in place, professionals recommend these best actions:

The role and responsibilities of the investment committee should be clearly defined in the investment policy statement or the committee charter.
The committee should clearly understand the goals and objectives of the investment portfolio or the plan it’s overseeing.
Committee members should understand the process and standards for choosing or terminating investment managers.
Members should be willing to ask questions about topics or subjects they don’t understand, or question policies they don’t necessarily agree with.
The investment strategy adopted by the committee should outline both risk and return potential.
Committee members should take care to avoid potential conflicts of interest.
The committee shouldn’t be too large to be unmanageable, nor too small to allow for a diverse group of opinions and viewpoints.
Committee members should be rotated in and out regularly, with outside help from consultants called in when necessary.
An investment committee should ensure that it understands and adheres to all legal regulations under ERISA.
The committee should properly and accurately document all of its activities.

Again, they can set flexible guidelines. But those rules can be useful to companies and plan sponsors for setting appropriate boundaries and expectations when establishing an investment committee.

Bottom Line

An investment committee reviewing policies.

An investment committee plays a crucial role in supporting plan sponsors and investment firms. Its members assume specific responsibilities to develop a solid and reliable investment strategy, offering peace of mind to both organizations and individual investors who depend on these plans for their financial goals.

Investment Tips

Consider talking to a financial advisor about how to investing in your 401(k) or a similar plan, or how to plan for retirement if you don’t have access to a retirement account at work. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you participate in a 401(k) or similar retirement plan at work, it’s a good idea to review your account annually. Check your contribution rate. Try saving at least enough to get the full company match, if there is one. Review individual investments to see how well they performed over the past year and what you’re paying in fees. Consider increasing your contribution rate or making investment adjustments if you’re angling for better returns.