Asset owners increasingly are demanding greater accountability from their investment consultants — either with manager recommendations or through outsourced chief investment officer services — in the current low-return environment.
That demand is pushing consultants to increase scale, in turn creating more M&A activity — witness Westwood, Mass.-based Meketa Investment Group Inc. absorbing Disabato Advisers LLC, Chicago, and the announced merger of Verus Advisory Inc., Seattle and Strategic Investment Solutions Inc., San Francisco. Both deals were announced in one week in October.
All told, even as asset owners rely more on consultants, consultants have to be more aggressive to prove their value to clients.
“Initially, investment consultants were primarily scorekeepers that were retained to tell plans how they did,” said Stephen Cummings, head of North America investment consulting at Aon Hewitt Investment Consulting Inc. in Lincolnshire, Ill. Aon Hewitt had $4.019 trillion in worldwide institutional assets under advisement as of June 30, according to Pensions & Investments data.
The role then evolved over the years to consultants being an extension of asset owners' investment team, helping “plan sponsors solve problems that they can't on their own in-house,” he said.
Providing institutional asset owners with investment management consulting services remains investment consultants' bread and butter. In fact, it's become more so this year.
Not only did the vast majority of total revenues for the 108 consultants surveyed — 82.8% — come from investment management consulting services for institutional asset owners, but also that number has grown since last year, according to P&I's annual survey of consultants. In the 2014 survey, 80.8% of revenues came from institutional advice-only services.