Consulting Services

Investment Policy Development and Review

The Investment Policy Statement is the single most important step towards investment success for clients. Written statements outline long-term risk/return targets, identify performance goals and evaluation procedures, and state allowable and restricted investments.

Equally as important as having an investment policy statement is reviewing it with regularity to ensure that the changing needs of each company are accommodated. Additionally, our consulting team proactively monitors investments on an ongoing basis to confirm policy compliance. As plan sponsors, you must ultimately develop an investment philosophy and a strategic plan. You must then implement, have continual knowledge of and oversee the investment program. You are expected to make educated decisions that maximize the benefits and meet your company’s specific objectives. This step is a key element of our client service process.  The Investment Policy process helps us and the key decision-makers understand their attitudes on the long-term economic climate, the fund’s income needs, desired asset allocation, perceived risk tolerances, policy constraints, and other pertinent investment considerations. This process helps develop an investment strategy that will maximize the probability of achieving investment objectives needs within the time horizons and risk tolerances of the account. Below is a diagram of OSG’s Investment Policy process.

Asset Allocation Analysis

Studies have shown that asset allocation is the principal determinant of a portfolio’s long-term investment return variance. Asset Allocation modeling evaluates a wide variety of asset classes and portfolio style combinations to best achieve particular investment goals. Our modeling process analyzes different risk parameters with our client’s investment goals in mind, ultimately forming the basis for a well-conceived risk control plan. In accordance with investment policy, your company’s asset allocation model should take into consideration

  • The anticipated financial needs of the company, and
  • An optimal return/risk profile

Over the long-term, we believe your company's objective is to optimize the net worth of the organization and increase the capital value of the investment portfolio. In meeting these objectives, we help your company set an asset allocation that will help:

  • Earn a competitive rate of return versus benchmarks and peers over a complete market cycle
  • Maximize after-tax investment income
  • Fund the claim liabilities of the company
  • Protect the surplus in order to increase and maintain stability
  • Integrate investments into overall corporate objectives

The importance of asset allocation* to any portfolio’s success is a matter we feel strongly about. For our institutional accounts, a successful asset allocation accomplishes the following:

  • Analyzes Cash Flow Requirements and Funding Status
  • Identifies Acceptable Asset Classes for Investment
  • Develops Expectations for Capital Market Performance
  • Identifies Efficient Portfolios Of Various Asset Classes
  • Evaluates the Risk/Return Tradeoffs and Probabilities of Attaining Goals
  • Assists in Selection of Long-Term (Strategic) Asset Mix Policy

    *Asset Allocation cannot eliminate the risk of fluctuating prices and uncertain returns

Investment Manager Searches

We take an objective view during our research process and also when hiring and firing investment managers. We view ourselves as partners with our clients, working with the boards, committees, and commissions of the entities, as well as the staff and management. 

Through our proprietary database and those databases we purchase, The Optimal Service Group (OSG) maintains data on over 2000 managers, both domestic and foreign. Zephyr, PSN, and Morningstar databases contain information on over 2,000 investment advisory firms and 10,000 investment products covering the growth, value and core investment styles in large, mid, small, and micro-cap domestic equity, developed and developing international managers, real estate, fixed income and alternative investments. Each manager that we consider completes an extensive questionnaire detailing the facts of their firm.

In conducting a manager search, we encourage our clients to participate actively in the development of the qualifications and constraints that managers must meet in order to become genuine candidates.  We will also include any investment managers the investment committee would like to have considered or if there are existing relationships that the client wishes to maintain.

The first step of the search is to identify managers who meet some basic criteria such as size, assets managed, performance history, investment style, compliance issues, or ownership structure.  The initial list of “qualified managers” is then screened for superiority of qualitative characteristics discovered during our manager evaluation process.

Investment managers are screened according to the client’s specific needs and limitations, such as the type of management desired, size of the account and geographic location of the manager.  Both quantitative and qualitative analyses are used to determine appropriate manager candidates.  When analyzing investment managers, many factors are considered including:
  • Consistency of performance
  • Controls (risk measurement, volatility control, adherence to firm and client guidelines)
  • Portfolio managers’ workload
  • Account services
  • Experience with particular types of plan sponsors (i.e., Public, Taft-Hartley, Trusts)
  • Typical account size
The preceding list is not all-inclusive.  A major consideration is that this is a people business.  Therefore, we take into account our impressions of the people who would be making your portfolio decisions and the soundness of their investment disciplines.  The policies and attitudes of those who make these decisions are critical to our entire evaluation and its importance cannot be overstated. 
The Wells Fargo Investment Institute (WFII) produces a Watch Level list, with rankings of 1 to 3, that essentially rank a manager that has an instance, mild, moderate or severe, where more attention needs to be given, whether its performance, structure, or operations related. OSG follows the same watch list internally for manager reviews.

OSG also relies heaviliy on the Global Manager Research group (GMR), a division of WFII that evaluates, recommends, and monitors both traditional and non-traditional investment managers and products for clients of Wells Fargo Advisors. GMR offers a proven and prudent research process utilizing world class investment research technology maintained by one of the most stable and well-managed financial institutions in the world.  They employ a dedicated research team of over 25 investment analysts, including 16 CFA charter holders and 3 CAIA charter holders. GMR relies on this team of seasoned analysts to examine and provide insight into the quality of each investment strategy from the bottom-up, execute a methodical and systematic approach to the manager research and selection process, and assess each investment product fairly and objectively. To ensure close contact and the necessary professional relationships with investment managers, GMR analysts are based in multiple locations across the U.S., as well as in Hong Kong and London. By having a presence outside of the U.S., GMR is able to enhance our global coverage capability and gather valuable insights through local, unfiltered information. Depicted below is a high level overview of GMR's research process. 




To avoid any potential or perceived conflict of interest, we do not charge direct or indirect fees nor are we compensated in any way for managers to be included in our proprietary list of recommended managers. We believe objectivity is critical to the success of our clients’ investment plans.

Performance Evaluation and Reporting

Our investment monitoring process is comprehensive and has both qualitative and quantitative components. We use risk/return comparison analysis to evaluate a portfolio’s rate of return in relation to the volatility of those returns. For instance, by analyzing the standard deviation of quarterly returns, we gain an understanding of the dispersion of the investment results (the volatility of that particular investment portfolio). We use Sharpe ratio to measure the excess return per unit of risk. The Sharpe ratio relates to the difference between the portfolio return and the risk free rate to the standard deviation of the difference for a given time period. A higher relative Sharpe ratio means the manager is achieving higher returns for the amount of risk they are taking. Beta, a statistical measure of volatility (risk), is also used to indicate the sensitivity of a portfolio’s movements to the market index. Higher beta portfolios are expected to outperform in rising markets but under perform in falling markets. We also evaluate r-squared, or the coefficient of determination, to provide confidence in the overall strength of the comparison used. When evaluating portfolio returns, several comparisons are considered: Index Comparisons, Universe Comparisons, and Rolling Period Analysis, Benchmark Comparisons, Attribution Analysis, and Fiscal Year and Since Inception Comparisons since these unique time periods are often more meaningful to our clients.

The quarterly performance reports are highly customized to reflect the investment information pertinent to the fiduciaries of a given plan. These reports include a capital markets and economic overview, summary of performance by total fund and individual managers versus comparable benchmarks, asset allocation versus policy guidelines, financial reconciliations by total fund and individual managers, performance attribution by manager, peer group comparisons, and characteristics by manager versus their respective indexes. The primary section is a customized written executive summary that specifies attribution and any concerns or issues of which we believe the organization should be made aware. We will always make a recommendation to your company whether it is about current investment allocations, managers, investment policy or prospective investment strategies. Our performance reports are in compliance with AIMR Performance Presentation Standards.

We also provide a monthly flash report. The purpose of this custom report is to give management an overview of the quantitative aspects of the investment portfolio, including asset allocation, total portfolio return, and individual manager returns versus appropriate benchmarks. This report is typically available within 7-10 business days following the close of the month, depending on availability of the custodial statements.

Fiduciary Education

We firmly believe that an educated committee is the most effective. We understand that not all committee members have equal knowledge of given investment-related topics. As part of our comprehensive package, we are pleased to provide educational sessions to committee and staff members. In the past, we have conducted sessions on topics such as fiduciary responsibility, specific aspects of the economy, unique fixed income asset classes such as convertible bonds, and the pros and cons of emerging equity market investing. In addition, we provide Due Diligence reports, various general investment research educational pieces, economic reviews, and capital market research.

Economic and Capital Market Research

With some of the industry's top market strategists and research analysts, the Wells Fargo Investment Institute (WFII) focuses on innovative and actionable investment advice. The Institute compromises more than 100 experienced investment profesionals fro across the globle, all forming teams that come from a broad range of backgrounds, bringing expertise in the fields of macro analysis, finance, risk management and many others. WFII provides in-depth analysis on equites, fixed income, real assets and alternative investments. WFII publishes updates, on every time basis, on the investment landscape and timely reports driven by market events. Equally important, strategists and analysts are readily available to speak with our clients to address specific needs. In addition, WFII strategists are regularly sought after to share their expertise with highly respected national financial news networks and publications. 


Services Unique to Our Insurance Company Clients

  • Surplus Stress Testing
  • DFA (Dynamic Financial Analysis) Modeling
  • Peer Company Analysis
  • SRQ (Supplemental Rating Questionnaire) Preparation
  • AM Best Investment Preparation
  • Cost Analysis
  • Gain/Loss Management
  • Tax Optimization and Crossover Strategies
  • Evaluation and selection of custodians
  • Fixed Income and Equity attribution analysis
  • Overview of Rating Agency and Regulatory Implications
  • Manager Fee Negotiation
  • Market/Economic Sensitivity Analysis
  • Cash Flow Projections

In addition, we have developed the below chart to describe our beliefs regarding the benefits and issues surrounding a book yield and total return approach for insurance clients. We will work with you closely to help determine which approach is best for your organization.

Strategy Focus Benefits Issue Types of Investors
Total Return
  • 100% Investment Flexibility for Manager
  • Long-Term Appreciation Potential
  • Easier Performance Measurement
  • Volatility in Investment Income/Book Yield
  • Realized Gain/(Loss) Volatility
  • Potentially Higher Turnover
  • Tax Considerations
  • Mark-to-Market Investors
  • Well Capitalized P&C Companies
  • Some Health Care Companies
  • Addresses Liability Payout Requirements
  • Easy For Security Analysts and Rating Agencies to Assess
  • Lower Turnover
  • Less Realized Gain/(Loss) Volatility
  • Buy-and-Hold Strategy
  • Less Investment Flexibility
  • Harder Performance Measurement
  • Define/Restate Target Income/Yield Levels
  • May Interfere with Duration/Convexity Management
  • Most Life Companies
  • P&C Companies Not Well-Capitalized
Total Return With Income and Gain/(Loss) Management
  • Focus on Total Return Within Booked Income and/or Gain/(Loss) Constraints
  • Meets Internal and External Objectives
  • Harder Performance Measurement
  • Develop Total Return and Income Performance Benchmarks
  • Total Return and Income Could Conflict
  • Stresses Client/Manager Dialogue
  • Life Companies
  • Domestic P&C Companies
  • Some Health Care Companies

***As of 06/30/2014.  This information is being provided for informational purposes only and is not a solicitation or offer to participate in a trading strategy.  The strategy focus discussed may not be suitable for all investors.