Wednesday, March 2, 2011
When having a minimum isn't an option
Recall that a minimum is supposed to be a threshold below which the firm is not able to fully execute the composite's strategy; it isn't meant to be a convenient way to reduce the effort to assemble accounts into composites (i.e., to reduce their workload). If the firm holds strictly to their minimum for new accounts, then it is likely that this value will serve the purpose for the composite's minimum.
One of our verification clients doesn't have a minimum, which in theory would be fine. However, they have some accounts that are so small that they cannot hold all the assets necessary for them to truly represent the strategy. In these cases, a minimum is needed. And the accounts that fall below are simply excluded. Of course this means that the firm needs to maintain the minimum. That is, they have to ensure that as accounts rise above the minimum they are included, and as accounts fall below they are removed. Yes, this is some added work, but it's required to ensure that the accounts in the composite truly represent the strategy.