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Asset class and portfolio management skills are different

Technology is having a profound impact on our access to information and our ability to transact has made investing easier, yet ironically, more difficult.

Our expectations of investment managers are higher, our reliance on their professionalism increasing. Mandatory superannuation means that balances are getting larger, mandates are broader, and institutional investors are shouldering increasing responsibility for investor outcomes.

Endowments, charities, and family offices are required to be more transparent and longer term focussed. At the same time, we are living longer, while average super balances are low, which means self-funding is imperative for many of us.

The problem is that, as in any field of endeavour, with evolution comes the need for greater specialisation. And one of the most important specialist skills is the ability to manage a portfolio as a whole, in many cases via multiple investment managers. This is different from the ability to successfully invest in different asset classes individually.

It is often argued that portfolio management, in the form of asset allocation, is the largest determinant of long-term investment performance. The question now is whether investment managers have the skills required to successfully navigate a sea of changing financial imperatives. And whether asset owners have the skills to oversee them.

What standard should you expect of investment managers? And how do we define and monitor standards?

Portfolio management goes well beyond financial advice or analysis

The challenge of successfully managing an investment portfolio goes beyond making a series of good individual investment decisions. Analysts analyse data and risks and give opinions based on the results. This is a fundamentally different skill from the ability to think about overall risk the right way. That is the job of the portfolio manager, who must be able to identify risks including externalities such as material environmental, social, and governance risks.

The skill of the portfolio manager lies in the ability to structure a portfolio so that unforeseen events do not result in the loss of the entire, or even a significant portion, of the fund. And that can mean managing interactions between a number of underlying managers to ensure diversification and correlation.

Portfolio management skills require specialist training, including tracking the progress of investments, knowing when to sell and how to get the mix right at any point in time. More of us are assuming we can take on this role of building portfolios. The major superannuation funds obviously do it, but so do SMSF trustees, Family Offices, and even individual investors.

We all have a responsibility to make good decisions. In the case of institutional investors, decisions have far-reaching consequences - the influence on corporate Australia, the performance of individual asset classes, and on individual investor outcomes can’t be overstated.

How do we achieve the necessary level of professionalism?

The short answer is a robust qualification with the requirements for ongoing maintenance and work.

Qualifications such as CFP and CFA remain vital, but a portfolio management qualification is needed to fill the gap:

  • The qualification should be international and set the bar for investment managers involved in any aspect of constructing multi-manager portfolios.
  • It must require rigorous ongoing CPD points.
  • Ethics must be a major part of the qualification, as ethics drive conduct and conduct drives outcomes.
  • ESG is no longer a ‘nice to have’; climate change, for example, is increasingly posing a real risk to financial stability.

We are at a point in the evolution of portfolio management and portfolio governance. Specialisation is now essential. With investors living longer and usually relying on retirement savings for many decades, the consequences of poor decisions are serious and the expectations of stakeholders higher than ever.


Pauline Vamos is the chair of CIMA Society of Australia (formerly IMCA Australia) and also the CEO of Regnan Governance Research & Engagement. She was CEO of the Association of Superannuation Funds of Australia (ASFA) between 2007 and 2016.


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Jonathan Hoyle

February 25, 2018

Pauline, a couple of observations.
i) You are right to separate the need for specialist portfolio management skills from the current debate to raise the education standards of financial advisers. ASIC has surprisingly made few comments on the minimum portfolio construction skills needed by a financial adviser.

ii) The CFA is the gold-standard qualification for portfolio managers. It is hard and has a high failure rate. No other designation or qualification is required. The CFP is the gold standard for financial advisers; but it is not a rigorous money management designation.

iii) Regulatory overkill reduces supply and raises prices for consumers. We should think carefully before we all advocate more qualifications.

iv) The primary job of a portfolio manager running money for their clients is to maximise returns for a given level of risk. This is done by investing in companies that abide by the laws and ethics of the land. ESG/SRI/Green investing etc muddies these waters. For example, the most cost effective and proven way to deal with the very real issue of climate change is to build nuclear reactors. But with nuclear power, comes many other risks.

Angus McLeod

February 18, 2018

I agree with Steve that the CIMA is unfortunately named.

I am both CFA- and CIMA-qualified and on many occasions I've been asked about my "time in the UK". Additionally I have recommended the CIMA course to colleagues and then seen them looking at the Chartered Institute of Management Accountants web site for information.

I'm not sure that much can be done to rectify this situation now that CIMA has started to attain a foothold locally and its society has just formalised its name.

Pauline Vamos

February 15, 2018

CIMA is very much positioned between a CFP and CFA qualification. There is a growing number of planners who are constructing portfolios for retired clients, family offices and endowments and need more than a CPA. The qualification is quite flexible and suits the increasing range of people involved in multi manager portfolio governance (trustees and investment committees) and portfolio risk assessors including ESG risks. The world is changing rapidly, so the qualification evolves in line with changes in the investment landscape. Not many qualifications require on-going qualification - CIMA's remain relevant because only certified continuing education is accepted. CFP Certification and CFA Certification remain vital, but a portfolio management qualification to fill the gap is needed,


February 15, 2018

For my two bobs worth, I have experienced the benefits and disasters of a portfolio manager/financial adviser.

Subsequent to the GFC, I learnt that anyone with a bit of insight in the share market, could make money from shares. However, during a bear market, these people dropped down to the same level of share market investing knowledge as myself - very little. They increased share buying and selling due to falling low prices, having no idea of when to put the breaks on.

I would rather a portfolio manager/financial adviser to have a plan B and be willing to sacrifice their own brokerage profits by having safeguards on their clients money.

It is good to read someone with portfolio manager concern: 'The skill of the (proven) portfolio manager lies in the ability to structure a portfolio so that unforeseen events do not result in the loss of the entire, or even a significant portion.' This is more important than having a portfolio manager/financial adviser making a portfolio gain of a few percentage points above their peers. I would add 'proven' to this statement.


February 15, 2018

What qualification is desired outside of a CFA? It's practically designed for portfolio managers. The CFP on the other hand, is for financial advisers who like to outsource the investment decision.


February 16, 2018

Following on from Pauline's comment...CIMA certification fits uniquely in the clear and uncluttered space between the CFA program – which is perhaps best suited to those who primarily design portfolios of individual securities – and the CFP program – which is perhaps best suited to those who give broad-based financial planning advice.

In other words, CIMA certification is specialised and is ideally suited to investment management analysts/advisers - both practitioners and advocates - involved in any aspect of constructing multi-manager portfolios. Check it out here: https://portfolioconstructionforum.edu.au/cima/about-cima/


February 16, 2018

I must say, when you mentioned CIMA my first thought was of the very well-known Chartered Institute of Management Accountants, which while it is a very significant qualification, obviously has nothing to do with portfolio management. Have you considered changing it to something else?


February 15, 2018

Agree formal qualifications in portfolio management may be useful. So would qualifications in retirement outcomes, being a CEO of a super fund, member engagement and education, and so on ...


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