Financial Planning

[Host] At SunTrust, the Investment Advisory Group provides market analysis insights and solutions designed to help clients meet their goals. Here with us today to discuss this due diligence process are Ric Mayfield, Managing Director of Manager Research, and Tracey Devine, Director of Manager Research with SunTrust.

[Ric] SunTrust's approach to manager evaluation is designed to identify skill, assess the risk assumed and determine if the strategy is sustainable. Through this process, we identify a group of investment managers with varying investment approaches that we believe have the greatest potential to meet our expectations into the future.

Ultimately, we are trying to understand how a manager thinks about investing, how the portfolio is actually managed, and how the manager attempts to minimize mistakes while achieving a return objective. Importantly, our investment selection approach is completely objective, so the clients we serve should know that our guidance is aligned with their path to financial confidence.

[Host] To ensure that all interests are well aligned, a process of critical analysis occurs before formulating an opinion. This due diligence is designed to unearth hidden concerns, determine merit, develop expectations and monitor to see that those expectations are being met.

[Tracey] Due diligence is not black or white, and the task of manager selection entails much more than simply choosing a manager who has recently outperformed the index. Experience matters. SunTrust's process begins by pursuing ideas from all avenues, not just backwards-looking performance screens. In our view, an initial over-emphasis on historical performance often misleads and misses the opportunity to pursue a fuller array of viable ideas.

When we're interested in a new strategy and after a series of introductory calls, the manager is sent a very comprehensive questionnaire. Numerous questions are posed to learn about organizational structure, regulatory, or litigation issues, back office capabilities. The amount key professionals have invested in the strategy and how those professionals are compensated just to name a few of the items.

If, after our review of the managers' responses along with our independent review of their historical portfolio positioning and performance, we are seriously interested in the idea, we dedicate a significant amount of time and resources for onsite visits to spend time with lead managers and analysts.

This allows us the opportunity to thoroughly study and understand the investment approach, portfolio construction, their risk controls, and sell disciplines.

[Host] SunTrust’s analysts thoroughly assess all the supporting details for the familiar five Ps: Price, People, Philosophy, Process, and Performance.

[Tracey] When considering the first P—price—we don't simply select the least expensive strategy within the peer groups given so many other material considerations, but we absolutely factor in the roles these play regarding the likelihood of long-term performance. The people or key professionals associated with this strategy must be credentialed and experienced, and they must effectively articulate their investment approach. The investment philosophy should both be understandable and of interest, and the investment process should naturally flow from this philosophy and should demonstrate repeatability. All buy and sell decisions should clearly tie back to the stated process.

And finally, the fifth P—performance—is thoroughly examined. We do not simply focus on strategies that have recently outperformed. We seek managers we believe have an edge in their asset class and as a result can outperform over a full market cycle.

[Host] If the strategy warrants inclusion on SunTrust platforms, analysts prepare a comprehensive research report presented first for peer review, and then ultimately to the full research team.

[Tracey] If the research team concurs with the recommendation, the manager is then added to our platform. When applicable, the process includes legal and operational considerations, along with fee negotiations. These due diligence steps are appropriately evolved to address unique considerations associated with exchange traded funds, alternative strategies, hedge fund structures and private equity solutions, especially where operational due diligence becomes much more highly elevated.

[Host] Once the manager or investment solution is on the platform, the monitoring process begins. This process is designed to see that expectations are being met, and to evaluate how impactful new information may be.

[Ric] As part of the upfront due diligence and ongoing monitoring process, MEG utilizes a proprietary model that allows comparison of the manager to their peers. These reviews encapsulate many considerations relevant to the strategy, the market and the peer universe.

Rolling data and scenario analysis is emphasized in order to learn how a strategy performs over the long-term and during specific time periods. Understanding whether a track record is composed of a few impressive time periods or returns that show more consistency can assist in determining skill versus luck. Critically, risk adjusted performance is analyzed to determine whether the amount of risk assumed to achieve performance is in line with expectations.

[Host] Given a variety of concerns, a manager may be recommended for the watch list. Most often, managers are placed on watch for sustained or material relative underperformance or key professional issues.

[Ric] We place a premium on firm and key professional stability. Other issues tend to pertain to the firm structure or investment process and sometimes poor client servicing. The purpose of the watch list is to communicate to the manager, relevant SunTrust committees and SunTrust advisors that the manager is under formal evaluation to determine continued retention or not.

Typically, our manager removals occur when there has been a change within the firm, either a change in ownership, or when there are personnel changes related to the approved strategy. Unexpected performance can also prompt us to remove a manager.

[Host] SunTrust strives to build a comprehensive and distinctive list of investment strategies.

[Ric] This list should include both active and passive strategies and offer investments in different structures, such as separately managed accounts, unified managed accounts and funds. The ideal investment manager provides a history of expertise or thought leadership in a segment of the market, such as high yield bonds or international companies.

They deliver a portfolio and a performance pattern consistent with expectations that have been previously established and importantly remain a stable firm and team of key professionals.

We ask for and expect access to the decision makers on the strategies that we approve. We believe our access to the decision makers is key to successful outcomes.

Ultimately, our clients will judge us on how effective the strategies we select are in helping to achieve their financial goals.

[Host/CTA] Thanks Ric and Tracey. For more information on SunTrust's manager evaluation process, consult with a Private Wealth Management Advisor. To learn more about SunTrust Private Wealth Management, visit us at suntrust.com/wealthmanagement.

Ric Mayfield and Tracey Devine are Investment Adviser Representatives, SunTrust Advisory Services, Inc.

The information and material presented in this podcast are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits or losses. Claims made in this podcast may not be representative of the experience of other clients and are not indicative of future performance or success.