Transition best practices for plan sponsors and investment committees

  1. Plan ahead. Extra time is key for proper scrutiny and helps to prevent information leakage.
    Often this means having a list of transition providers prepared before the need for a transition arises, with due diligence oversight and contracting completed ahead of time to avoid last-minute delays.

  2. Contract with your transition manager to act as a 1940 Act Investment Advisor and ERISA fiduciary.
    When clients do not require this level of contracting, they must be prepared to engage actively in negotiating and monitoring the transition event, assessing execution cost and quality and attaining comfort with the level of disclosure about the transition manager's business model and sources of potential and actual revenue.

  3. Require that T Standard implementation shortfall methodology be used for performance reporting.
    Time-weighted portfolio performance representing your experience will capture all aspects of performance impact.

  4. Require disclosure of all revenue sources that accrue to your provider and the potential conflicts these may present.
    The model that is perfectly aligned with a client's interests is the pure agency model, which is characterized by the following attributes:

  5. Prevent information leakage.
    Avoid last-minute bidding for a transition management provider and the disclosure of portfolio holdings. Understand how your provider solicits crossing opportunities and how these will be priced, particularly if the provider will represent both the buy and sell sides of a trade.

  6. Be realistic.
    If it sounds too good to be true, it probably is. Considering the extensive list of services required of transition managers, any significant discount in quoted brokerage rates, should raise serious questions about how the provider might be compensated in other ways.

Conclusion:

Transition management is asset management, albeit on a shortened timeframe. Applying these best practices can help you meet your goals, ultimately helping you manage risk, reduce cost and increase portfolio performance during a transition.

Russell Investments Implementation Services LLC., member of FINRA, SIPC. www.finra.org 

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