Report: Decide on Investment Consultant Type before Hiring Outsider

May 21, 2007 ( - Before they hire an investment consultant, institutional investors need to first decide what kind of adviser they need.

That was a key recommendation in a new Greenwich Associates report that identified eight questions plan sponsors should answer before starting their consultant search, according to a  Greenwich news release.

Among the eight questions were:

  • Do we need a general consultant or do we need a firm that has the ability to manage specialty asset classes like real estate, hedge funds and private equity?
  • Are there other pension management tools we need from our consultant like portfolio risk modeling or asset/liability analysis?
  • Do we want our consultant involved in strategic issues such as asset/liability analysis or do we plan on using a separate, external firm for these topics?

One issue that has grown more complex with the evolving business needs of corporate plan sponsors and changes to pension accounting rules is fiduciary responsibility. Companies are analyzing pension plans from a strategic perspective based on fiduciary responsibilities to shareholders, as opposed to plan participants,  Greenwich said in the news release.
Among the most important selection criteria for many fund executives are explicit and implicit conflicts of interest on the part of consultants. The issue of conflicts has also become complex as a growing number of investment consultants have begun offering investment management products, Greenwich Associates said.

However, excluding from consideration all consultants marketing their own investment products would eliminate many of the industry’s most capable firms. 

Also, according to the report, the average annual consulting fee paid by  U.S. funds in 2006 was $227,000, up significantly from the $216,000 paid in 2005. In fact, fees have been rising since at least 2002, when the average fund paid its consultants just $150,000.

Information on purchasing a copy of the consultants report is here .