The work some investment management consultants do for money managers was virtually unmentioned in Pensions & Investments' recent report on the consulting industry. Yet this work holds the seeds of conflicts of interest.
Plan sponsors look to consultants for objective expertise on asset allocation and for the evaluation and selection of money managers. The trouble is, the work consultants do for money managers has the potential to bias a consultant's recommendations, consciously or subconsciously. Such bias may never occur, but the potential is there.
Yet, some consultants give the impression they don't even recognize the issue. Take a look at the website for Callan Associates Inc., for instance. Under the "Plan Sponsor Consulting" section, the site notes: "Callan's sole aim is to help our clients achieve their investment goals by providing unbiased, relevant information and advice. To ensure this objectivity, we limit our business exclusively to investment consulting."
But somehow that "limit" and "exclusively" vow seems not so confining. Under "Institutional Consulting Group," the site notes that this group "provides investment managers with ... marketing consulting and presentation training.... The group's client list is composed of over 150 investment management firms..."
Callan is not the only investment management consulting firm providing advice to managers. Just as Wall Street is now in tumult over how to deal with conflicts of interest of securities analysts, investment consultants have to deal more openly with the potential conflicts of earning revenues both from sponsors and money managers. Otherwise, one can't help wondering to what extent advice to sponsors is colored by relationships with money managers. Consultants ought to tackle their conflicts before regulators do it for them.