Seeking an investment consultant? Caveat emptor

Institutional asset owners must use great care and due diligence when it comes to more than just investments. That same duty of care extends to navigating the increasingly complex world of investment consultants.

It is important to vet well, and thoroughly, those companies hired to help select investment managers.

As the landscape of companies offering consulting services for traditional investments as well as alternatives gets more complex, buyers need to make sure they understand the potential for conflicts and prepare themselves and their teams with training and education.

Such conflicts come in myriad forms, as consolidation grows and fee pressures increase. As fiduciaries, asset owners need to ensure that the advice they are paying for and receiving from their consultants is putting investors' needs first.

Keith Ambachtsheer, in an article in the Nov. 30 issue of Pensions & Investments, said there continues to be "asymmetric information between buyers and sellers of investment consulting services, with the sellers knowing more about what they are selling than the buyers know what they are buying."

That creates challenges. While increased due diligence education and training can help institutional investors be more informed buyers, the need for those steps is another example of how the bar for fiduciaries is rising as truly independent investment consultants are becoming harder and harder to find.

Some asset owners are beefing up disclosure requirements on their RFPs, bringing due diligence efforts in-house or issuing consultant contracts on a fixed-fee, non-discretionary basis.

Efforts like these underscore a tenet of hiring an investment consultant: caveat emptor.